ABA Family Legal Guide

Buying and Selling a Home

Financing a Home Purchase

Key Provisions of the Loan Documents

What is a due-on-sale clause?

A due-on-sale clause should more accurately be called a due-on-transfer clause. Most mortgages include such a clause, which requires the seller to pay off the entire mortgage loan when the property is sold or transferred in any way. Therefore, this clause would prohibit a buyer from assuming the seller's mortgage. In addition, a due-on-sale clause may be triggered if the seller leases or further mortgages the property. The rationale behind such a clause is that the lender is making the loan to a particular person and does not want to find that, without its consent, a different person owns the property or is living there. In some cases, federal and state laws preempt the terms of the mortgage and allow such transfers.