finance

due-on-sale clause

A provision in a mortgage or deed of trust that allows the lender to demand payment of the entire loan balance if the borrower sells or transfers the property. Also called an alienation clause, it prevents a buyer from assuming the existing loan without the lender's approval. Federal law provides some exceptions, such as certain transfers to a spouse or living trust.

Exam tip: Due-on-sale and alienation clause are the same thing. Its presence generally prevents a loan assumption.
Example: A seller tries to let a buyer take over his low-rate mortgage, but the lender invokes the due-on-sale clause and demands full payoff.

1. A homeowner transfers title to a revocable living trust in which she remains a beneficiary and occupant. The mortgage has a due-on-sale clause. Can the lender accelerate the loan because of this transfer?

Answer & explanation

Answer: D. The Garn-St Germain Act prohibits exercising a due-on-sale clause on residential property of fewer than five units for certain transfers, including to an inter vivos trust in which the borrower remains a beneficiary and occupant, and transfers to a spouse or children. The general rule that transfers trigger the clause has these specific exceptions.

Related terms & state variants

acceleration clause alienation clause assumption subject to

Sources

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Last verified: 2026-10-23