What is a Due-on-Sale Clause?
Your mortgage loan agreement has a due-on-sale clause. Depending on the language in that agreement, a transfer of the property to an LLC may allow the lender to accelerate the loan. Similarly, an LLC’s member’s transfer or assignment of its rights to receive its share of profits, losses or other distributions from the LLC, or a transfer of its ownership interest may allow the lender to accelerate the loan. Recently, it has become more common for the mortgage due-on-sale clause to contain a “change of control” provision. This would reach direct or indirect changes in ownership of the property. Because of this possibility, you should read the contract language. If necessary, contact the lender and get permission prior to conveying the property to the LLC, or transferring or assigning any ownership interest in the LLC.
