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).
In the context of mortgage and deficiency judgments, an Illinois Exculpatory Clause or Nonrecourse Provision is a legal provision that provides protection to borrowers by limiting their liability in case of a foreclosure, specifically in relation to a deficiency judgment. This clause outlines the extent to which a lender can pursue a borrower for any remaining debt following a foreclosure sale. In Illinois, there are primarily two types of Exculpatory Clauses or Nonrecourse Provisions that may be included in a mortgage agreement. These are: 1. Full Recourse Provision: A full recourse provision in an Illinois mortgage allows the lender to pursue the borrower for the full amount of the deficiency judgment. Under this provision, the borrower remains personally liable for any shortfall resulting from the foreclosure sale. In other words, if the proceeds from the sale of the foreclosed property are not enough to cover the outstanding mortgage balance, the lender can seek a deficiency judgment against the borrower. 2. Limited or Partial Recourse Provision: On the other hand, a limited or partial recourse provision in an Illinois mortgage restricts the lender's ability to seek a deficiency judgment. Under this provision, the lender may only be able to recover a limited portion of the deficiency or none at all. The exact terms and conditions may vary depending on the specific wording of the clause. It is important for borrowers to carefully review the terms of the mortgage agreement to understand the extent of their liability in a foreclosure scenario. Exculpatory Clauses or Nonrecourse Provisions can significantly impact the borrower's financial responsibility after a foreclosure, and seeking legal advice is recommended to fully comprehend their rights and obligations. In summary, an Illinois Exculpatory Clause or Nonrecourse Provision in a mortgage establishes the borrower's liability for deficiency judgments in the event of a foreclosure. The two primary types include full recourse provisions, allowing the lender to pursue the borrower for the entire deficiency amount, and limited or partial recourse provisions, which may restrict the lender's ability to seek a deficiency judgment or limit their recovery to a certain extent.
