Due on Sale Clause
What Is a Due-on-Sale Clause?
A due-on-sale clause is a provision in a mortgage contract that requires the borrower to repay the full remaining loan balance if the property is sold or transferred.
Most modern mortgages include this clause.
It protects lenders from having loans transferred to new owners without their approval.
Why It Matters in a Mortgage
A due-on-sale clause:
- Prevents unauthorized loan transfers
- Protects lenders from interest rate risk
- Requires payoff when ownership changes
If a homeowner sells the property, the mortgage typically must be paid off at closing.
Certain exceptions may apply under federal law for transfers between spouses, inheritance, or into living trusts.
How It Works
- Property is sold or ownership changes.
- Lender invokes due-on-sale clause.
- Remaining loan balance must be paid in full.
If not satisfied, the lender may pursue acceleration and foreclosure.
Due-on-Sale Clause vs. Assumable Mortgage
Due-on-Sale → Loan must be paid off
Assumable Mortgage → Loan may transfer to buyer
Structure determines transfer rights.
FAQs About Due-on-Sale Clauses
Can a lender waive a due-on-sale clause?
In rare cases, lenders may allow assumptions, but approval is required.
Does inheritance trigger the clause?
Federal protections often prevent enforcement for certain family transfers.
Can transferring to a trust trigger it?
Some living trust transfers are permitted if borrower remains beneficiary.
Related Terms
