What is a “due on sale” clause?

A “due on sale” clause is a clause in a mortgage or deed of trust that allows the lender to call the loan or mortgage due once the property is sold. This clause is usually found in residential real estate mortgages in the state of California. It gives the lender the right to compel the borrower to pay off the entire loan in full if the borrower sells the property. This clause helps lenders protect their investment as it gives them the option to call the loan due and collect the full amount rather than having to agree to a modified payment schedule with a new borrower. The “due on sale” clause is mainly triggered when a homeowner transfers the title of the property to someone else without the lender’s knowledge or consent. This can take the form of an outright sale, a gift, or even the transfer of property into the name of a living trust. When the lender finds out about this, they may demand the entire loan be paid off in full. However, in some cases, lenders will agree to modify the “due on sale” clause and waive the requirement that the entire loan must be paid off. This usually occurs with borrowers who have good credit and can prove that they can make the payments on a new loan.

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What is a “due on sale” clause?

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