A clause preventing a subsequent buyer from assuming the mortgage is called a:

Rationale

A clause preventing a subsequent buyer from assuming the mortgage is called a due-on-sale clause.

A due-on-sale clause allows the lender to demand full repayment of the loan if the property is sold or transferred. This prevents a new buyer from assuming the existing mortgage without the lender's consent, ensuring that the lender can evaluate the creditworthiness of any new borrower.

A (condemnation clause) YOUR ANSWER

A condemnation clause typically relates to the situation where property is taken for public use, allowing the lender to call the loan due if the property is condemned. This clause does not address the assumption of a mortgage by subsequent buyers, making it irrelevant to the question.

B (defeasance clause) YOUR ANSWER

A defeasance clause is used to nullify a loan obligation once a borrower fulfills the terms of the mortgage, often related to the payment of the debt. This clause does not prevent assumption of the mortgage by another buyer; rather, it marks the completion of the loan terms, thus making it unrelated in this context.

C (due-on-sale clause) CORRECT

This is the correct answer, as a due-on-sale clause specifically prohibits the assumption of the mortgage by a new buyer without the lender's approval. It ensures that the lender retains control over who is responsible for the mortgage, thereby protecting their financial interests.

D (right of first refusal) YOUR ANSWER

A right of first refusal gives an existing party the opportunity to purchase a property before the owner sells to others. This clause does not prevent assumption of the mortgage; instead, it relates to the sale process and the rights of existing parties regarding the sale of the property.

Conclusion

The due-on-sale clause is a critical provision in mortgage agreements that safeguards lenders by preventing new buyers from assuming existing mortgages without approval. Other clauses like the condemnation clause, defeasance clause, and right of first refusal serve different purposes and do not address the assumption of mortgages. Understanding these distinctions is essential for navigating real estate transactions effectively.

A clause preventing a subsequent buyer from assuming the mortgage is called a:

A clause preventing a subsequent buyer from assuming the mortgage is called a due-on-sale clause.

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