Dragnet ClauseCredit Repair Definition
A loan provision stating that collateral securing one debt also secures any other past, present, or future debts owed to the same lender.
Definition
A dragnet clause, also known as a future advance clause or anaconda clause, is a provision sometimes included in mortgage or security agreements. It broadly states that the collateral securing a specific loan will also automatically secure any other debts that the borrower currently owes, or may owe in the future, to the same lender. Essentially, it 'drags' other debts under the security umbrella of the initial collateral. This provides extensive security for the lender but can be very risky for the borrower, as defaulting on any debt owed to that lender could potentially trigger foreclosure or repossession of the collateral tied to the dragnet clause, even if the original loan secured by that collateral is current. These clauses are viewed with scrutiny by courts and their enforceability can depend on the specific wording and state law.
Frequently Asked Questions
How is a dragnet clause different from cross-collateralization?
They are very similar concepts, often used interchangeably. Both link collateral to multiple debts with the same lender. A dragnet clause might be seen as broader, potentially encompassing even future, unrelated debts, while cross-collateralization often refers more specifically to linking existing debts or debts incurred concurrently.
Are dragnet clauses enforceable?
Enforceability varies by state and depends heavily on the clarity of the clause's language and the relationship between the original debt and the subsequent debts. Courts often interpret them narrowly and may require clear evidence that both parties intended for the clause to cover future, unrelated debts.
Why should borrowers be wary of dragnet clauses?
Borrowers should be cautious because these clauses significantly increase the lender's power and the borrower's risk. A default on a small, unrelated debt (like a credit card) could potentially lead to the foreclosure of a home if the mortgage contains a broadly worded dragnet clause with the same lender. Always read loan documents carefully for such provisions.
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