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).
The New York Exculpatory Clause or Nonrecourse Provision in Mortgage regarding Deficiency Judgment is an essential legal concept pertaining to borrower obligations and lender remedies in mortgage agreements. This provision primarily aims to limit or extinguish a borrower's personal liability for any remaining debt after foreclosure or other forms of property repossession. In New York, there are two main types of Exculpatory Clause or Nonrecourse Provisions that govern deficiency judgments in mortgage agreements: limited recourse and full recourse clauses. 1. Limited Recourse Clause: This provision restricts the lender's ability to seek monetary compensation for any deficiency following the foreclosure or repossession of the property securing the mortgage loan. According to New York law, a valid limited recourse clause prevents the lender from pursuing a deficiency judgment or seeking repayment beyond the value of the property that was foreclosed. Therefore, borrowers are shielded from personal liability for any shortfall, and the property itself stands as the sole source of recovery for the lender. 2. Full Recourse Clause: In contrast to the limited recourse clause, the full recourse provision enables the lender to pursue the borrower's personal assets or income to satisfy any remaining debt after a foreclosure. With a full recourse clause, the lender can obtain a deficiency judgment and seek repayment not just from the value of the foreclosed property, but also from the borrower's other assets or future income. It is important to note that New York state law places certain limitations on the enforceability of both limited and full recourse clauses. For instance, limited recourse clauses are only applicable to non-purchase-money mortgages or refinanced mortgages used to cover existing debts. Additionally, these provisions may not be enforceable if deceptive practices or unfair bargaining power were involved in the creation of the mortgage agreement. Overall, the New York Exculpatory Clause or Nonrecourse Provision in Mortgage regarding Deficiency Judgment serves as a critical legal safeguard for borrowers, outlining the extent of their liability in the event of foreclosure or property repossession. Whether limited or full recourse, these provisions play a vital role in dictating the rights and obligations of both lenders and borrowers within the scope of mortgage agreements in New York.
