Question

Arnold owns a vehicle presently worth $10,000.00 on which he has granted a registered Specific Security Agreement to Bob to secure a loan which presently has a $20,000.00 balance. Three months ago he stopped making the required $500.00 per month payments to Bob. What options does Bob have to recover the debt now that Arnold has defaulted? What options does Arnold have to get himself out of this situation?

Answer 1

Bob is considered to have provided the loan of $20,000 to Arnold on the basis of registered Specific Security Agreement. The security that is pledged here is the vehicle which is considered to be worth $10,000. In such event where the borrower has defaulted in making payments as per the terms of the loan, the pledged security could be seized by the lender of the loan and sold in the market to recover the dues. In the present scenario, Arnold has defaulted in making the required payment of $500 as per terms of repayment of the loan. Hence Bob being the lender has the right to sell the pledged security in order to recover his dues. Arnold also can use the process of cross collateralization which is the process of using the pledged security, i.e. the vehicle, to secure a second loan to repay the first loan taken from Bob.