Question 60

Acceleration Clause

A mortgage that allows the mortgagee to demand the entire debt immediately due and payable in case of default contains an acceleration clause. This clause provides the lender the right to call the full balance of the loan if the borrower fails to meet the agreed-upon terms.

A) Due-on-sale

The due-on-sale clause allows the lender to demand full payment of the loan if the property is sold or transferred. While this clause is related to the transfer of property ownership, it does not pertain to the immediate demand of the entire debt due to borrower default, which is the focus of the question.

B) Subordination

Subordination refers to the ranking of liens or claims against a property, particularly in relation to other debts. It does not involve the lender's ability to demand repayment upon default and is therefore not relevant to the context of demanding the entire debt immediately.

C) Acceleration

The acceleration clause is specifically designed to protect the lender by allowing them to require the full repayment of the loan balance upon the borrower's default. This clause is central to the mortgage agreement's enforcement and is the correct answer as it directly addresses the situation described.

D) Escalation

Escalation generally refers to clauses that allow for the increase of loan terms, such as interest rates, under certain conditions. This term does not apply to the immediate collection of debt in the event of default and is not relevant to the context of the question.

Conclusion

The acceleration clause is the definitive correct answer as it directly enables the lender to call the entire balance due upon a borrower's default, which is the crux of the question. Other options, such as due-on-sale, subordination, and escalation, do not provide the same functionality regarding the immediate demand for repayment, thereby making them incorrect in this context.