First National Bank made a loan to Lawrence & Co. for the purpose of purchasing landscape equipment, secured by a storage lot the company owned. The borrower made payments for a year and then defaulted. Three months passed without any communication or payments from the borrower, despite the bank's efforts to locate the company's owners. The company appears to have ceased operations. What is the bank's BEST course of action?

Question

Quizplus · Accepted Answer

The bank should make reasonable inquiries to determine whether the property is abandoned and if so, report it as abandoned. This will allow the bank to take possession of the property and sell it to recover the outstanding loan. Foreclosing on the property may be an option, but only after confirming that the property is abandoned and the borrower is not likely to make any further payments. Doing nothing is not an appropriate course of action as the bank needs to take steps to recover the loan. Reporting the property as abandoned without making any inquiries may not be appropriate as the property may not actually be abandoned.

First National Bank Made a Loan to Lawrence & Co