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 Judgment
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How to fill out Exculpatory Clause Or Nonrecourse Provision In Mortgage Regarding Deficiency Judgment?
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FAQ
There are 12 states that, by law, only allow nonrecourse loans. These are known as ?nonrecourse states,? and they include Alaska, Arizona, California, Connecticut, Idaho, Minnesota, North Carolina, North Dakota, Oregon, Texas, Utah and Washington.
Most states allow a foreclosing lender to get a deficiency judgment against a borrower for the deficiency amount. However, some states have laws prohibiting deficiency judgments in certain circumstances. In North Carolina, deficiency judgments are generally allowed, subject to some restrictions.
California law generally prohibits a deficiency judgment following the short sale of a residential property with no more than four units. Junior lienholders are also prohibited from pursuing a deficiency judgment if they agree to the short sale and they receive proceeds as agreed.
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.
Under current CCP §580b, residential borrowers are protected against deficiency liability on their original purchase money obligations, regardless of the method of foreclosure chosen by the lender.
Example of a Deficiency Judgment The borrower defaults on the $270,000 loan after two years, leaving a principal balance of about $260,000. The bank sells the home for $245,000, then wins a deficiency judgment against the borrower for the remaining $15,000. That is the amount that the borrower would need to pay.
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, ...
Deficiency judgment is money awarded to creditors when assets securing a loan do not cover the debt owed by a debtor.
