Ethan makes every scheduled principal-and-interest payment on time, but he lets property taxes become delinquent and allows hazard insurance to lapse. The lender advances funds to protect its collateral and charges Ethan under the loan documents. Which part of the closing package most directly supports the lender's action?
Correct Answer
C) The mortgage or deed of trust, because it contains property-protection covenants
The mortgage or deed of trust usually contains covenants requiring the borrower to protect the lender's collateral by paying taxes, maintaining insurance, and avoiding priority liens. If Ethan fails to do that, the lender may advance funds to protect its security and add those amounts as allowed by the loan documents and applicable law.
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