Which clause requires the borrower to pay the remaining loan balance upon sale or transfer of the property?

• A. Escrow
• B. Due on sale clause
• C. Maintenance provisions
• D. Statute of Frauds

Answer: (B)

A due-on-sale clause is a mortgage provision that gives the lender the right to require the borrower to pay the remaining loan balance when the property is sold or ownership is transferred. This accelerates the loan, meaning the full amount owed becomes due at the time of transfer. The lender uses it to ensure the loan remains under conditions the lender originally approved and to reduce risk if the borrower changes.

When a property is sold or title is transferred, the loan can be paid off in full, or the new owner may sometimes assume the loan with the lender’s approval. But the key idea is that the lender can demand repayment in full rather than letting the existing loan continue unchanged with a new owner.

Escrow relates to holding funds for taxes and insurance, not the payoff of the loan on sale. Maintenance provisions deal with keeping the property in good repair. The Statute of Frauds is a legal rule about which contracts must be in writing to be enforceable.