Due on Sale Clause

Last modified June 7, 2023

The "due on sale" (aka "acceleration clause") is a provision in a mortgage document that gives the lender the right to demand payment of the remaining balance of the loan when the property is sold. It is a contractual right, not a law. This means that if title to the property is transferred, the bank may (or may not), at its option, decide to "call the loan due." An "assumable" loan is one that is secured by a mortgage which contains no "due on sale" provision. FHA-insured mortgages originated before Dec. 1989 and VA-guaranteed loans originated before Feb. 1988 don’t contain such provisions. Nearly all loans originated today contain a standard "due on sale" clause, which usually reads something like: "If all or any part of the property herein is transferred without the lender's prior written consent, the lender may require all sums secured hereby to be immediately due and payable." Banks began inserting "due on sale" clauses in their mortgages in the 1970s when interest rates rose dramatically. Home buyers were assuming existing loans rather than borrowing new money from banks because the interest rates on existing loans were lower. The banks used the clause as a way to kill their own worst competition. They argued that the reason for the restriction was to be able to police who was living in the property -- the collateral for their loan.

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