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).
Illinois 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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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.
If you go through a foreclosure in Illinois, the foreclosure auction could result in a deficiency. In most states, including Illinois, if a foreclosure sale results in a deficiency, the lender may get a "deficiency judgment" (a personal judgment) against the borrower for the deficiency amount.
Illinois is a Recourse State Lenders can and often will pursue Illinois borrowers for deficiency judgments after the foreclosure auction occurs.
Most states allow deficiency judgments. Only Alaska, California, Minnesota, Montana, Oregon and Washington forbid deficiency judgments in most cases. Other states only allow deficiency judgments in certain instances. In Arizona, lenders can't purchase deficiencies for one- or two-family homes on 2.5 acres or less.
Illinois is a Recourse State Lenders can and often will pursue Illinois borrowers for deficiency judgments after the foreclosure auction occurs.
How can I avoid a deficiency judgment? If you are able to stop the foreclosure process, you'll be able to avoid a deficiency judgment. If a foreclosure is unavoidable, a homeowner may be able to negotiate with their lender so that any deficiency is forgiven after the foreclosure is complete.
A deficiency judgment may be sought when total mortgage debt exceeds the sale price at foreclosure. In other words, if the foreclosed property sells for an amount that is insufficient to cover the borrower's debts, the lender may turn to the courts, in order to make the borrower liable for paying the remaining balance.
An in rem deficiency judgment is passed on the property itself i.e. the borrower redeems the property by paying the outstanding balance to the bank with additional fees and interest. In this case, the lender can place a lien on the property for any remaining balance on the debt post redemption.
