New Jersey Real Estate Exam Practice Question
A property owner has a mortgage on a lot and wants to borrow money to build a house on it. To accomplish this, which of the following clauses must the existing mortgage contain?
Correct Answer: D
Rationale: To borrow money for building a house on a mortgaged lot, the existing mortgage must contain a subordination clause. This clause allows the new construction loan to take priority over the existing mortgage, ensuring that the lender for the new loan has a first lien position.
Alienation clauses (A) allow lenders to demand full repayment if the property is sold, which is not relevant here. Acceleration clauses (B) enable lenders to call the full loan amount due upon default, not related to obtaining new financing. Subrogation (C) pertains to replacing a party in a financial obligation and does not apply in this context.
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