It allows the lender to call in the full amount of the loan immediately if the borrower sells their house or transfers the title of the property without the knowledge and consent of the lender. The clause essentially allows the lender to protect their interests and ensure they receive the full amount they are owed for the loan.
In some cases, a due on sale clause can be waived by the lender. This typically happens when the borrower is unable to secure financing with another lender and the current loan needs to be transferred to a new lender. Waiving the due on sale clause allows the existing loan to be transferred without the borrower having to pay off the full balance.
Another circumstance in which a due on sale clause may be waived is when the borrower transfers the property to an immediate family member. This type of transfer is commonly referred to as a “life estate deed” and it allows the borrower to transfer the property to a family member without the full balance of the loan being due. In this situation, the family member will assume the loan and the new lender will be responsible for collecting payments.
When a due on sale clause is not waived, the borrower must pay the full balance of the loan before the title of the property can be transferred. The lender is entitled to collect the remaining balance upon sale or transfer of the property. This can be a difficult situation for borrowers who are unable to pay the full balance or secure financing with a new lender.
A due on sale clause in a mortgage contract is a standard provision that allows the lender to protect their interests and ensure they receive the full amount they are owed for the loan. In some cases, the clause can be waived depending on the circumstances such as transferring the loan to another lender or transferring the property to an immediate family member. If the clause is not waived, the borrower must pay the full balance of the loan before the title of the property can be transferred. This can be a difficult situation for many borrowers who do not have the means to pay off the loan or secure financing with a new lender. Therefore, it is important to understand the provisions of a due on sale clause before signing a mortgage contract.
The ‘due on sale clause’ is an essential part of the mortgage contract that protects the lender's interests. This clause stipulates that the full amount of the loan must be paid off before the title of the property can be transferred. It enables the lender to ensure they receive the full amount they are owed for the loan. The clause can be waived if the borrower is unable to secure financing elsewhere, or if they transfer the property to a family member as a ‘life estate deed’. Otherwise, the borrower must pay off the full balance of the loan before the title of the property can be transferred.
Individuals should carefully consider the due on sale clause before signing any mortgage contract. It is important to understand the terms and conditions of the clause, and to ensure that you can meet your obligations and keep up with payment schedules. If you are unable to pay off the full amount of the loan or secure financing elsewhere, you should speak to your lender about potential solutions.
This article was contributed on Dec 19, 2023
