Collateral

Collateral is property pledged as security for the repayment of a debt or performance of an obligation.

• Protects the lender
• Can be real or personal property
• Allows lender to seize or foreclose if borrower defaults
• Does not transfer ownership unless default occurs

• Real property is used as collateral for:
  • Mortgages
  • Deeds of trust
• Secures a promissory note

• Collateral
  • The property pledged

• Security Instrument
  • The legal document creating the lien
  • Examples: mortgage, deed of trust

• Occurs when the debt is paid in full
• Lien is removed by reconveyance or satisfaction

• Collateral is pledged, not sold
• In real estate, the property itself is the collateral