Legal Definitions - recognition clause

A recognition clause is a provision in a real estate contract that protects the buyers of individual lots in a subdivision if the developer defaults on the mortgage. This clause is usually found in a blanket mortgage or a contract for deed.

Suppose a developer buys a large tract of land and subdivides it into individual lots. The developer takes out a blanket mortgage to finance the project. The recognition clause in the mortgage agreement ensures that if the developer defaults on the mortgage, the individual lot buyers will not lose their properties.

For instance, if the developer fails to make payments on the mortgage, the lender cannot foreclose on the individual lots. Instead, the recognition clause allows the lot buyers to continue making payments on their properties and eventually obtain clear title to them.

Another example of a recognition clause is in a contract for deed. In this case, the recognition clause protects the buyer who is purchasing the property from the seller. If the seller defaults on the mortgage, the recognition clause ensures that the buyer's interest in the property is recognized and protected.

Overall, the recognition clause is an important provision in real estate contracts that provides protection for buyers in the event of a default by the developer or seller.