Real Estate Financing and Settlement Practice Exam 2026 - Free Real Estate Financing Questions and Settlement Study Guide

When a borrower seeks to secure a loan against personal property, they sign a Security Agreement. This document is essential because it establishes the lender’s rights over the collateral provided by the borrower. The Security Agreement details the specific personal property that is being used as collateral, and it confirms the lender’s legal claim to that property in the event the borrower defaults on the loan.

The significance of the Security Agreement lies in its role in providing a clear framework for the transaction, ensuring that both parties understand the terms of the collateralization and the lender's rights. It also outlines the obligations of the borrower, including what happens in case of non-payment, thereby protecting the lender’s interests.

In contrast, a Loan Agreement typically outlines the terms of the loan itself, such as the amount borrowed, interest rate, and repayment schedule, but does not specifically address the collateral. The term Collateral Contract does not accurately reflect the required legal document in this context, as it’s not a standard term used in lending practices. Lastly, Ownership Title refers to the legal proof of ownership of the property and does not serve the purpose of securing a loan. Thus, the Security Agreement is the definitive document that achieves this purpose in the context of borrowing against personal property.