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 Wisconsin Exculpatory Clause, also known as the Nonrecourse Provision in Mortgage regarding Deficiency Judgment, is an important element in home mortgage agreements. This provision offers protection to borrowers in the event of foreclosure, limiting the lender's ability to seek further repayment beyond the collateralized property. In Wisconsin, there are two primary types of Exculpatory Clauses or Nonrecourse Provisions that may be included in a mortgage agreement, each providing distinct levels of protection for borrowers: 1. Partial Exculpatory Clause: Under this type of clause, commonly known as a limited recourse provision, the lender is restricted from pursuing a deficiency judgment against the borrower except under certain specified conditions. These conditions may include cases of fraud, waste, or misrepresentation by the borrower, or if the property has been transferred without the lender's consent. 2. Full Exculpatory Clause: Alternatively, a full exculpatory clause, also known as a nonrecourse provision, completely prohibits the lender from seeking a deficiency judgment against the borrower, regardless of the circumstances. This means that if the proceeds from the foreclosure sale of the property are insufficient to cover the outstanding mortgage balance, the lender cannot pursue the borrower for the deficiency. The purpose of these clauses is to safeguard borrowers from potential financial burdens resulting from foreclosure sales. They provide a level of security to homeowners, ensuring that they will not be held personally liable for any outstanding mortgage debt beyond what the lender can recover from the sale of the property. It's important for borrowers to carefully review their mortgage agreements, including the Exculpatory Clause or Nonrecourse Provision, to understand the level of protection they have in case of foreclosure. Additionally, consulting with a qualified attorney specializing in real estate law can provide valuable guidance and help clarify any questions or concerns related to these provisions. Overall, the Wisconsin Exculpatory Clause or Nonrecourse Provision in Mortgage regarding Deficiency Judgment aims to protect homeowners by limiting lenders' ability to pursue them for additional payment following a foreclosure, preserving borrowers' financial well-being and providing a sense of security during challenging times.
