Investor Guide: The Due On Sale Clause

Due-on-sale clauses are common in mortgage contracts, but they can be a hindrance to homeowners who want to sell their property. Here's what you need to know about due-on-sale clauses and how to stop them.

What is a Due-on-Sale Clause?

A due-on-sale clause is a provision in a mortgage contract that requires the borrower to pay off the loan in full when the property is sold. This clause is meant to protect the lender from the risk of the new buyer defaulting on the loan. It ensures that the lender will be able to collect the full amount owed on the loan if the property is sold.

Why Stop a Due-on-Sale Clause?

Due-on-sale clauses can prevent homeowners from selling their property, as it requires them to pay off the mortgage in full before they can sell. This can be a significant financial burden for homeowners who have not yet paid off their mortgage. Additionally, the clause can make it difficult for homeowners to transfer their property to their heirs or to engage in a 1031 exchange, which allows them to defer taxes on the sale of their property.

How to Stop a Due-on-Sale Clause

There are several ways to stop a due-on-sale clause:

Refinance your mortgage: If you want to sell your property, you can refinance your mortgage and obtain a new loan without a due-on-sale clause.

Ask for a waiver: You can ask your lender to waive the due-on-sale clause, but this is not guaranteed and may require a fee.

Consult a real estate attorney: An attorney can help you navigate the process of stopping a due-on-sale clause and ensure that your rights are protected.

Check with the government: Some government programs, such as the Home Affordable Refinance Program (HARP), may allow you to refinance your mortgage and stop a due-on-sale clause.

Due-on-sale clauses can be a hindrance to homeowners who want to sell their property. However, there are ways to stop them, including refinancing, asking for a waiver, consulting a real estate attorney, or checking with the government. By understanding your options, you can sell your property without the burden of a due-on-sale clause.