Also known as: due-on-sale · due on sale clause · due-on-sale clause
Written by attorneys · grounded in primary & secondary sources — see below
A contractual provision in a mortgage that permits the mortgagee to accelerate the entire debt upon transfer of the mortgaged property without the mortgagee's consent. Federal law generally authorizes enforcement of the provision regardless of whether the transferee presents increased credit risk.
Derek Douglas owned a commercial building subject to a mortgage containing a due-on-sale clause. He granted Denise Donovan an option to purchase the building and allowed her to begin making the mortgage payments. The lender discovered the arrangement and accelerated the full balance. The clause was triggered because the option transferred a significant interest in the property without consent.
Delta Dynamics sold its switching facility to Duarte Shipping under a sale-leaseback arrangement that conveyed legal title while retaining operational space. The mortgage required prior written consent for any transfer. Duarte Shipping took title without obtaining consent. The lender could accelerate because title had passed without approval.
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No. The clause permits acceleration upon an unapproved transfer regardless of whether the transferee impairs the lender's security or presents greater credit risk. Federal law upholds enforcement on the contract terms alone.
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No. The clause is triggered by the transfer of title itself. Neither the family relationship nor uninterrupted payments by the seller excuses the requirement of lender consent.
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Yes. The clause is valid and enforceable in both commercial and residential transactions under federal law. The commercial nature of the loan does not exempt it from the provision.
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It can. When the arrangement conveys a present interest in the property or shifts substantial control without lender consent, courts treat it as a transfer that activates the clause.
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…Cuesta , 458 U. S. 141, 154–159 (1982) (holding that a regulation authorizing federal savings-and-loan associations to include due-on-sale clauses in mortgage contracts conflicted with a state-court doctrine that such clauses were unenforceable); City of New York v. FCC , 486 U. S. 57, 59, 65–70 (1988) (finding that the FCC’s…