In general, an exculpatory clause is a clause that eliminates a partys liability for damages caused by a breach of contract. A common type of exculpatory clause involves limiting liability on a loan to the collateral. In other words, if there is a default, the contract says that the damages will be limited to execution on the collateral (i.e., foreclosure on the property covered by the mortgage or deed of trust).
Hawaii Exculpatory Clause or Nonrecourse Provision in Mortgage regarding Deficiency Judgment
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How to fill out Exculpatory Clause Or Nonrecourse Provision In Mortgage Regarding Deficiency Judgment?
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FAQ
A deficiency judgment is a court ruling allowing a lender to collect additional funds from a debtor when the sale of their secured property falls short of paying off the full debt. Many states prohibit deficiency judgments after a home foreclosure.
If the property does not sell for amount owed, creditor may obtain a deficiency judgment for the amount owed by borrower above proceeds of sheriff's sale. Debtor can bid, but must be 2/3 of appraised value.
The legal principle of a deficiency judgment could apply to any secured loan, such as a car loan, where property seized from a defaulting debtor sells for less than the lender is still owed on it. In most cases, however, the term is associated with mortgage foreclosures.
In a judicial foreclosure, the lender can get a deficiency judgment to collect any money they're owed after the sale. In a judicial foreclosure, after the judge orders the sale of a home, it's usually auctioned off to the highest bidder.
In return for the lender having the power to sell the property, the Power of Sale clause protects the borrower by stating that when the lender sells the property, the lender may not hold the borrower liable for any cost not covered by the sale unless the lender is able to obtain a deficiency judgment in their favor, ...
In order for deficiency judgment to be granted, a creditor must be in a state that recognizes deficiency judgments for the type of debt and prove that the asset was sold at a fair price. Deficiency judgment most often arises in mortgage foreclosures where the home does not cover the cost of the mortgage.
5 Alaska, Arizona, California, Connecticut, Hawaii Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington are considered non-recourse states.
Deficiency Judgment Example Your lender forecloses on the home, and the property sells for $180,000. You're $20,000 short of paying off the $200,000 loan, so you have a $20,000 deficiency. A deficiency judgment would allow your lender to pursue you for the remaining $20,000.
A lender may obtain a deficiency judgment if the borrower is personally served or enters an appearance. They may also get a deficiency judgment against the property if the borrower redeems it after the sale. A deficiency judgment is not available when the borrower agrees to a consent foreclosure.
If your lender sells your home for less than what you still owed on your loan, a local court might file a legal action known as a deficiency judgment against you. In many states, lenders must first file a lawsuit to get a deficiency judgment.
