What is the ‘due on sale’ clause?

The ‘due on sale’ clause is defined as this in Wikipedia: A clause in a loan or promissory note that stipulates that the full balance may be called due upon sale or transfer of ownership of the property used to secure the note. The lender has the right, but not the obligation, to call the note due in such a circumstance.

Most mortgages since the 80s have this due on sale clause written into the loan documentation.  The intention was so that the homeowners who had these really low interest loans wouldn’t just transfer their loan to another buyer during times where banks had higher interest rates.

Many people have the opinion that triggering the due on sale clause is illegal when taking title to a property that has an underlying lien, but that is incorrect.  There are no state or federal laws that make it a crime to trigger a ‘due on sale’ clause.

What does that mean?

It means that if you buy a house using owner financing but don’t notify the bank, they have the right, but not the obligation, to call the note due.

Although extremely rare to have a note called due when the note is performing, there are remedies, including but not limited to notifying the bank for consent prior to closing on the home.  The attorney who is working with you to close your transaction can counsel you on what specific remedies may be available and suitable for your situation.

Articles on this website are provided for informational purposes only and if you are looking for legal advice, then please consult an attorney of your choice.

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2 Comments

  1. The method of sale is not revnalet. As long as you qualify on all counts (not buying from a relative, 1st time homebuyer for all parties, etc.), and the IRS accepts a mobile home as a residence (which it has in the past), then you are fine.Just as a warning, the tax credit is for 10% of the purchase price of the home or $8,000, whichever is less, so if the mobile home is, say, $25,000, you will only get $2,500.

  2. Perhaps you can write next articles referring to this article. I want to read more things about it! Nice post. I was checking constantly this blog and I am impressed! Extremely useful information specially the last part :)

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