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A dragnet clause in a mortgage contract enables a lender to link a borrower’s home loan with other types of loan facilities on the borrower’s name.
The dragnet metaphor is suiting as it is like a lender dragging a fishing net across the sea to capture every living thing that comes across it.
There are basically 3 types of dragnets.
- All mortgages
- All debts
- Mortgages taken at a later date
The first will mean that if a borrower has 2 or more home loans with the lender, a default on one of them can result in a default on all of them.
Even if the rest of them have prompt payments made.
This can cause chaos if several properties are invested with different investors and co-signers.
The second will mean that if the borrower has a personal loan and defaults on it, his mortgage can be deemed as being in default as well.
The third means that subsequent mortgages taken by the borrower even if it is at a later date than the mortgage with the dragnet clause will be pulled in as well.
However, just like how dragnet fishing is being frowned upon, dragnet clauses are also frowned upon by the public.
Should a case go to court, judges tend to scrutinize it meticulously and often find it unfair to the borrowers. Denying a lender to enforce it in the process.
If for some reason, you are presented with a dragnet clause, the likelihood is that the lender has some leverage over you.
Maybe because you have a low income, have less than perfect credit, or self-employed, etc.
In this case, you should review your finances to determine whether you can actually afford the property purchase in the first place.