Difficulty: Hard

Average Score: 29%

A borrower fails to make two consecutive payments on a loan secured by a mortgage on an office building. The lender may

Rationale

C) accelerate the balance of the loan

When a borrower fails to make two consecutive payments, the lender has the right to accelerate the loan, which means demanding the full outstanding balance of the loan immediately due. This action is commonly taken to protect the lender's financial interests and initiate the foreclosure process if necessary.

A (execute a deed in lieu of foreclosure) YOUR ANSWER

A deed in lieu of foreclosure is an agreement where the borrower voluntarily transfers ownership of the property to the lender to avoid foreclosure proceedings. This option typically requires the borrower to be willing to relinquish the property and is not automatically available upon missed payments; therefore, it is not the immediate remedy for the lender in this scenario.

B (evict delinquent tenants at the building) YOUR ANSWER

The lender does not have the authority to evict tenants simply due to the borrower’s missed payments. Eviction is a legal process that typically involves the property owner or landlord, and the lender generally does not assume control over the property or its tenants until foreclosure proceedings are initiated.

D (appoint a receiver for the property) YOUR ANSWER

While a lender can appoint a receiver in certain situations to manage the property and protect its value, this action is usually reserved for more complex scenarios, often involving significant financial distress or mismanagement. It is not a standard immediate response to two missed payments, making it less likely as the lender's first action.

Conclusion

When a borrower defaults on two consecutive loan payments, the most straightforward and common action a lender can take is to accelerate the loan balance. This process allows the lender to demand the full amount owed, thereby initiating steps towards foreclosure if the borrower does not rectify the default. Other options, such as a deed in lieu of foreclosure or appointing a receiver, may arise later but do not address the immediate need for the lender to act on the missed payments.

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