What constitutes a borrower as being in default on a loan?

A borrower is considered to be in default on a loan primarily when they fail to meet the contractual obligations agreed upon in the loan agreement, which typically includes making timely principal and interest payments. Default can also occur through other actions, such as violating any terms laid out in the loan documents.

The scenario of voting the proxy could potentially indicate a default situation, particularly when related to the implications of control over loaned securities. If a borrower has loaned out securities and votes the proxy on behalf of those securities, it could be perceived that they are not adhering to the agreed terms of the loan, particularly if such actions impact the lender's rights or the original intent of the loan agreement. Therefore, this action may lead to a review of whether a default condition exists due to an overreach of authority or failure to maintain the integrity of the loan arrangement.

In this context, the other choices relate to actions that do not inherently represent a default. For instance, returning the loaned security after proper notice is a fulfillment of terms rather than a violation. Paying dividends or interest on the loaned securities is a standard process that reflects adherence to the obligations of the loan. Meeting a demand for additional collateral might be seen as a proactive measure rather than an indication of default