Question

Sharon tried to sell her home on a land contract but was told by her lender that she must pay off the mortgage she owed to them if the home was sold. The lender could actually call the entire balance due if Sharon sells the home because the mortgage contains:

Answer 1

The mortgage contains a "due-on-sale" clause.

Explanation:

The due-on-sale clause is a standard provision in many mortgages that allows the lender to demand the full repayment of the loan if the property is sold or transferred to a new owner. Essentially, when Sharon attempts to sell her home through a land contract, the lender has the right, as stipulated in the mortgage agreement, to require immediate payment of the remaining balance on the loan.

This clause protects the lender's interests by ensuring they can assess the creditworthiness of the new property owner and adjust the terms of the loan if necessary. In Sharon's case, attempting to sell the home triggers the due-on-sale clause, compelling her to pay off the outstanding mortgage before transferring ownership to the buyer. Due-on-sale clauses are designed to maintain the lender's control over the loan terms and protect their investment in the property.

This clause is a standard safeguard for lenders, ensuring their control over the terms of the loan and protecting their financial interests when a property changes ownership. It allows them to assess the creditworthiness of the new buyer and adjust loan terms if needed. In Sharon's scenario, the sale triggered this clause, necessitating repayment of the mortgage before the transfer of ownership could occur. Due-on-sale clauses serve as a protective measure for lenders, enabling them to maintain control over their investments in properties when changes in ownership take place."