To begin with, let me give you a short definition of the cross collateralization. This is considered to be the act that is using the asset, a current collateral asset for the sake of loan as well as for the second loan’s collateral. Another is that when the debtor failed when it comes to his or her repayment schedule, lenders that are affected with the delay will set to liquidate the assets and all of its proceeds will serve as the temporary payment.
Let us proceed to the technical breakdown of the cross collateralization and this is basically the taking of the second mortgage out on a certain property for it to be able to be considered as the cross collateralization. In that case, you can say that originally, the property was the one which served as the collateral with the mortgage. Then, the next mortgage will eventually tap with the equity that had been accrued by the property owner for the collateral.
Another example is when the person borrowed from the same bank the home loan that is being secured by the house or car loan that is being secured by the car and etc., these assets are to be considered as the cross collaterals for all those given loans. Then if the person would like to pay for the car loan and with the plan of selling the car, all the rights will be with the bank for them to veto that deal simply because that car that the borrower planned to sell is still serving as the security of any other loans. You should have negative gearing explained before you go for any property related discussion.
So, if you are to take a technical look about it, you will find that the cross collateralization to be expired in the state that the borrower is free from any outstanding bank loans. When you are to view it with the bankruptcy concept, you will then see that the cross collateralization will also be the collateralization of the general type of unsecured prepetition, a debt by the loans considered as the collateral securing post -petition.
Last illustration of the cross collateralization is when the person is having the checking account and a certain loan together in the same bank. If that individual is considered as the loan’s past due, it is given that the bank has the right to pull the money off the account or will just freeze the checking account temporarily until such time that the loan will set to current. This happens because the cross collateralization is capable of reducing the risk of the lender. These are often offered by the credit unions so that they would be able to give their clients the interest rates.
Even those royalty advances that are given by any publishers to the multiple books written by the author as well as to the developers and makers of some video game are also considered as cross collateralization yet with the term basketing used in this kind of field.