Jennifer purchased a home in Chattanooga using a deed of trust with a due-on-sale clause. She later wants to sell the home to Kevin and allow him to assume the existing loan without notifying the lender. If Kevin takes title and begins making payments, what is the most likely consequence under the deed of trust's due-on-sale clause?
Correct Answer
D) The lender may accelerate the loan and demand full repayment of the outstanding balance immediately
A due-on-sale clause (also called an acceleration clause triggered by transfer) gives the lender the right to demand full and immediate repayment of the outstanding loan balance if the property is transferred without the lender's consent. If Jennifer sells to Kevin without notifying and obtaining approval from the lender, the lender can invoke the due-on-sale clause and accelerate the entire loan balance. This is enforceable under federal Garn-St. Germain Act and is standard in Tennessee deed-of-trust loans.
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