Humber/Ontario Real Estate Course 4 Exam Practice

Which clause type requires lender approval for mortgage assumption in an agreement?

1. Amendment clause

2. Conditional clause

3. Subsequent clause

4. True condition precedent clause

5. Agreement clause

6. Fine print clause

The correct answer is: True condition precedent clause

The correct answer is the type that refers specifically to conditions that must be met before a contract becomes binding. A true condition precedent clause is designed to ensure that certain criteria are satisfied, which in the context of a mortgage assumption would include obtaining the lender's approval. This is crucial because lenders typically want to assess the new borrower's creditworthiness before allowing them to take over an existing mortgage. By doing so, the lender protects their financial interests and ensures that the loan remains secure. In contrast, other clause types such as amendment, conditional, subsequent, agreement, and fine print clauses either do not specifically relate to mortgage assumptions or do not inherently require lender approval. For instance, amendment clauses often refer to changes made to the agreement itself without necessarily involving lender consent, while conditional clauses can cover a range of non-specific conditions. Understanding the distinctions between these clauses is important for valuing which scenarios require explicit approvals or additional terms in a real estate transaction.