A lender requested that the entire loan balance be paid immediately because the property on which the loan was made had been sold. What clause in the mortgage loan allows this?

Rationale

Alienation clause allows the lender to demand immediate repayment upon sale of the property.

An alienation clause in a mortgage agreement stipulates that if the property is sold or transferred, the lender can require the borrower to pay the entire loan balance immediately. This clause protects the lender's interests by ensuring they can recoup their investment when the collateral (the property) changes ownership.

A (alienation clause) CORRECT

This clause directly addresses the scenario presented in the question. It gives the lender the right to demand full payment of the loan upon the sale of the property, thereby safeguarding their financial position and preventing unexpected transfers of ownership without their consent.

B (prepayment clause) YOUR ANSWER

A prepayment clause permits borrowers to pay off their loan early, often with specified conditions or penalties. It does not grant the lender the authority to demand immediate repayment upon the sale of the property; rather, it allows for voluntary early payment by the borrower.

C (condemnation clause) YOUR ANSWER

A condemnation clause relates to situations where the property is taken by the government through eminent domain. This clause typically outlines the lender's rights in terms of compensation for the loss of the property, but it does not pertain to the immediate repayment of the loan due to a sale.

D (defeasance clause) YOUR ANSWER

A defeasance clause provides for the release of the mortgage obligation once the loan is paid off, usually in the context of refinancing or paying off the debt. It does not authorize the lender to call the loan upon the sale of the property, making it irrelevant to the situation described in the question.

Conclusion

The alienation clause is crucial in mortgage agreements as it allows lenders to protect their investments by requiring immediate loan repayment when the property is sold. This feature ensures that lenders maintain control over the loan's collateral, distinguishing it from other clauses that govern loan repayment and property rights in different contexts.

A lender requested that the entire loan balance be paid immediately because the property on which the loan was made had been sold. What clause in the mortgage loan allows this?

Alienation clause allows the lender to demand immediate repayment upon sale of the property.

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