Accessibility Statement Skip Navigation
  • Why PRWeb
  • How It Works
  • Who Uses It
  • Pricing
  • Login
  • GDPR
  • Create a Free Account
Return to PRWeb homepage
  • News
  • Resources
  • Contact
When typing in this field, a list of search results will appear and be automatically updated as you type.

Searching for your content...

No results found. Please change your search terms and try again.
  • News in Focus
      • Browse News Releases

      • All News Releases
      • Multimedia Gallery

      • All Multimedia
      • All Photos
      • All Videos
  • Business & Money
      • Auto & Transportation

      • Aerospace, Defense
      • Air Freight
      • Airlines & Aviation
      • Automotive
      • Maritime & Shipbuilding
      • Railroads and Intermodal Transportation
      • Supply Chain/Logistics
      • Transportation, Trucking & Railroad
      • Travel
      • Trucking and Road Transportation
      • View All Auto & Transportation

      • Business Technology

      • Blockchain
      • Broadcast Tech
      • Computer & Electronics
      • Computer Hardware
      • Computer Software
      • Data Analytics
      • Electronic Commerce
      • Electronic Components
      • Electronic Design Automation
      • Financial Technology
      • High Tech Security
      • Internet Technology
      • Nanotechnology
      • Networks
      • Peripherals
      • Semiconductors
      • View All Business Technology

      • Entertain­ment & Media

      • Advertising
      • Art
      • Books
      • Entertainment
      • Film and Motion Picture
      • Magazines
      • Music
      • Publishing & Information Services
      • Radio & Podcast
      • Television
      • View All Entertain­ment & Media

      • Financial Services & Investing

      • Accounting News & Issues
      • Acquisitions, Mergers and Takeovers
      • Banking & Financial Services
      • Bankruptcy
      • Bond & Stock Ratings
      • Conference Call Announcements
      • Contracts
      • Cryptocurrency
      • Dividends
      • Earnings
      • Earnings Forecasts & Projections
      • Financing Agreements
      • Insurance
      • Investments Opinions
      • Joint Ventures
      • Mutual Funds
      • Private Placement
      • Real Estate
      • Restructuring & Recapitalization
      • Sales Reports
      • Shareholder Activism
      • Shareholder Meetings
      • Stock Offering
      • Stock Split
      • Venture Capital
      • View All Financial Services & Investing

      • General Business

      • Awards
      • Commercial Real Estate
      • Corporate Expansion
      • Earnings
      • Environmental, Social and Governance (ESG)
      • Human Resource & Workforce Management
      • Licensing
      • New Products & Services
      • Obituaries
      • Outsourcing Businesses
      • Overseas Real Estate (non-US)
      • Personnel Announcements
      • Real Estate Transactions
      • Residential Real Estate
      • Small Business Services
      • Socially Responsible Investing
      • Surveys, Polls and Research
      • Trade Show News
      • View All General Business

  • Science & Tech
      • Consumer Technology

      • Artificial Intelligence
      • Blockchain
      • Cloud Computing/Internet of Things
      • Computer Electronics
      • Computer Hardware
      • Computer Software
      • Consumer Electronics
      • Cryptocurrency
      • Data Analytics
      • Electronic Commerce
      • Electronic Gaming
      • Financial Technology
      • Mobile Entertainment
      • Multimedia & Internet
      • Peripherals
      • Social Media
      • STEM (Science, Tech, Engineering, Math)
      • Supply Chain/Logistics
      • Wireless Communications
      • View All Consumer Technology

      • Energy & Natural Resources

      • Alternative Energies
      • Chemical
      • Electrical Utilities
      • Gas
      • General Manufacturing
      • Mining
      • Mining & Metals
      • Oil & Energy
      • Oil and Gas Discoveries
      • Utilities
      • Water Utilities
      • View All Energy & Natural Resources

      • Environ­ment

      • Conservation & Recycling
      • Environmental Issues
      • Environmental Policy
      • Environmental Products & Services
      • Green Technology
      • Natural Disasters
      • View All Environ­ment

      • Heavy Industry & Manufacturing

      • Aerospace & Defense
      • Agriculture
      • Chemical
      • Construction & Building
      • General Manufacturing
      • HVAC (Heating, Ventilation and Air-Conditioning)
      • Machinery
      • Machine Tools, Metalworking and Metallurgy
      • Mining
      • Mining & Metals
      • Paper, Forest Products & Containers
      • Precious Metals
      • Textiles
      • Tobacco
      • View All Heavy Industry & Manufacturing

      • Telecomm­unications

      • Carriers and Services
      • Mobile Entertainment
      • Networks
      • Peripherals
      • Telecommunications Equipment
      • Telecommunications Industry
      • VoIP (Voice over Internet Protocol)
      • Wireless Communications
      • View All Telecomm­unications

  • Lifestyle & Health
      • Consumer Products & Retail

      • Animals & Pets
      • Beers, Wines and Spirits
      • Beverages
      • Bridal Services
      • Cannabis
      • Cosmetics and Personal Care
      • Fashion
      • Food & Beverages
      • Furniture and Furnishings
      • Home Improvement
      • Household, Consumer & Cosmetics
      • Household Products
      • Jewelry
      • Non-Alcoholic Beverages
      • Office Products
      • Organic Food
      • Product Recalls
      • Restaurants
      • Retail
      • Supermarkets
      • Toys
      • View All Consumer Products & Retail

      • Entertain­ment & Media

      • Advertising
      • Art
      • Books
      • Entertainment
      • Film and Motion Picture
      • Magazines
      • Music
      • Publishing & Information Services
      • Radio & Podcast
      • Television
      • View All Entertain­ment & Media

      • Health

      • Biometrics
      • Biotechnology
      • Clinical Trials & Medical Discoveries
      • Dentistry
      • FDA Approval
      • Fitness/Wellness
      • Health Care & Hospitals
      • Health Insurance
      • Infection Control
      • International Medical Approval
      • Medical Equipment
      • Medical Pharmaceuticals
      • Mental Health
      • Pharmaceuticals
      • Supplementary Medicine
      • View All Health

      • Sports

      • General Sports
      • Outdoors, Camping & Hiking
      • Sporting Events
      • Sports Equipment & Accessories
      • View All Sports

      • Travel

      • Amusement Parks and Tourist Attractions
      • Gambling & Casinos
      • Hotels and Resorts
      • Leisure & Tourism
      • Outdoors, Camping & Hiking
      • Passenger Aviation
      • Travel Industry
      • View All Travel

  • Policy & Public Interest
      • Policy & Public Interest

      • Advocacy Group Opinion
      • Animal Welfare
      • Congressional & Presidential Campaigns
      • Corporate Social Responsibility
      • Domestic Policy
      • Economic News, Trends, Analysis
      • Education
      • Environmental
      • European Government
      • FDA Approval
      • Federal and State Legislation
      • Federal Executive Branch & Agency
      • Foreign Policy & International Affairs
      • Homeland Security
      • Labor & Union
      • Legal Issues
      • Natural Disasters
      • Not For Profit
      • Patent Law
      • Public Safety
      • Trade Policy
      • U.S. State Policy
      • View All Policy & Public Interest

  • People & Culture
      • People & Culture

      • Aboriginal, First Nations & Native American
      • African American
      • Asian American
      • Children
      • Diversity, Equity & Inclusion
      • Hispanic
      • Lesbian, Gay & Bisexual
      • Men's Interest
      • People with Disabilities
      • Religion
      • Senior Citizens
      • Veterans
      • Women
      • View All People & Culture

  • Hamburger menu
  • Cision PRWeb provides efficient communication tools to continuously engage with target audiences across multiple online channels
  • Create a Free Account
    • ALL CONTACT INFO
    • Contact Us


      11AM ET Sunday – 8PM ET Friday

  • Send a Release
  • Sign up
  • Log in
  • Resources
  • RSS
  • GDPR
  • News in Focus
    • Browse All News
    • Multimedia Gallery
  • Business & Money
    • Auto & Transportation
    • Business Technology
    • Entertain­ment & Media
    • Financial Services & Investing
    • General Business
  • Science & Tech
    • Consumer Technology
    • Energy & Natural Resources
    • Environ­ment
    • Heavy Industry & Manufacturing
    • Telecomm­unications
  • Lifestyle & Health
    • Consumer Products & Retail
    • Entertain­ment & Media
    • Health
    • Sports
    • Travel
  • Policy & Public Interest
  • People & Culture
    • People & Culture
  • Send a Release
  • Sign up
  • Log in
  • Resources
  • RSS
  • GDPR
  • Send a Release
  • Sign up
  • Log in
  • Resources
  • RSS
  • GDPR
  • Send a Release
  • Sign up
  • Log in
  • Resources
  • RSS
  • GDPR

Real Estate and Finance Attorney David Soble Warns: Small Business Owners and Consumers Must Stop Agreeing To These 5 Contract Provisions
  • USA - English


News provided by

Proven Resource LLC

Aug 01, 2013, 03:00 ET

Share this article

Share toX

Share this article

Share toX

Financial Angst Can Keep You Up All Night
Financial Angst Can Keep You Up All Night

Detroit, Michigan (PRWEB) August 01, 2013 -- When it comes to signing a contract, whether it be for real estate, a loan, a lease, a car, boat or any type of service, most people will sign a contract with the intention of complying with its terms.

They enter into a contract feeling that its provisions would never apply to them, because they have no intention of defaulting. But in the event of unforeseen circumstances, these terms and provisions are meant for when one defaults.

Here are the five harshest provisions commonly found in financing agreements. They are listed in no particular order of severity, but suffice to say, a borrower should avoid having these terms included within the contract if they can. If they can't, a solution is suggested on how to reduce the intended consequences of such provisions.

1. Prepayment penalty ("PPP"). Essentially, this term makes one pay an additional percentage of the loan balance when paying the balance off in advance of the intended due date. For instance, a 3% prepayment penalty on $100,000 means that a fee of $3000 is owed to the lender. What a waste.    

Solution: If the lender insists upon having a prepayment penalty, then limit the time for which the term is valid. Limit a prepayment penalty for the first 3 years or negotiate a penalty that gets reduced in every passing year. For example, a 5% PPP in the first 2 years, gets reduced to 3% for the next 2 years, and 1 % thereafter. The best solution is to have no PPP, or wait until the time for the PPP expires.

2. Balloon Payment. Having a balloon payment on a loan or promissory note means that the loan may be amortized over a specified time, but the entire balance is due prior to the loan being fully amortized. For instance, a $50,000 loan with a 30 year amortization and a 5 year balloon, means that the payments are spread over 30 years, but the remaining balance on the $50,000 is due in 60 month. Failure to pay the balloon payment means that the borrower is in default.

Solution: Try to extend the balloon out for a longer period, say, a 10 year balloon instead of a 5 year balloon. Also condition the balloon's effect on consistent payment history: the balloon is extended to another time, or goes away all together if all payments are paid timely. Please note: A PPP provision can exist even when there is a balloon payment provision, but the PPP cannot be charged when paying off a balance pursuant to the balloon requirements itself.

3. Guaranty. A guaranty is a provision. A guarantor is an individual or company that signs an obligation on behalf of another bound to a contract, usually to ensure that the primary borrower will perform under the contract's terms. In the event that the borrower fails to perform a service or make payments, the guarantor will be called upon to make the payments, pay the entire loan balance, or step in to perform the required service. Being a guarantor is different than being a co-maker (discussed in item 4). Neither status is good. but a guarantor is not obligated on a loan until a default is actually declared by the lender.    

Solution: Limit exposure as a guarantor by agreeing to be liable for a service or balance for a specified amount. For instance, a guarantor can guaranty only the first $100,000 of a $700,000 loan, or negotiate a fading guaranty which means that the exposure is reduced as time goes by. "After 5 years, the guaranty is null and void or reduced by half the original balance." Another solution is to have the guarantor liable only when the lender has exhausted all legal options against the original borrower and has failed to collect.

4. Co-Maker. Co-makers are basically joint borrowers on an obligation. If one borrower doesn't pay, then the other remains liable for the debt. There are no requirements for a lender to pursue and exhaust all legal remedies against one co-maker before pursuing the other. The lender can pick and choose who to pursue; one or both. It also doesn't matter that one co-maker may get all the benefit of a contract (known as consideration) while the other may have received nothing from the contractual relationship.

Solution: Co-makers or co-signers are jokingly called "idiots with pens". That;s harsh. But there are times when a co-maker is needed, such as on a student loan or car note. The best solution is to reduce the time frame in which the co-maker's liability remains in effect, or base the provision on performance. For example, when one borrower pays timely for 24 months, then the co-maker shall be released from the obligation.

5. Negative Amortization. Negative amortization occurs when there is an increase in the principal loan balance because the monthly payments are deficient and fail to cover the monthly interest. The remaining balance of interest due is added to the principal balance. A provision against negative amortization can be included in a contract and a default can be declared.

Solution: Negative amortization can occur if the borrower needs a lower payment for a short period of time. Ask the lender to modify the loan to accommodate a lower payment. If not, then the lender may spread out the difference in interest over several payments at a later date. Also, one can ask to extend the time before a default would be declared.

Conclusion.

There are many scenarios concerning the above listed provisions and their impact. In some instances, the easiest way to prevent against a lender from invoking a material default is to simply "cure" a the default, or have the lender waive the default, by giving the borrower a "second chance". Times remain difficult for some lenders, just as it does for businesses. Understanding the implications of contract provisions is the first step to crafting and negotiating terms that one can live with when endorsing a contract. Terms that may or may not ever apply to one's own situation.

About the Author: Since 1990, David Soble has been a real estate and finance attorney in Ohio and Michigan. He advises national banks, lenders, loan servicers, consumers and business owners on residential and commercial real estate, finance and compliance issues. He has been involved in thousands of real estate transactions, being responsible for billions in real estate loan portfolios throughout his career. And while he may at times seem overly harsh, he has 23 years of real estate battle scars to support his tempered cynicism.

David Soble, Proven Resource LLC, http://www.Proven-Resource.com, 888-789-1715, [email protected]

Modal title

Contact PRWeb

  • 11AM ET Sunday – 8PM ET Friday
  • Contact Us

About PRWeb

  • About PRWeb
  • Partners
  • Partnership Programs
  • Editorial Guidelines
  • Resources

Why PRWeb

  • Why PRWeb
  • How It Works
  • Who Uses It
  • Pricing

Accounts

  • Create a Free Account
  • Log in
  • Contact Us

Do not sell or share my personal information:

  • Submit via [email protected] 
  • Call Privacy toll-free: 877-297-8921

Contact Cision

Products

About

My Services
  • All News Releases
  • Online Member Center
  • ProfNet
Cision Distribution Helpline
888-776-0942
  • Legal
  • Site Map
  • RSS
  • Cookie Settings
Copyright © 2025 Cision US Inc.