A homeowner obtained a mortgage loan from Bank A to purchase a residence, which included a due-on-sale clause. Two years later, the homeowner privately sold the property to a buyer and allowed the buyer to take over the mortgage payments. The sale occurred without notifying Bank A or obtaining its consent. When Bank A became aware of the sale, it invoked the due-on-sale clause and demanded repayment of the outstanding loan balance. How would the law evaluate Bank A's rights?
The buyer's assumption of payments challenges the enforceability of the due-on-sale clause by Bank A.
The enforceability of the due-on-sale clause is determined by the agreement's terms between the homeowner and the buyer.
Bank A can enforce the due-on-sale clause and demand repayment of the remaining mortgage balance.
A court can determine the due-on-sale clause unenforceable under certain legal standards.
Bank A is legally entitled to enforce the due-on-sale clause and require repayment of the mortgage balance. A due-on-sale clause allows the lender to demand repayment if the property is transferred without consent, as it ensures the lender can control who holds ownership of collateral securing the loan. The private agreement between the homeowner and buyer does not negate the lender's rights, as the lender is not a party to that agreement. Courts rarely invalidate due-on-sale clauses unless they conflict with specific legal restrictions or public policy, which is not common under federal standards like the Garn-St. Germain Depository Institutions Act. Other options incorrectly suggest that the buyer's actions or private agreements affect the lender's rights, or that courts frequently deem these clauses unenforceable without clear legal justification.
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What is a due-on-sale clause?
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What happens if a homeowner ignores the due-on-sale clause?
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Can a due-on-sale clause ever be deemed unenforceable?