Roundwell Motors purchases a manufacturing plant for $15 million, pays $5 million in cash as down payment, and borrows the remaining $10 million from Home Providence Bank. To secure the loan, Roundwell gives the plant as collateral to Home Providence Bank. If Roundwell defaults on their payment, what is the recourse available to Home Providence to recover the loan?

Question

Quizplus · Accepted Answer

Home Providence Bank has the right to foreclose on the plant and sell it to recover the outstanding loan amount in case of default by Roundwell Motors. Foreclosure is a legal process by which a lender takes possession of the collateral, in this case, the plant, and sells it to recover the outstanding loan amount. The other options, such as buying or returning the plant to Roundwell or handing it over to the government, are not the recourse options available to a lender in case of default.

Roundwell Motors Purchases a Manufacturing Plant for $15 Million, Pays