Simple Definition: Upon default of a secured loan, the secured creditor is entitled to seize, and then sell, the collateral to discharge the debt that the security interest secures.
Legal Definition: A lender (secured creditor) will take a security interest in an asset to secure the performance of the borrower’s (debtor) obligation to repay the debt. If the debtor defaults under its obligation, the secured creditor may proceed to sell the assets representing the collateral under the secured party’s Credit Agreement. All interested parties (debtor, guarantors, junior lien holders, etc.) must receive timely notice and the sale must be conducted in a commercially reasonable manner.
Ownership: A security interest is created by a Security Agreement, under which the debtor grants a security interest in the debtor’s property as collateral for a loan. Thus, the debtor owns the property, but the secured creditor may seize and sell the property upon default of the loan.
Unique Process Involved: This is a streamlined alternative to a costly and court managed bankruptcy sale. Absent opposition by the debtor or junior lien holders, this type of sale may not involve judicial proceedings and the risk, delays and expenses that accompany litigation.
Important to Keep in Mind: We do a fair number of these secured creditor sales each year.