When applying for a mortgage oftentimes the lender will try to get you to put up many things for collateral which puts you in a position of having much more liability on your mortgage debt than required. This article will teach you how to limit your liability on mortgage debt when you apply for your next mortgage loan.
When you take out mortgage financing you should seek ways to limit the extent of a lost to the smallest amount possible. Exculpation means freedom from liability. With exculpation and property as the sole collateral for a mortgage loan. You may protect yourself by negotiating special loan terms and by using certain forms of ownership.
When you finance property you should try to make it the sole collateral for the debt; if it is not, and the property declines far enough in value, you could lose not only all of the money invested as equity but anything else you own may have to be sold to pay for the subject property debt. Even with a foreclosure the lender may claim not only the property but also a deficiency between the property’s value at foreclosure and the total amount owed if you do not properly limit your liability on mortgage debt.
A good place to start is to include an exculpatory clause in your mortgage document. This is easily arranged when the seller of the property is providing the loan during negotiations. It is, however, more difficult to obtain a clause like this in a mortgage loan when applying to larger lenders.
Another great way to limit your liability on mortgage debt is for you to form a shell corporation which buys the property and borrows against it. It is not that difficult, nor expensive, to form a new corporation and a corporation with no assets beyond this pending mortgage as far less liability on mortgage debt than you as an individual. The way to make this arrangement is immediately after acquisition of the property have the corporation transfer of property to you, the actual owner. You should of course always consult an attorney specializing in real estate law before attempting an advanced techniques such as this to limit liability on mortgage debt.
Hopefully this article has provided you with a few great tips and methods to help you to greatly reduce your personal liability on mortgage debt when looking to acquire a new mortgage loan for an investment property.
