What is a due on sale clause?

A due on sale clause is a legal term found in real estate law in Virginia. It is a provision in a loan document that states the entire loan must be paid off if the property is sold or transferred to another party. It gives the lender the right to "call the loan"--or demand payment in full--if the property is sold or transferred to another party. The clause is meant to protect the lender from financing a loan for someone who is not ultimately responsible for the loan. The due on sale clause is triggered whenever a lender suspects that a loan is being transferred to another party. When this happens, the lender can request verification from the borrower that the loan is still in good standing. If the borrower cannot provide proof, then the lender can call the loan and the borrower would be responsible for paying off the loan immediately. In some cases, a borrower may try to get around the due on sale clause by giving the property to another person or entity without actually transferring the loan. If the lender finds out about this, then the lender can still call the loan and the borrower will still be responsible for paying it off. Therefore, it is important for a borrower to be aware of the due on sale clause in their loan document to avoid unpleasant surprises down the road.

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