Learning Real Estate One Word (or Phrase) at a Time
The Language of Real Estate – Learning Real Estate One Word (or Phrase) at a Time
An accommodation party is a term often used in the context of negotiable instruments, such as promissory notes and checks. An accommodation party is a person or entity that signs a negotiable instrument to provide assistance or accommodation to another party, typically the principal debtor, without receiving direct financial benefit from the transaction.
The accommodation party essentially acts as a co-signer or guarantor for the debt, making a commitment to pay the amount specified in the instrument if the principal debtor fails to do so. This endorsement helps the principal debtor obtain credit or fulfill a financial obligation when they might otherwise face difficulty in securing such arrangements.
It’s important to note that an accommodation party is distinct from the principal debtor, who is the one primarily responsible for repaying the debt. The accommodation party assumes a secondary liability and is only liable if the principal debtor defaults.
The use of accommodation parties is common in various financial transactions, especially when the borrower’s creditworthiness is a concern, and a third party is willing to vouch for their ability to repay.