What remedies may a lender pursue upon borrower default regarding collateral?

• A. Only a warning letter is issued.
• B. The borrower is automatically forgiven after a year.
• C. Acceleration of debt, repossession or enforcement of the security interest, sale or disposition of collateral, application of proceeds to debt, and recovery of any deficiency.
• D. The lender can terminate other lines of credit for unrelated reasons.

Answer: (C)

When a loan is secured by collateral, the lender has a set of remedies designed to recover what is owed if the borrower defaults. The key idea is that the loan can be treated as due in full (acceleration), the collateral can be taken back and enforced against, the collateral can be sold or disposed of, the sale proceeds can be applied to the debt, and, if the proceeds don’t cover the whole amount, the lender can seek the remaining deficiency. This sequence protects the lender by quickly converting pledged assets into funds to satisfy the debt, while following rules about how the collateral is handled and how proceeds are allocated. Other options like only sending a warning letter, forgiving the debt after a year, or canceling unrelated lines of credit don’t address the collateral and aren’t standard remedies for default.