When does the collateral become the property of the bank?

There is one obvious answer, after foreclosure. Until that moment the borrower has title and the bank cannot sell or liquidate anything, the borrower is in total control. Almost true, but not quite.

The moment in time that the owner gives up, decides to shut is doors, close down, the liquidation of collateral becomes the property of the bank.

In other words, the cash from the collection of your accounts receivable, as received, belongs to the bank. The cash from the sale of  your inventory, when liquidated, becomes the property of the bank, in fact once you decide to close the doors and cease normal operations, the proceeds from a liquidation effort or cash received from the collection of receivables, or the sale of inventory,  becomes the property of the bank. Title may not have passed but once liquidated, the proceeds from liquidating the collateral do become the property of the bank.

This is a very important aspect of our strategy as any attempt to liquidate  collateral to create cash for the borrower must be carefully designed and implemented or you may be violating the banks collateral rights.

Once you have decided to cease normal operations you are then charged with liquidating for the benefit of the bank.

Be careful this is a trap for the unwary and can cause problems if this principle is not respected. You must design your sale of assets or collection of receivables or liquidation of inventory carefully to avoid this being construed as a going out of business sale thus a liquidation for the benefit of the bank, not the benefit of the borrower/owner.