Due-on-Sale Clause

A due-on-sale clause is a mortgage contract provision that lets the lender demand full repayment if the property is sold or transferred without lender-approved treatment of the existing loan.

Why It Matters

Due-on-sale clauses matter because they control whether an existing mortgage can stay in place after a transfer. They are one of the main reasons Assumption of Mortgage and Subject to Mortgage carry very different risk profiles.

How It Works in Finance Practice

If title changes hands, the lender reviews whether the transfer is allowed under the loan documents and applicable law. If the transfer is not protected by an exception and the lender does not approve an assumption, the lender may accelerate the loan and require payoff.

| Transfer structure | What happens to title | Lender risk under due-on-sale clause |

| — | — | — |

| Approved assumption | Title transfers and buyer is approved on the debt | Lower, because lender consents to the new borrower |

| Subject-to transaction | Title transfers without full approved debt transfer | Higher, because lender may call the loan |

| Ordinary sale with payoff | Title transfers and old loan is repaid | Clause is satisfied because debt is paid off |

The clause is related to acceleration, but it is more specific. It is triggered by transfer of ownership rather than by missed payments or another ordinary default.

FAQs

Related Terms

• Assumable Mortgage: Loan feature that can make transfer possible without forced payoff.
• Assumption of Mortgage: Formal transfer route that often addresses due-on-sale risk through lender approval.
• Subject to Mortgage: Transfer structure where due-on-sale risk is often central.
• Wraparound Mortgage: Seller-financing structure that can leave the original loan exposed to due-on-sale enforcement.
• Acceleration Clause: Broader contract mechanism that includes transfer-triggered payoff rights.