Finance
What does a 'due-on-sale' clause in a mortgage or deed of trust require?
AThe buyer must pay the full purchase price at closing without financing
BThe seller must pay off the loan when the property is sold
CThe existing loan be paid off in full when ownership is transferred✓ Correct
DThe lender must approve any refinancing of the loan
Explanation
A due-on-sale (alienation) clause requires that the entire outstanding loan balance be paid off when the property is sold or ownership is transferred. It prevents buyers from assuming the existing loan without lender approval.
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Key Terms to Know
Deed of Trust
A security instrument used in many states instead of a mortgage, involving three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.
DeedA written legal instrument used to transfer ownership of real property from one party (grantor) to another (grantee).
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
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