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Simple English definitions for legal terms
dragnet clause
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A quick definition of dragnet clause:
Term: DRAGNET CLAUSE
Definition: A dragnet clause is a legal term that refers to a clause in a contract that allows a lender to seize any and all assets of the borrower, even those not specifically listed as collateral, in the event of a default. This clause is also known as a mother Hubbard clause or a cross-collateral clause. Essentially, it gives the lender the power to cast a "dragnet" over all of the borrower's assets to ensure repayment of the loan.
A more thorough explanation:
A dragnet clause is a legal term that refers to a clause in a contract that allows a lender to seize any and all assets of the borrower in the event of a default. This means that the lender can take any property or assets that the borrower owns, even if they were not specifically pledged as collateral for the loan.
For example, let's say that John takes out a loan from a bank and pledges his car as collateral. The loan agreement includes a dragnet clause. If John defaults on the loan, the bank can not only repossess his car but also seize any other assets he owns, such as his house or savings account.
Another example is a business owner who takes out a loan to purchase equipment and pledges the equipment as collateral. If the loan agreement includes a dragnet clause, the lender can also seize any other assets of the business, such as inventory or accounts receivable, in the event of a default.
The dragnet clause is often used by lenders to provide additional security for loans, but it can be risky for borrowers who may lose all of their assets if they default on the loan.