Question 72

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

A due-on-sale clause is a provision in a mortgage that allows the lender to demand full repayment of the loan if the property is sold or transferred to a new owner. This clause effectively prevents a subsequent buyer from assuming the existing mortgage terms.

A) condemnation clause

A condemnation clause relates to the rights of a lender to collect on a loan if the property is taken by condemnation for public use. This clause does not address the assumption of the mortgage by a subsequent buyer, making it irrelevant to the question at hand.

B) defeasance clause

A defeasance clause typically allows a borrower to eliminate the lender's interest in a property once the mortgage is paid off, essentially releasing the lien. This clause does not prevent a subsequent buyer from assuming the mortgage, thereby not fulfilling the requirement of the question.

C) due-on-sale clause

The due-on-sale clause specifically prevents a subsequent buyer from assuming the existing mortgage without the lender’s consent. This clause is designed to protect the lender's interests by ensuring that they can reassess the mortgage terms when ownership of the property changes.

D) right of first refusal

A right of first refusal gives a party the first opportunity to purchase a property before it is offered to others. This option does not relate to the assumption of a mortgage and thus does not answer the question regarding the prevention of mortgage assumption.

Conclusion

The due-on-sale clause is the only option that directly addresses the prevention of a subsequent buyer from assuming a mortgage. Other options either pertain to different aspects of real estate transactions or do not fulfill the specific criteria of the question, confirming that C is the definitive correct answer.