Thinking about making a loan in Washington? Ask for collateral.

By agreement of the parties, a loan can be secured by collateral.  Collateral reduces risk of loss in the event of default. If the borrower defaults, the lender can seize or sell the collateral.  Collateral also, generally, passes-through bankruptcy unaffected. 

In Washington, loans can be secured by any type of property.  The procedures and instruments vary depending on the type of property.  Real property is secured by a mortgage or deed of trust.  Most personal property is secured by a Uniform Commercial Code “UCC” security instrument.  Titled vehicles, boats and planes are generally secured through their certificates of title.

Values being equal, the best collateral probably is real estate.  Real estate does not go anywhere and it generally cannot be destroyed or depreciated (improvements to real property can be destroyed but hazard insurance is available to lenders).  Other collateral – boats, cars, even pots and pans – can leave the state and disappear, or be destroyed.  

If you are considering making a sizeable loan in Washington and want to minimize your risk of loss, consider consulting with an attorney about ways to secure it with collateral.