Security

Security

Money may be lent on a secured or unsecured basis. If a loan is secured, provided the security is created properly and not capable of being set aside, the lender is protected against the borrower's default of the loan or insolvency and may be paid out of the realised security ahead of any other creditors of the borrower.

Creation of security

The main types of security interest are:

•
a lien—there are three types of lien: common law, equitable and statutory. Depending on the type of lien the lender will have the right to possess and/or sell a borrower's property
•
a pledge—this creates security by the delivery (actual or constructive) of an asset to a lender, to be held until the performance of an obligation while ownership of the asset remains with the borrower
•
a mortgage—this creates security by transferring ownership of an asset to the lender including the right to sell on default and an obligation to re-transfer title on satisfaction of the debt. Possession is not required to perfect the security and usually remains with the borrower. Two types of mortgages exist: legal and equitable, or

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