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).
Ohio 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
Often, exculpatory clauses are used when a service provider needs to enter into a service agreement with a customer that puts the customer's personal belongings or physical well-being at risk.
While exculpatory clauses are generally considered enforceable, they must meet certain tests before a court will uphold them. There are also certain types of misconduct for which an exculpatory clause will not work to absolve the party of liability.
An exculpation clause in the loan agreement, mortgage, or note provides that: The borrower has no personal liability for the loan. The borrower's liability is limited to the value of the collateral for the loan (in most cases, the real property).
The property can't be sold at a foreclosure sale for less than two-thirds of the appraised fair market value. (Ohio Rev. Code § 2329.20, § 2329.17). This requirement limits the amount of the deficiency judgment.
An exculpatory clause is valid as long as the contract is signed by both parties. An exculpatory clause is more likely to be found to be valid if the parties were able to negotiate its terms. An exculpatory clause might be found invalid if the party it protects is performing a service necessary to the general public.
Exculpatory clauses are usually honored and upheld by both parties; however, not all are legally enforceable. The court can determine it is unenforceable by both parties of the contract if the clause is found to be unreasonable. It can be unreasonable if: There is fraud involved in the contract.
[9] An exculpatory clause is generally unenforceable when it is found to be unfair or if one party was found to be at a significant disadvantage in agreeing to the clause.
An exculpatory clause runs the risk of being rendered invalid if there is an intent to deceive or commit fraud under the terms and conditions of the policy.
