Question 13

Due-on-sale clauses are intended to prohibit the assumption of the mortgage.

A due-on-sale clause prevents the transfer of the mortgage to a new borrower without the lender's consent, thereby prohibiting the assumption of the mortgage.

A) subordination

Subordination clauses do not prohibit the assumption of the mortgage; instead, they establish the priority of the mortgage in relation to other liens. This type of clause allows a subordinate loan to take precedence over a prior loan, but it does not affect the terms regarding the assumption of the mortgage.

B) acceleration

Acceleration clauses are designed to allow the lender to demand full repayment of the loan if certain conditions are met, such as missed payments. While important for enforcing loan terms, they do not directly address the assumption of the mortgage by another party.

C) amortization

Amortization clauses outline the repayment schedule of the loan, detailing how the principal and interest are to be paid over time. This clause is focused on the payment structure and does not relate to the assumption of the mortgage by a third party.

D) due-on-sale

Due-on-sale clauses explicitly prohibit the assumption of the mortgage without the lender's approval. This clause is intended to protect the lender's interests by ensuring that the existing borrower remains responsible for the mortgage, preventing a transfer that could affect the lender's security.

Conclusion

The due-on-sale clause is the definitive answer as it specifically addresses the prohibition of mortgage assumption. In contrast, the other options—subordination, acceleration, and amortization—serve different functions related to loan management and do not restrict the transferability of the mortgage. Thus, the due-on-sale clause is essential for maintaining the lender's control over the mortgage agreement.