Collateral

In real estate and lending, collateral refers to marketable real or personal property that a borrower pledges to a lender as security for the repayment of a loan. The collateral gives the lender a legal claim to the property in the event the borrower defaults on the loan, allowing the lender to recover losses through foreclosure or sale. In mortgage transactions, the collateral is typically a specific parcel of real estate that secures the borrower’s obligation under the promissory note. The value and marketability of the collateral are key factors in a lender’s decision to approve a loan and determine its terms.