The cross-collateral clause, also known as a dragnet clause, is a contractual provision that enables the seller to repossess not only the specific item that was not paid for, but also any other items that the buyer still owes money on and purchased from the same seller.
A cross-collateral clause, also known as a dragnet clause, is a provision in an installment contract that grants the seller the right to repossess not only the specific item sold but also any other items purchased from the seller if the buyer defaults on their payments. To illustrate, let’s consider a scenario where you purchase a car from a dealership and finance it through them using an installment contract that includes a cross-collateral clause. Later on, you decide to buy a motorcycle from the same dealership and finance it through them as well. If you fail to make a payment and still owe money on both the car and the motorcycle, the dealership can repossess not only the motorcycle but also the car due to the cross-collateral clause. This clause can pose a risk for buyers as it grants the seller more authority to repossess their property. Therefore, it is crucial to thoroughly read and comprehend all the terms and conditions of an installment contract before signing it.
A cross-collateral clause is a provision in a loan agreement that allows a lender to use the collateral from one loan to secure another loan with the same lender.
As a borrower, a cross-collateral clause means that if you default on one loan, the lender can use the collateral from that loan to satisfy the debt on another loan with the same lender.
Yes, if a borrower defaults on a loan with a cross-collateral clause, the lender can enforce the clause and use the collateral from one loan to satisfy the debt on another loan.
It is possible to negotiate the removal of a cross-collateral clause from a loan agreement, but it may depend on the lender and the specific circumstances of the loan.
Some lenders may offer alternatives to a cross-collateral clause, such as separate collateral for each loan or a personal guarantee.
Before agreeing to a loan with a cross-collateral clause, it is important to carefully consider the potential risks and implications, and to seek legal advice if necessary.
Yes, a cross-collateral clause can still be enforced even if the loans are for different purposes, as long as they are with the same lender.
No, a cross-collateral clause only applies to loans with the same lender.
Yes, a cross-collateral clause can be included in a mortgage agreement, allowing the lender to use the collateral from one property to secure another property.
It is possible to challenge a cross-collateral clause in court, but the outcome will depend on the specific circumstances and the terms of the loan agreement.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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