Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Waiver of Exemption

What it is:

A waiver of exemption is a clause in a contract that allows a creditor to seize property that state laws may exempt from seizure.

How it works (Example):

Let's assume 65-year-old John Doe borrows $250,000 to buy a house. In his closing documents is a waiver of exemption, which he signs.

Five years go by, and John loses his job. He defaults on the mortgage and goes into foreclosure. Even though John lives in a state that prohibits the seizure of houses from senior citizens, his signature on the waiver of exemption allows the lender to go around the state law and seize the house anyway.

Why it Matters:

A waiver of exemption can expose borrowers to considerable risk, which is why they are now illegal in loan contracts.