Definition of "Obligor"
The definition of obligor is a position that comes from obligation and indicates a party that has ‘promised’ to perform a specific act. In the financing world, an obligor is also known as a debtor. It can apply to someone who is obliged legally or through a contract to pay a debt, to provide a service, to transfer a title, or provide benefit to another.
The meaning of the term “obligor” is used in financial context to refer to an issuer of a bond. The bond issuer is contractually obliged to meet the required repayments and interest payments for an outstanding debt. The one who receives the compensation or benefits is the obligee.
How does an obligor work?
As mentioned above, an obligor’s position comes with an obligation that legally bounds the obligor to the obligee. The most common types of obligors are debt holders. The obligor is required contractually to repay their debt and to repay interest. Obligors can be found in corporate settings or personal settings. We’ll take a look at their obligations in each situation.
Corporate Setting Obligor
In the corporate world, an obligor doesn’t only deal with the payment requirements, but also with covenants which can be affirmative or negative. The affirmative covenant is a requirement of the obligor, like meeting a target or benchmark in performance. The negative covenant is a restriction that limits the obligor’s ability to do something, like changing the structure of a company’s leadership.
Because obligors are contractually obliged by these covenants, they have little freedom from them regarding payments. A delay in payments can have long-term repercussions and can be seen as a default for the bond issuer.
Personal Setting Obligor
A person can become an obligor in their personal life as well. In family disputes, divorce affects real estate, but there are situations when the court issues an order that obliges one of the parents to pay a monthly fee in child support so that the other parent can use it to raise the children. This would make the paying parent an obligor. A personal setting obligor can request a recalculation of the child support if their financial status changes as child support result from the obligor’s salary.
In case the obligor loses their job, and they do not request a recalculation of child support, they can face other problems. The court can impose wage garnishments and loss of driver’s license, amongst other things.
When an insurance company has a life insurance policy, and the insured individual dies, the insurance company becomes the obligor. Through the life insurance policy the insurance company is contractually obliged to compensate the beneficiary of the life insurance policy as stipulated within the policy itself.
Real Estate Tips:
We at RealEstateAgent.com feel it is our obligation to pass good real estate knowledge forward, so free feel to use our real estate glossary terms.
And contact a real estate agent; they’re the obligor when it comes to responsible services for people buying or selling a home!
Popular Real Estate Terms
Contract to act on the behalf of a principal in selling real estate. The principal agrees to pay a commission to the broker when a buyer is produced who is ready, willing, and able to meet ...
The coefficient of dispersion is how municipalities can determine differences between the assessed values of properties in an area or neighborhood. It gives a broader look at the state of ...
Ownership rights to the minerals or other precious resources, such as petroleum, in one's property. A property owner having the mineral rights to the property can do one of three things ...
An official indicating intensity of land use in a zoned urban area. ...
Government owned lands, for conservation purposes or for specific uses such as dams and hydropower. Public lands are owned by federal, state, and local governments. Many public lands are ...
A rental contact in which the tenant's rental is tied to a change in the price level, such as the Gross National Price Deflator. ...
When a mortgage loan is provided to a borrower, the lender establishes a fund called a tax and insurance escrow to accumulate the debtor's monthly payments for property taxes and insurance ...
Bond collaterized by real assets. Two kinds of mortgage bond are senior mortgages and junior mortgages. A mortgage bond may have a closed-end provision that prevents the firm from issuing ...
Tax deduction permitted upon the transfer of property from one spouse to another. The deduction is allowed under the federal gift tax for lifetime transfers or under the federal estate tax ...
Have a question or comment?
We're here to help.