Humber/Ontario Real Estate Course 4 Exam Practice

When no additional covenants are included in a mortgage, what happens if the mortgagor defaults?

1. The mortgagor must repair and maintain the property.

2. All outstanding mortgage amounts become due immediately.

3. The mortgagee guarantees clear title for the property.

4. The mortgagee gains the right to collect property taxes.

5. The mortgagor faces a penalty in addition to foreclosure.

6. The mortgage term is shortened, and higher instalments apply.

The correct answer is: All outstanding mortgage amounts become due immediately.

The correct answer is that all outstanding mortgage amounts become due immediately if the mortgagor defaults without any additional covenants included in the mortgage. This principle is commonly referred to as "acceleration." In the event of a default, the lender can invoke the acceleration clause, if it exists, which allows them to demand full repayment of the loan balance rather than just the overdue payments. This mechanism is crucial for lenders as it provides them with a means to protect their financial interests when the borrower fails to adhere to the terms of the mortgage. Rather than allowing for a prolonged period of missed payments, the lender can act swiftly to recover owed amounts, which may lead to foreclosure proceedings if the borrower is unable to pay the total due. Other choices reflect outcomes or obligations that do not standardly arise upon default in a mortgage situation without additional terms. For instance, while maintaining the property is important, it is not a direct consequence of default without specific covenants that stipulate such obligations. Similarly, the right to collect property taxes, potential penalties, or modifications to the mortgage term and payments are contingent on terms that would need to be explicitly stated in the mortgage agreement. Therefore, the acceleration of the loan amount is the most clear and immediate response to a default