What is the intended effect of cross-collateralization when a single instrument covers multiple assets or borrowers?

• A. It restricts lender rights.
• B. It creates a unified lien across those assets.
• C. It distributes liens evenly with no priority.
• D. It requires separate perfection for each asset.

Answer: (B)

Cross-collateralization creates a unified lien on all pledged assets, so one instrument secures the loan with multiple assets or borrowers. The intended effect is to give the lender a single, pooled security interest that attaches to every asset included. If the borrower defaults, the lender can pursue recovery from any of the collateral within that pool rather than relying on a single asset, which reduces the risk of loss if one asset is weak or hard to collect. This setup also simplifies enforcement because the rights cover the entire set of pledged assets under one agreement. For borrowers, it means more of their assets could be at stake if they don’t meet obligations.