Which mortgage clause limits a lender's rights to foreclose?

• A. Prepayment clause
• B. Due-on-sale clause
• C. Exculpatory clause
• D. Acceleration clause

Answer: (C)

The idea being tested is whether a loan can limit what the lender can do beyond the property itself. An exculpatory clause, also called a non-recourse clause, does exactly that: it limits the lender’s remedies to the property itself and prevents the lender from pursuing the borrower’s other assets for any deficiency after foreclosure. So if the borrower defaults, the lender can foreclose and take the property, but they can’t go after the borrower for any remaining amount not recovered by the sale. The other clauses set conditions or timing (prepayment penalties, triggering immediate repayment on transfer, or requiring full repayment once a default occurs) and don’t limit personal liability in this way, which is why the exculpatory clause is the correct choice.