What Is an Adverse Claim & Why Does It Matter?

Adverse Claim is a legal term that refers to any claim, encumbrance, or lien that is asserted against a property or asset. An Adverse Claim can be made by any person or entity that believes they have a right to the property or asset, such as a creditor, a judgment creditor, or a lien-holder. An Adverse Claim can be created by agreement, statute, or court order.

In order to protect the interests of buyers and lenders, it is important to ensure that the property or asset being sold or financed is free and clear of any Adverse Claims. This is usually done by conducting a title search and obtaining a title insurance policy, which provides protection against any Adverse Claims that may arise in the future.

Let's take a look at some examples of Adverse Claim in a sentence:

• Immediately prior to each purchase hereunder, Seller shall be the legal and beneficial owner of the Receivables and Related Security with respect thereto, free and clear of any Adverse Claim, except as created by the Transaction Documents.

In this example, the seller is required to ensure that the Receivables and Related Security being sold are free and clear of any Adverse Claims, except for those created by the Transaction Documents.

• Except for the conveyances and grants of security interests pursuant to this Agreement and the other Transaction Documents, the Seller shall not sell, pledge, assign or transfer the Transaction SUBI to any other Person, or grant, create, incur, assume or suffer to exist any Adverse Claim on any interest therein, and the Seller shall defend the right, title and interest of the Buyer in, to and under the Transaction SUBI against all claims of third parties claiming through or under the Seller.

In this example, the seller is prohibited from creating any Adverse Claims on the Transaction SUBI, and must defend the buyer's right, title, and interest in the asset against any third-party claims.

• The Subject Borrower represents and warrants to Lender that, as of the date of effectiveness of the Collateral Surrender contemplated hereby, the Subject Collateral is free of any Adverse Claim, except as created under the Lending Agreement.

In this example, the borrower is representing and warranting to the lender that the Subject Collateral being surrendered is free of any Adverse Claims, except for those created under the Lending Agreement.

• Except as otherwise provided herein, the Borrower will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon (including, without limitation, the filing of any financing statement) or with respect to, any Pool Receivable or other Collateral, or assign any right to receive income in respect thereof.

In this example, the borrower is prohibited from creating any Adverse Claims on the Pool Receivable or other Collateral being used to secure the loan, except as otherwise provided in the agreement.

• There exists no Adverse Claim with respect to the Pledged Equity of such Obligor.

In this example, the parties are representing that there are no Adverse Claims with respect to the Pledged Equity of the Obligor.

In conclusion, Adverse Claims are an important consideration in any transaction involving the transfer or financing of assets. To ensure that a property or asset is free and clear of any Adverse Claims, it is important to conduct a thorough title search and obtain a title insurance policy. By doing so, buyers and lenders can protect themselves against any potential claims that may arise in the future.

If you're interested in learning more about Adverse Claims and other legal terms, check out lawinsider.com, a website that provides free access to thousands of legal agreements and contracts.