Collateral account agreement is a legal concordance drafted for the provision of collateral account for lenders while having a loan. Collateral accounts are those bank accounts which are used for the purpose to serve as a security against the loan. Cash along with some check deposits are made into this account and are considered a zero balance bank account with a restriction that no amount may be withdrawn as long as the collateral account agreement is not violated.
The bank account is normally in the name of the debtor that agrees to secure and service a debt. This is more like depositing money into a lockbox account for the safety of the creditor’s potential money against the loan taken by the debtor.
In case of any default by the debtor, the creditor can use the authority provided by this agreement to compensate the potential loss by using this collateral account and this act is bound to be considered totally legally.
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