Texas Real Estate State Practice Exam

Which type of clause states that the remaining balance is due if the property is sold without the mortgagee's approval?

1. Assumption Clause

2. Escalation Clause

3. Prepayment Clause

4. Due on Sale Clause

The correct answer is: Due on Sale Clause

The Due on Sale Clause is correct because it specifically stipulates that if a property is sold, the entire remaining balance of the mortgage becomes due immediately unless the mortgagee (the lender) gives their consent. This clause protects the lender's interest in the loan by ensuring that they are notified of any sale and can react accordingly, such as ensuring the new owner qualifies for the mortgage. In contrast, the Assumption Clause allows a buyer to take over the seller's mortgage under certain conditions, which is not the focus of this question. The Escalation Clause typically involves increases in costs or payments under specific circumstances, often related to rent or pricing in a lease, rather than addressing the sale of a property. The Prepayment Clause deals with the borrower's right to pay off the loan in advance, sometimes with stipulations or penalties, but does not pertain directly to the condition of selling the property.