Which of the following best describes an alienation clause?

An alienation clause is best described as a provision in a loan agreement that requires the borrower to repay the loan in full if the property is sold or transferred to another party. This clause protects the lender’s interests by ensuring that the loan is settled before a new owner takes possession of the property.

In practice, this means that when a property is sold, the lender has the right to demand repayment of the outstanding balance on the loan. The existence of an alienation clause can impact the marketability of the property because potential buyers or sellers might need to consider the implications of paying off a loan early.

The other options do not correctly describe the function of an alienation clause. A condition for loan modification relates to changes in loan terms rather than repayment upon sale. Extending a mortgage term involves altering the duration of a loan, not necessarily linked to an alienation clause. Lower interest rates are typically associated with different types of financing agreements or refinancing opportunities, which is also not relevant to the definition of an alienation clause.