What does an estoppel clause do for the borrower?

An estoppel clause is a provision commonly included in loan agreements that prevents the borrower from disputing the terms of the loan, especially in the case where the loan is transferred to another lender. When a borrower signs this clause, they acknowledge and affirm the terms of the loan as they stand, which essentially solidifies those terms as true and unassailable in future disputes.

By including this clause, lenders gain protection against borrowers who might later claim different agreements or terms after the loan has been sold or assigned to another entity. This is particularly important in real estate financing because it creates certainty and stability in the loan process, allowing lenders to confidently transfer or sell loans without fear that the borrower will challenge the validity of the loan terms later on.

Thus, the estoppel clause plays a vital role in ensuring that the loan's conditions are recognized and upheld, providing security for both parties involved in the financing transaction.