What’s A “Due-On-Sale” Clause?
When a home is financed, the borrower agrees to make regular monthly payments. However, if those payments are not made, if they are late, or if the lender’s security is reduced (by not making payments, damaging the property, not maintaining insurance, not paying property taxes, selling the property, selling a part of the property by placing someone else on the title, etc.), then the lender has the right to call for the complete and immediate (say within 30 days) repayment of the loan. The mortgage language outlining the lender’s rights is generally called a “due-on-sale” or “acceleration” clause.
One effect of a due-on-sale clause is that it effectively prevents a loan from being assumed.
Borrowers should note that state and federal law may limit the ability of lenders to enforce a due-on-sale clause. For instance, the addition of a spouse to a title is allowed.
For details and specifics, please see an attorney.
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