First National Bank made a loan to Lawrence & Co. for the purpose of purchasing landscape equipment, secured by a storage lot the company owned. The borrower made payments for a year and then defaulted. Three months passed without any communication or payments from the borrower, despite the bank's efforts to locate the company's owners. The company appears to have ceased operations. What is the bank's BEST course of action?
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A. B. C. D.B
The BEST course of action for the bank in this scenario would be to locate the borrower, foreclose on the property, and report the transaction as a foreclosure (Option C).
The bank made a loan to Lawrence & Co. that was secured by a storage lot the company owned. The borrower made payments for a year and then defaulted. Three months have passed without any communication or payments from the borrower, and the company appears to have ceased operations. This indicates that the borrower is likely in default and may have abandoned the property.
Option A, "Do nothing because the bank has no actual knowledge of abandonment and has not foreclosed on the property," is not a recommended course of action. Inaction by the bank could lead to the property deteriorating or becoming damaged, which could affect the bank's ability to recover the loan amount in case of a foreclosure. Additionally, if the property is abandoned, the bank could incur additional expenses related to maintenance and security.
Option B, "Make reasonable inquiries to determine whether the property is abandoned and if so, report it as abandoned," could be a viable course of action, but it does not address the issue of default and non-payment by the borrower. Reporting the property as abandoned without foreclosing on it could expose the bank to legal liabilities and could adversely impact the bank's ability to recover the loan amount.
Option D, "Report the property as abandoned," is not a recommended course of action, as it does not address the issue of default and non-payment by the borrower. Reporting the property as abandoned without taking any action could be seen as a breach of the bank's duty to mitigate its losses and recover the loan amount.
Therefore, Option C, "Locate the borrower, foreclose on the property, and report the transaction as a foreclosure," is the BEST course of action for the bank in this scenario. The bank should try to locate the borrower and inform them about the default and the bank's intention to foreclose on the property. Foreclosing on the property would enable the bank to recover the loan amount and mitigate its losses. The bank should report the foreclosure transaction accurately to avoid any legal or regulatory issues.