Humber/Ontario Real Estate Course 4 Exam Practice

What clause should Salesperson Chou include when drafting the offer involving a seller take back mortgage?

1. A renewal provision for mortgage flexibility

2. Prepayment clause for the existing mortgage

3. A postponement clause for the seller take back mortgage

4. A postponement clause for the first mortgage

The correct answer is: A postponement clause for the seller take back mortgage

Including a postponement clause for the seller take back mortgage in the offer is essential because it outlines the priority of the seller's financing in relation to other debts secured against the property. This clause essentially ensures that the seller's mortgage retains its position and is subordinate to any existing mortgage on the property, ensuring that if the property goes into default, the first mortgage lender would have the first claim to the proceeds from the sale of the property. In transactions involving seller take back mortgages, it is crucial for both the buyer and seller to understand how these loans will interact with other mortgages. The postponement clause would particularly protect the seller’s interests by clarifying that their mortgage is secondary to any pre-existing mortgage, which can streamline the foreclosure process and give clarity should a default situation arise. Considering the alternatives, a renewal provision for mortgage flexibility may benefit the buyer or lender but does not address the essential prioritization of mortgages. A prepayment clause for the existing mortgage could offer advantages in terms of flexibility in repayment but does not directly relate to the hierarchical arrangement of claims. Similarly, a postponement clause for the first mortgage is not applicable when the focus is on ensuring the seller's mortgage is clearly stated in relation to existing claims.