A homeowner obtained a mortgage with a clause that allows the lender to demand full repayment if the homeowner sells the property. The homeowner later transferred the property via a quitclaim deed to their adult child without informing their lender. Upon discovering the transfer, the lender demanded full repayment of the mortgage. Which principle is most relevant in determining whether the lender’s demand is enforceable?
The doctrine of equitable subrogation, which permits substitution of one party for another in a debt obligation.
The covenant of marketable title, which ensures the property is free of encumbrances upon sale.
The due-on-sale clause, which allows the lender to demand repayment upon an unauthorized transfer.
The rule against restraints on alienation, which voids unreasonable restrictions on transfers of property.
The due-on-sale clause is a common provision in mortgages that allows the lender to demand full repayment of the loan when the property is transferred to another party without the lender's consent. Courts typically enforce these clauses, as they are designed to protect the lender's security interest and assess the financial reliability of the new owner. Other options, such as the doctrine of equitable subrogation, are less relevant here because they address different aspects of property and mortgage law. Additionally, while the rule against restraints on alienation limits restrictions on property transfers, it generally applies to unreasonable restrictions, and due-on-sale clauses are upheld as reasonable in most jurisdictions.
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