What does a security agreement do?

A security agreement formalizes the agreement that creates a security interest in the property. It is a legally binding document between the borrower (debtor) and the lender (secured party) that specifies the collateral that will secure the debt. By outlining the rights and obligations of both parties, the security agreement establishes what collateral is being pledged to secure the loan, the terms under which the security interest is granted, and the consequences if the borrower defaults on the obligation. This legal framework is essential for the enforcement of the creditor's rights in the event of a default.

The other options do not accurately describe the primary function of a security agreement. Establishing the price of property sold relates to sales contracts rather than security interests. Creating a legal framework for lease agreements pertains to lease contracts, not secured transactions. Documenting the transfer of ownership of property typically involves different types of legal documents, such as a deed or bill of sale, which are distinct from security agreements that primarily deal with a security interest in collateral rather than complete ownership transfer.