Financing
Due-on-sale clause
A real-estate loan provision that may let the lender require secured debt to be paid when the property or an interest is transferred without consent.
Glossary
Financing
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12 U.S. Code Section 1701j-3: Due-on-Sale ClausesA due-on-sale clause is a contract provision authorizing a lender, at its option, to declare secured sums due when all or part of the property or an interest in it is sold or transferred without the required consent. It concerns the secured loan and transfer; it is not itself a tax rule or a title-transfer method.
The words at its option matter. A transfer does not rewrite the loan or release the original borrower, and taking title subject to existing debt is not the same as the lender approving an assumption. The note, security instrument, consent, and closing structure must be reviewed together.
Federal law permits enforcement in many circumstances and also identifies categories where a lender may not exercise the option. Contract terms, federal exceptions, state law, loan program, ownership structure, and the precise transfer facts can matter. A generic list should never be used to approve a transaction.
Before changing title, adding an owner, moving property to an entity or trust, selling on terms, or attempting an assumption, obtain qualified legal and lender review. Preserve written consent and any assumption, release, modification, title, insurance, and servicing records.
Transfer, assumption, and release are different
A deed can transfer title while the original borrower remains obligated. An approved assumption can make a new party a primary obligor under a lender process. A release addresses whether the prior borrower remains liable. None should be inferred from the others.
A pre-transfer control checklist
Route a proposed transfer through title, loan, insurance, tax, and legal review before documents are signed. The file should identify the current owner and borrower, proposed recipient, existing liens, consent requirement, and planned treatment of the debt.
This is general educational information, not legal or tax advice. Rules vary by state and locality and change over time — check your local law and confirm specifics with a qualified professional.