What is a Waiver of Exemption?

A waiver of exemption is a clause in a contract that allows a creditor to seize property that state laws may exempt from seizure.

How Does a Waiver of Exemption Work?

Let's assume 65-year-old John Doe borrows $250,000 to buy a house. In his closing documents is a waiver of exemption, which he signs.

Five years go by, and John loses his job. He defaults on the mortgage and goes into foreclosure. Even though John lives in a state that prohibits the seizure of houses from senior citizens, his signature on the waiver of exemption allows the lender to go around the state law and seize the house anyway.

Why Does a Waiver of Exemption Matter?

A waiver of exemption can expose borrowers to considerable risk, which is why they are now illegal in loan contracts.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.