The Due-on-Sale Clause

The Due on Sale Clause, or Acceleration Clause, is a clause in a mortgage which states that if there is any transfer of ownership or interest in a property, the mortgage can be called and immediately due to the lender.  With the exception of VA and FHA mortgages (which are generally assumable by a qualifying party), almost all mortgages have a due on sale clause.

Keep in mind that generally, this clause is a contractual option by the lender.  This means that the lender may or may not decide to call the loan due once notified of a transfer in title or ownership interest.  If the loan cannot be paid, the lender has the option of beginning foreclosure proceedings.

A "sale" is not the only thing that can trigger the due on sale clause.  Sometimes, a long term lease, lease-purchase agreement, or even a quit-claim deed can trigger the clause.

The reality is, in today's market, a lender would be nuts to call a loan when the payments are being made in full and on time.  And usually, they don't.  That being said, we do live in a world where nutty things are done....

Depending on applicable state laws, it may be possible to purchase a property "subject to" the existing mortgage by creating a land trust when transferring title.  Obviously, it is highly recommended that one consult with a qualified attorney before entering into such a transfer.

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