At 00.00 hours on 15 August 1942, lookouts on Balladier (Master Ernest G. Hellsten), in the Iceland section of convoy SC-95, spotted U-705 and forced her to dive with 20mm gunfire. With determination, Horn continued to stalk the ship and fired a torpedo at 03.58 hours, which struck on the starboard side at #3 hatch and the engine room. The armed guards (the ship was armed with one 4in, two 20mm and four .30cal guns) had no second chance to fire on the U-boat because she began rapidly to sink with heavy starboard list. She sank within seven minutes about 550 miles southeast of Iceland. The most of the eight officers, 26 men and 11 armed guards abandoned ship in one lifeboat, two rafts and a float.

The American steam merchant Norluna witnessed the attack and in spite of danger rescued the survivors. They left the dead first mate in the lifeboat and two others died on board. In all, three officers, nine crewmen and two armed guards died. On 18 August, the ship arrived in Reykjavik and the Naval authorities expressed surprise because the commanding officer of the escorts had reported the sinking of Balladier and Norluna.