Question 84

The alienation clause allows the lender to demand immediate payment upon sale of the property.

An alienation clause in a mortgage loan permits the lender to require full repayment of the loan balance if the property is sold or otherwise transferred. This clause protects the lender’s interests by ensuring they can collect the remaining debt when the ownership of the collateral changes.

A) alienation clause

This option is correct because the alienation clause directly addresses the scenario where the property is sold. It gives the lender the right to demand full repayment of the loan to prevent the new owner from assuming the existing loan terms without the lender's consent.

B) prepayment clause

The prepayment clause allows a borrower to pay off a loan early, usually under certain conditions, but it does not provide the lender with the right to demand immediate payment upon the sale of the property. Therefore, this option is incorrect in the context of the question.

C) condemnation clause

The condemnation clause pertains to situations where the property is taken by the government through eminent domain. This clause does not relate to the sale of the property and thus is not relevant to the lender's request for immediate payment in this scenario.

D) defeasance clause

The defeasance clause typically allows for the nullification of a loan obligation upon the fulfillment of certain conditions, often involving the substitution of collateral. It does not grant the lender the right to demand immediate payment upon the sale of the property, making this option incorrect.

Conclusion

The alienation clause is the correct answer as it specifically grants the lender the authority to call for immediate repayment when the property securing the loan is sold. All other options fail to address this situation directly, either relating to different circumstances or not providing the lender with the same rights in the context of property transfer.