Cognovit clause

This clause is considered to be a confession of judgment. If borrowers allow this clause to be included, they in effect give up their right to a day in court. It authorizes the lender's attorney to obtain a judgment lien against the debtor's real property. Without this clause, the lender must sue on the basis of the note and prove it to be in default.

J. Escalator clause

This clause allows the lender to increase the interest rate. Although an escalator clause in its most general sense could allow a lender to increase the rate for any reason, it is usually tied to an event or contingency. For example, if it is discovered that the mortgagor is an investor rather than an owner-occupant. Moreover, it could provide for the interest rate to escalate up to the legal maximum in the event of the borrower's default. An escalator clause does not create a variable rate mortgage in which the interest rate is tied to a market index. Escalator clauses in which the interest rate change is at the discretion of the lender are very unpopular with borrowers. The potential for abuse and unfavorable public relations far outweighs any benefits.

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