Tennessee Real Estate License 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 build 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 the lender for the new loan has first claim on the property in case of default.
Option A, alienation, pertains to the transfer of property ownership and does not facilitate new borrowing for construction. Option B, acceleration, allows the lender to demand full repayment upon default, which does not help in obtaining additional financing. Option C, subrogation, involves the substitution of one creditor for another but is irrelevant in this context.
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