Cross Collateralization

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DEFINITION of 'Cross Collateralization'

The act of using an asset that is currently being used as collateral for a loan is also used as collateral for a second loan. If the debtor was unable make either loan's scheduled repayments in time, the affected lender(s) can eventually force the liquidation of the asset and use the proceeds for repayment.

BREAKING DOWN 'Cross Collateralization'

Technically, taking out a second mortgage on a property is considered to be cross collateralization. In such a case, the property is originally used as collateral for the mortgage. The second mortgage is then tapping into the equity that the property's owner has accrued for collateral.

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