A Due on Sale Clause is a common provision in mortgage contracts. In this article, we’ll define the term “Due on Sale.”

Key Takeaways

• A Due on Sale clause is a common provision in mortgage contracts requiring the borrower to fully repay the loan if the property is sold or transferred to a new owner
• If the borrower fails to comply with the Due on Sale clause, the lender may initiate legal action to enforce it
• Due on Sale clauses may limit borrowers’ options and make it more difficult for them to sell the property
• Due on Sale clauses can also benefit borrowers by protecting them from having to pay an existing mortgage on a property

What Is a Due on Sale Clause?

A Due on Sale Clause is a legal provision commonly included in mortgage contracts that enables the lender to demand full repayment of the loan if the property is sold or transferred to a new owner. This clause provides lenders with protection against the risk of a borrower transferring the property to someone else without paying off the outstanding mortgage balance. The clause is typically included in the mortgage agreement and is binding on both parties.

The Due on Sale Clause gives the lender the right to accelerate the loan and demand full repayment of the outstanding balance if the property is sold or transferred without the lender's approval. This means that the borrower cannot simply transfer the property to someone else without paying off the mortgage or obtaining the lender's consent. If the borrower fails to comply with the Due on Sale Clause, the lender may initiate legal action to enforce the clause and recover the outstanding balance of the loan.

From the borrower's perspective, a Due on Sale Clause may limit their options for transferring or selling the property. If the borrower wishes to transfer the property to a new owner, they may be required to pay off the mortgage in full or obtain the lender's consent. This can make it more difficult for the borrower to sell the property, particularly if they are in a situation where they need to sell quickly.

However, the Due on Sale Clause can also benefit the borrower by providing them with some protection against the risk of assuming an existing mortgage. If the borrower is purchasing a property subject to an existing mortgage, the Due on Sale Clause ensures that the lender cannot simply transfer the mortgage to the new owner without their consent. This can help to prevent the borrower from becoming responsible for an existing mortgage that they cannot afford to pay.

It is important for borrowers to fully understand the Due on Sale Clause and its implications before entering into a mortgage agreement. It’s always recommended to work with a real estate attorney to review mortgage agreements.