Question

What clause in a mortgage prevents the lender from recovering additional assets from the mortgagor if there is a shortfall in the foreclosure proceeds?

A) Deficiency clause.
B) Subordination clause.
C) Acceleration clause.
D) Non-recourse clause.

Answer 1

The Non-recourse clause in a mortgage prevents the lender from pursuing the borrower's other assets beyond the collateral, often the property itself, if the proceeds from a foreclosure sale do not cover the loan balance.

Step-by-step explanation:

The clause in a mortgage that prevents the lender from recovering additional assets from the mortgagor if there is a shortfall in the foreclosure proceeds is the Non-recourse clause.

This clause limits the lender's recovery to only the collateral specified in the loan agreement, which is typically the property itself. If the sale of this property does not cover the outstanding debt, the lender cannot pursue the borrower's other assets.

This is particularly significant in situations where the value of the collateral, such as during a housing market downturn, may not be sufficient to cover the loan balance.

It is important to distinguish between a non-recourse loan and a recourse loan, where the latter allows the lender to go after the borrower's other assets to recover the deficiency.