Due on sale clause in a US mortgage

Sample clause

Written for a home loan from a fictional lender to a borrower buying a house in Sacramento, California.

Transfer of the Property. (a) If all or any part of the Property, or any interest in it, is sold or transferred without the Lender's prior written consent, the Lender may require immediate payment in full of all sums secured by this Security Instrument. (b) The Lender will not exercise this option if exercise is prohibited by federal law, including the transfers listed in 12 U.S.C. section 1701j-3(d). (c) If the Lender exercises this option, it will give the Borrower notice of acceleration giving at least 30 days from the date of notice within which the Borrower must pay all sums secured. (d) The Lender may consent to a transfer and allow the transferee to assume this loan, on conditions including a credit assessment of the transferee.

Sample wording, not legal advice.

Variants

What to negotiate

• Consent to assumption

  Borrowers who may want to sell with the loan in place, for example when rates have risen, should look for terms allowing assumption with the lender's consent and stating the conditions. Lenders usually require the buyer to qualify and may charge a fee. Without such terms, consent is at the lender's discretion.

• Transfers to a trust

  Moving a home into a revocable living trust for estate planning is protected by federal law if the borrower remains a beneficiary and the transfer does not relate to a transfer of occupancy rights. Borrowers should still tell the lender, keep living in the home and keep the trust revocable, and check the trust meets the conditions before transferring.

• Rate on assumption

  Where assumption is allowed, the lender may be able to adjust the interest rate to current market rates as a condition. That can remove much of the benefit of assuming a low rate loan. Federal regulations allow lenders to require an assumption at a blended or market rate in some cases, so the terms of consent matter.

The risk of leaving it out

Without a due on sale clause, a buyer could take over a borrower's mortgage, possibly at a below market rate, without the lender assessing the new owner's credit. Lenders price loans assuming the clause exists, and almost all US residential mortgages include it. For borrowers, the practical risk is triggering it by a transfer that is not protected.

The exceptions checklist

For a loan on residential property with fewer than five dwelling units, 12 U.S.C. section 1701j-3(d) says a lender may not exercise a due on sale clause on: a subordinate lien that does not transfer occupancy rights; a purchase money security interest for household appliances; a transfer on the death of a joint tenant or tenant by the entirety; a lease of three years or less with no option to purchase; a transfer to a relative on the borrower's death; a transfer where the borrower's spouse or children become owners; a transfer to a spouse under a divorce decree, separation agreement or property settlement; a transfer into an inter vivos trust in which the borrower is and remains a beneficiary, not relating to occupancy rights; and other transfers set out in regulations. Law checked on 21 October 2026. This page explains how the clause works and is not legal advice.

How the Garn St Germain Act changed things

Before 1982, some states restricted due on sale clauses, allowing buyers to assume low rate loans. The Garn St Germain Depository Institutions Act of 1982 made due on sale clauses generally enforceable nationwide, preempting most state restrictions, while adding the federal exceptions above. Federal regulations, now administered for national banks and federal savings associations by the Office of the Comptroller of the Currency at 12 CFR part 191, add detail on how the rules apply.

In practice

Lenders rarely search for transfers, and many due on sale clauses are only triggered when a lender learns of a sale. But a transfer that is not exempt gives the lender the right to call the loan at any time, which is a serious risk if rates have risen. Borrowers considering a transfer, such as adding a partner to the title or moving the property into a company, should check whether it is exempt and, if not, seek the lender's consent first.

Outside the United States

Australian and UK mortgages achieve the same result differently. Loan agreements usually make sale of the property, or a transfer without consent, an event of default, and the lender's mortgage must be discharged on settlement of a sale, so buyers cannot simply take over a loan. Portability features, where a borrower moves the loan to a new property, are a product feature rather than an exception to a statute.

Documents that carry this clause

Loan agreement templateA Tasmanian foundry is borrowing $180,000 from a private investment company to buy a used induction furnace. The lender is not a bank, so everything a bank would take for granted has to be written down: what has to happen before the money moves, what is registered over what, and how long the borrower gets to fix a default.Rent to own agreement template with credits, price and defaultA rent to own agreement is a hire with an option to buy at the end, so the goods stay with the supplier until the last payment. This one covers a $2,400 sofa and dining set paid off at $62 a week for 52 weeks, with a table showing what has been credited and what the payout figure is at four points in the term.Promissory note templateA timber company owes $45,000 to a private lender and needs one page that says so. No conditions precedent, no covenants, no security. Only the maker signs, which is what keeps a note short and what lets the holder pass it on to somebody else.

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