This article examines the use of default interest rate provisions in real estate mortgage loan transactions and the varying ways courts assess the enforceability of such provisions. The authors argue that these provisions are important to lenders, ensuring that they are able to recover the transaction costs and risks associated with defaulting borrowers. The article asserts that, due to the importance of these provisions to lenders' financial stability, courts should apply the unconscionability standard with a deference to freedom of contract principles before refusing to enforce default interest rate provisions. The authors also outline guidelines lenders should follow in both drafting loan agreements containing these provisions and defending against challenges to the imposition of default interest rates.
Steven W. Bender,
The Enforceability of Default Interest in Real Estate Mortgages, 43 REAL PROP. TR. & EST. L.J. 199