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).
North Carolina Exculpatory Clause or Nonrecourse Provision in Mortgage regarding Deficiency Judgement In North Carolina, an exculpatory clause or nonrecourse provision in a mortgage refers to a legal statement or provision included in a mortgage agreement that protects the borrower from being held personally liable for any deficiency judgement after a foreclosure sale. A deficiency judgement is typically issued when the proceeds from the sale of the foreclosed property are not enough to cover the outstanding mortgage debt, including any accrued interest, fees, or costs associated with the foreclosure process. This judgement allows the lender to seek additional payment from the borrower to make up for the shortfall. However, North Carolina has specific laws in place that limit the lender's ability to pursue a deficiency judgement. Depending on the type of mortgage, the following exculpatory clause or nonrecourse provisions may be applicable: 1. Purchase Money Deed of Trust: When a borrower obtains a mortgage to purchase their primary residence, North Carolina law prohibits deficiency judgements. This means that if the property is sold at a foreclosure sale and the proceeds fall short of the outstanding debt, the borrower is exempt from having to pay the difference. 2. Refinanced Mortgage: In cases where the mortgage was initially a purchase money deed of trust and was later refinanced, the nonrecourse provision may still apply if the refinancing was done to lower the interest rate or adjust the repayment terms. However, if the refinancing was used to obtain additional cash, the nonrecourse protection may not extend to the excess borrowed amount. 3. Second Mortgages or Home Equity Lines of Credit (Helots): North Carolina law generally does not extend the protection of a nonrecourse provision to secondary mortgages or Helots. Therefore, if a foreclosure sale on the primary mortgage does not fully cover the outstanding debt, the lender of the secondary mortgage or HELOT may seek a deficiency judgement against the borrower. 4. Commercial Mortgages: Exculpatory clauses or nonrecourse provisions are less common in commercial mortgages. Depending on the specific terms negotiated between the lender and the borrower, commercial mortgages may or may not have protections against deficiency judgements. It is important for borrowers in North Carolina to carefully review their mortgage agreements to understand the presence and scope of any exculpatory clause or nonrecourse provision. Engaging the services of a qualified attorney specializing in real estate law can be beneficial in ensuring full comprehension of these provisions and protecting one's rights in the event of foreclosure.North Carolina Exculpatory Clause or Nonrecourse Provision in Mortgage regarding Deficiency Judgement In North Carolina, an exculpatory clause or nonrecourse provision in a mortgage refers to a legal statement or provision included in a mortgage agreement that protects the borrower from being held personally liable for any deficiency judgement after a foreclosure sale. A deficiency judgement is typically issued when the proceeds from the sale of the foreclosed property are not enough to cover the outstanding mortgage debt, including any accrued interest, fees, or costs associated with the foreclosure process. This judgement allows the lender to seek additional payment from the borrower to make up for the shortfall. However, North Carolina has specific laws in place that limit the lender's ability to pursue a deficiency judgement. Depending on the type of mortgage, the following exculpatory clause or nonrecourse provisions may be applicable: 1. Purchase Money Deed of Trust: When a borrower obtains a mortgage to purchase their primary residence, North Carolina law prohibits deficiency judgements. This means that if the property is sold at a foreclosure sale and the proceeds fall short of the outstanding debt, the borrower is exempt from having to pay the difference. 2. Refinanced Mortgage: In cases where the mortgage was initially a purchase money deed of trust and was later refinanced, the nonrecourse provision may still apply if the refinancing was done to lower the interest rate or adjust the repayment terms. However, if the refinancing was used to obtain additional cash, the nonrecourse protection may not extend to the excess borrowed amount. 3. Second Mortgages or Home Equity Lines of Credit (Helots): North Carolina law generally does not extend the protection of a nonrecourse provision to secondary mortgages or Helots. Therefore, if a foreclosure sale on the primary mortgage does not fully cover the outstanding debt, the lender of the secondary mortgage or HELOT may seek a deficiency judgement against the borrower. 4. Commercial Mortgages: Exculpatory clauses or nonrecourse provisions are less common in commercial mortgages. Depending on the specific terms negotiated between the lender and the borrower, commercial mortgages may or may not have protections against deficiency judgements. It is important for borrowers in North Carolina to carefully review their mortgage agreements to understand the presence and scope of any exculpatory clause or nonrecourse provision. Engaging the services of a qualified attorney specializing in real estate law can be beneficial in ensuring full comprehension of these provisions and protecting one's rights in the event of foreclosure.
