What allows a lender to reclaim the loan if the property is sold?

The concept that allows a lender to reclaim the loan if the property is sold is referred to as the Due-On-Sale Provision. This provision gives the lender the right to demand full payment of the loan upon the transfer of the property to a new owner. When a property is sold, the new owner typically assumes the existing loan; however, if the lender has a Due-On-Sale Provision in the loan agreement, they can insist that the loan be paid off to protect their interests, especially if the new borrower may not meet the credit standards of the lender or poses a higher risk.

This provision is critical for lenders because it preserves their ability to reassess the risk associated with the loan in light of the changes in ownership. Should a borrower sell the property, the lender may want to ensure that the new owner is reliable and may have a different risk profile compared to the original borrower. In many cases, if the borrower sells the property without notifying the lender or without the due-on-sale clause being triggered, the sale could lead to complications and potential default.

The other options outlined do not directly relate to the specific condition of reclaiming the loan upon the sale of property. Servicing rights pertain to who manages the loan and its payments, refinancing options