Mortgage Covenants

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Number 1. The clause in a mortgage contract which makes the full outstanding balance immediately due and payable upon the commission of a certain event or the occurrence of some activity that triggers the clause.

Correct Answer: Acceleration Clause

Number 2. A mortgage covenant which states that any additional mortgageable property acquired by a borrower becomes additional collateral for the existing mortgage obligation.

Correct Answer: After-acquired Clause

Number 3. A covenant that addresses the rights of a purchaser to step in and take over the rights to a mortgagor; unless released from the lender, the original mortgagor remains secondarily liable for the satisfaction of the mortgage.

Correct Answer: Assumption Clause

Number 4. A covenant in a mortgage or real estate financial contract that allows the lender or asset holder to require immediate, full payment for the entire --or a portion-- of the outstanding balance or commitment.

Correct Answer: Call Provision

Number 5. A covenant in a loan that allows a lender to demand repayment in the event of certain prespecified circumstances.

Correct Answer: Demand Clause

Number 6. A covenant in a mortgage which makes the entire outstanding balance due in full upon transfer of interest in an underlying property; typically precludes or restricts the rights of assumption.

Correct Answer: Due-on-Sale Clause

Number 7. The covenant in a mortgage document which specifies the items and amounts that a borrower must deposit in a series of periodic payments to fulfill the terms of the mortgage. These payments are established to make sure there are sufficient reserves to cover on-going obligations for insurance and taxes. In many cases, an escrow agent will disburse funds and manage the account.

Correct Answer: Escrow Clause

Number 8. An incentive covenant in a mortgage that provides an added boost or earning potential to enhance the yield on a mortgage; may consist of bonus payments or some form of equity participation in which a lender enjoys equity-like benefits which may be contingent.

Correct Answer: Kicker

Number 9. A covenant in a note or financial instrument which precludes early payment in order to ensure that a lender receives the promised payment over the specified time period.

Correct Answer: Lock-in Clause

Number 10. The minimal disclosure standards and timing requirements that must be met in providing information to potential borrowers to allow them to make informed decisions and compare alternative sources of financing.

Correct Answer: Mandatory Disclosure

Number 11. Agreements between a borrower and a lender regarding various caveats or clauses to which they agree addressing such items as mortgage claim, priority of claim, provision of insurance, due on sale, assumption and prepayment.

Correct Answer: Mortgage Covenants

Number 12. A mortgage which contains a covenant that prohibits transfer of the obligation to a third party without express approval of the lender.

Correct Answer: Non-assumable Mortgage

Number 13. A covenant in a mortgage that prevents a mortgagee from stepping in and terminating the rights of lessees (i.e., tenants) in the event of foreclosure to protect the rights of the tenants and honor their leasehold interests.

Correct Answer: Nondisturbance Mortgage Covenant

Number 14. A contractual right to repay part or all of a debt prior to its due date without incurring a penalty for early termination prior to full maturity of the obligation.

Correct Answer: Prepayment Privilege

Number 15. An informal commitment to a certain amount of loan relying on preliminary underwriting inputs and analysis of a borrower and the underlying collateral that can be assumed as binding if various provisions are satisfied.

Correct Answer: Prequalified Loan

Number 16. A promise to pay that is a contemporaneous piece issued with the mortgage and which creates the obligation to repay in accordance with specified terms.

Correct Answer: Promissory Note

Number 17. In an adjustable rate mortgage, the covenant that allows changes in periodic payments to ensure that payments are adequate to fully amortize the loan over the remaining term.

Correct Answer: Recast Clause

Number 18. A covenant which removes liens or claims on collateral held by a mortgagee that allow the borrower to dispose of the property by sale or transfer to a third party.

Correct Answer: Release Clause

Number 19. The act or agreement by which a lender subverts their priority of claim in favor of another lender or party.

Correct Answer: Subordination

Number 20. A covenant in a mortgage which allows a borrower to pay taxes and insurance directly rather than dispersing funds through escrow accounts that are replenished through periodic payments.

Correct Answer: Waiver of Escrows