Also known as: due on sale clause · due-on-sale clauses · due-on-transfer clause
Written by attorneys · grounded in primary & secondary sources — see below
A mortgage provision that permits the mortgagee to accelerate the debt when the mortgaged property is transferred without the mortgagee's consent. Federal law generally authorizes enforcement of these clauses. The provision affects both the buyer's and seller's obligations upon any unapproved conveyance of title or interest in the property.
Dominic Drake sold his mortgaged warehouse to Dawson Steel without obtaining consent from the lender. The lender learned of the deed transfer during a routine title search and immediately declared the full balance due. Dawson Steel continued making payments, but the lender refused to accept them and initiated foreclosure proceedings.
Demetrius Douglas obtained a loan from a federal savings association secured by his home. He later conveyed the property to his sister without notifying the lender. The association exercised its contractual right to accelerate the debt and demanded full payment, leading to litigation over the clause's validity.
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The clause is triggered by any transfer of the mortgaged property or an interest in it without the lender's consent. This includes a deed conveying title or the grant of a significant option affecting ownership rights. Once triggered, the lender may accelerate the debt and demand full payment.
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Federal law such as the Garn-St. Germain Act generally makes these clauses enforceable by institutional lenders. The statute preempts contrary state rules that would require proof of impaired security. Lenders may enforce the clause according to its terms without needing to show actual harm.
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No. The clause operates upon the transfer itself, regardless of the parties' relationship or the absence of any change in payment history. Courts enforce the provision even when the transfer is to a relative and payments remain current.
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Yes. An exclusive purchase option combined with operational control can constitute a transfer of an interest in the property sufficient to activate the clause. The lender may accelerate even if the option remains unexercised.
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…were not prepared and executed because Sellers discovered that their property was encumbered with a mortgage containing a due on sale clause. Throughout their time on the land, Buyers repeatedly requested that their contract be formalized, and Sellers responded, "We will work it out." {6} A date certain was never determined for…