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

David Soble http://www.proven-resource.com/
Proven Resource LLC
888-789-1715 David Soble
http://www.proven-resource.com/
Proven Resource LLC 888-789-1715
 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. David Soble
http://www.proven-resource.com/
Proven Resource LLC 888-789-1715
 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. David Soble
http://www.proven-resource.com/
Proven Resource LLC 888-789-1715
 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. David Soble
http://www.proven-resource.com/
Proven Resource LLC 888-789-1715
 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. David Soble
http://www.proven-resource.com/
Proven Resource LLC 888-789-1715
 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. David Soble
http://www.proven-resource.com/
Proven Resource LLC 888-789-1715
 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. David Soble
http://www.proven-resource.com/
Proven Resource LLC 888-789-1715
 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. David Soble
http://www.proven-resource.com/
Proven Resource LLC 888-789-1715
 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. David Soble
http://www.proven-resource.com/
Proven Resource LLC 888-789-1715
 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.