https://www.thealertinvestor.com/a-dangerous-game-using-your-stock-portfolio-as-collateral/
If there’s a decline in the value of the securities collateralizing a loan, lenders can demand that borrowers put up more collateral on short notice. If a borrower doesn’t pony up the extra collateral within the designated time frame, the lender then has the right to sell as many of his or her securities as necessary, potentially without the investor’s input on which ones to sell and which to hold. This can also result in unexpected and adverse tax consequences for the borrower.
In some instances, a lender could skip straight to selling the assets without first offering a borrower the chance to deposit cash or additional collateral into the account. In either case, the borrower might be left with unexpected tax obligations and other fees.
But borrowers have to be on their guard even if the stock market isn’t crashing. Many brokers reserve the right to call back a securities-based loan at any time, for any reason.
Things can really get tricky if a lender comes calling and an investor has already spent his or her borrowed money on something that isn’t easy to sell right away, such as a house, or can’t be returned, like college tuition payments.
