What happens if a lender discovers fraudulent inflation of collateral value?

When a lender discovers that there has been fraudulent inflation of collateral value, the most appropriate outcome is that the loan is considered valid only up to the true appraised value of the collateral. This means that the lender can only enforce the terms of the loan against the actual value of the collateral rather than the inflated amount that was originally presented.

This approach serves to protect the lender from claims made based on false representations, ensuring that they aren't liable for extending credit beyond what the collateral is truly worth. The loan remains in effect but is limited to the legitimate value, allowing the lender to adjust expectations and obligations in light of the true financial picture.

In contrast, declaring the loan null and void would disregard the legitimate agreement made on the basis of the actual collateral value, while immediate legal action may not be required unless further obligations are breached. Losing the right to charge interest would not be a direct consequence of discovering fraud either; rather, the lender retains the right to interest up to the re-evaluated loan amount. Thus, the answer reflects a balanced and fair approach in dealing with fraud in collateral valuation while still preserving the financial agreement.