Cognovit clause | Propertylogy

Cognovit clause

By on May 28, 2019

A cognovit clause is a term written into a contract where one party agrees to accept any judgment in a certain court against him due to breach of contract without having a chance to challenge it.

In the real estate world, a cognovit clause is most often found in loan agreements between lenders and borrowers.

It is basically a pre-confession or acceptance of guilt should a benefited party judge that the victim has wrong-doing and should be punished in the future.

For example, if a lender judged finds that a borrower has been delinquent for months and find that under their terms that they can determine this as a default, they can start foreclosure proceedings and the borrower can do nothing about it. This is even when the borrower have been repaying and can easily make good the delinquencies.

There would be no notification requirements, and the borrower would serve the “sentence” as soon as it is made.

Because of how outrageous that sounds, various states have either restricted such clauses or outlawed them outright.

Creditors who use them in state that allow them lawfully have almost absolute power.

Borrowers who come across them when reading mortgage documents should do a check with whether it is even lawful in the state.

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