dueonsale

A due-on-sale clause, also known as a due-on-transfer clause, is a contractual provision commonly found in mortgage or deed of trust agreements. It gives the lender the right to demand full repayment of the outstanding loan balance if the borrower transfers ownership of the secured property to another person or otherwise encumbers the property without the lender’s consent.

When triggered, the lender may declare the loan due and payable in full. The borrower may be required to refinance with the same lender or to sell the property to satisfy the debt. The clause is used to prevent loan assumption by a new borrower without the lender’s approval and to protect the lender from potential increases in credit risk or changes in terms after transfer.

Terms and applicability vary by loan type and jurisdiction. Conventional mortgages commonly include due-on-sale clauses, while some government-backed loans have different procedures for transfers or assumptions. The specific triggers, exceptions, and enforcement rights are defined in the loan agreement and related documents, so borrowers should review their contracts to understand the exact obligations.

Impact and considerations: for homeowners, a due-on-sale clause can complicate estate planning, interfamily transfers, or sales, since a transfer could accelerate the loan. Options to avoid acceleration typically include obtaining consent from the lender, pursuing a loan assumption if permitted, or refinancing into a new loan on the property. Lenders view the clause as a safeguard to maintain control over the loan’s terms and ownership.