Due-on-Sale Clause

A due-on-sale clause is a common provision found in deeds of trust and mortgages in California since 1982. Loans with due on sale clauses are not assumable by a buyer without the consent of the lender which is only rarely given. There are a few exceptions which include divorce, legal marital separation, a transfer to a revocable living trust, or death that results in an inheritance. The other exceptions are loans insured by certain agencies of the federal government. These include VA loans and FHA loans. Due on sale clauses protect the lender and work to the great disadvantage of the borrower-owner.

During the great recession that started in 2008, many real estate lenders allowed transfers to buyers without exercising their right to call the loan due and payable if the existing borrower was in default and the lender was facing a possible loss. This may happen again in the future.