due-on-sale clause
A due-on-sale clause is a provision in a mortgage or other loan agreement that allows lenders to require borrowers to repay the remaining balance of their loan in full if the house or asset is resold to transferred. These provisions can be triggered either by an entire sale or partial sale of the debtee’s interest in the asset. (See: 12 U.S. Code § 1701j–3 )
Generally speaking, payment for an outstanding mortgage loan can be based on the proceeds of sales or transfer. Without a due-on-sale clause, the buyer of a new property could potentially assume a mortgage along with the property using an interest rate below the market rate; it is also possible for a new buyer to assume the original mortgage, the terms of which might not be obtainable by the new buyer. A due-on-sale clause adds protection to creditors, ensuring that loans are paid and that homeowners do not have a loophole for interest rates.
With a due-on-sale clause, if a borrower sells or transfers a property under a mortgage without paying debts or without having lender’s consent, then lenders could claim their interests on the property through judicial foreclosure .
There are some common situations in which a lender is unable to enforce a due-on-sale clause, such as transfer of property as a part of inheritance, divorce, and legal separation.
[Last reviewed in March of 2025 by the Wex Definitions Team ]
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