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An exculpatory clause in a mortgage contract enables a borrower to be relieved from personal liability in exchange for surrendering the property to the lender.
While it might seem puzzling as to why homeowners might choose his form of action, exceptional circumstances can make them a logical financial move to make.
One such example is the fall in property value below the value of the mortgage. If $250,000 is due to the bank and the house is only worth $150,000, then the prospect of losing the house to the lender and getting that $100,000 debt gap written off can be very appealing.
So it is a clause that we don’t pay much attention to and don’t appreciate it’s value until we need to trigger it.
In leasing, an exculpatory clause can describe a contract term that allows a landlord to excuse himself of liability for property damage and tenant’s personal injury.
In conveyance after death, an exculpatory clause can refer to ridding an executor of liability when their powers are made in error and are due to honest mistakes.
The same can be said of trustees in a trust.