Which provision allows a lender to demand immediate payment of the mortgage balance if the holder sells the home?

Which provision allows a lender to demand immediate payment of the mortgage balance if the holder sells the home?

• A. Due-on-Demand Clause
• B. Due-on-Sale Clause
• C. Exculpatory Clause
• D. Prepayment Penalty

Answer: (B)

The Due-on-Sale Clause is a provision in a mortgage contract that gives the lender the right to demand the full payment of the mortgage balance if the property is sold or transferred to another party. This clause protects the lender by ensuring that the loan remains with the original borrower, which helps maintain the lender's risk level and allows them to either continue collecting payments or manage the loan under the terms they find acceptable. When a home is sold, the lender may want the opportunity to reassess the risk associated with the loan, or they might prefer to lend to a new buyer under different terms, especially if interest rates have changed. The Due-on-Sale Clause is a mechanism that enforces this precautionary measure, preventing the current borrower from transferring the mortgage obligation to an unverified buyer without the lender's consent. Understanding this clause is essential for anyone involved in real estate transactions, particularly in the context of mortgage financing, as it directly impacts the sale process of real property and the ability of the buyer to assume the existing mortgage terms.

The Due-on-Sale Clause is a provision in a mortgage contract that gives the lender the right to demand the full payment of the mortgage balance if the property is sold or transferred to another party. This clause protects the lender by ensuring that the loan remains with the original borrower, which helps maintain the lender's risk level and allows them to either continue collecting payments or manage the loan under the terms they find acceptable.

When a home is sold, the lender may want the opportunity to reassess the risk associated with the loan, or they might prefer to lend to a new buyer under different terms, especially if interest rates have changed. The Due-on-Sale Clause is a mechanism that enforces this precautionary measure, preventing the current borrower from transferring the mortgage obligation to an unverified buyer without the lender's consent.

Understanding this clause is essential for anyone involved in real estate transactions, particularly in the context of mortgage financing, as it directly impacts the sale process of real property and the ability of the buyer to assume the existing mortgage terms.