What is the Due-On-Sale clause?
Due-on-Sale Clause (also known as “alienation clause”) – A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home. First, it should be apparent that there is no such thing as “breaching” or “violating” this clause. It is merely an enabling clause – if the borrower takes certain action, then the lender may require immediate payment in full. A person who transfers title without the lender’s prior consent commits no offense, civil or criminal. Secondly, the clause expressly states that a lender may not act if such action is “prohibited by Applicable Law.” Can the lender call the loan? Technically yes, but practically no. Whenever a home is sold, the underlying lender technically has the right to “call the loan due”. Almost all notes have a “due on sale” clause in them that give lenders this right. With that being said, we have never seen a case in which a lender actually calls a loan
