Security Interests

Loan Agreements and Notes are executed when loans are advanced in order to evidence the fact a loan was made and to set forth the loan terms, including the remedies the lender has on default. While a well drafted Loan Agreement can afford a good deal of protection to a lender, those remedies provide little comfort if, when the loan becomes due, the borrower has insufficient funds to repay the loan.  Should that occur the borrower’s various creditors will typically find themselves fighting to recover payment, and the lender may receive only pennies for each dollar loaned. One of the best ways to avoid this scenario is for the lender to require that the borrower grant the lender a security interest in particular property of the borrow as a condition to the loan being made. Per the security interest (which must be set forth in a written agreement), the borrower agrees that if she/he/it does not repay the loan as required the lender can sell a particular asset of the borrower, with the proceeds of the sale used to repay the loan and to reimburse the lender for related costs incurred (such as legal fees).  The assets used to secure the loan can run the gamut from real estate (in which case the security interest takes the form of a mortgage) to bank accounts, contract rights and intellectual property.

If you would like to know more about security interests please contact Stephen Goldstein at, or at (212) 586-5555.