Due on Sale Clause Mortgage Transfer

Due on Sale Clause Mortgage Transfer Information

How the due-on-sale clause works: the borrower sells or transfers the property, the lender learns of the transfer, the lender exercises the due-on-sale clause (demanding full payment of the outstanding balance), and if the borrower cannot pay: the lender may foreclose. Purpose: the clause protects the lender's interest (allowing the lender to: reassess the creditworthiness of the new owner, adjust the interest rate to current market rates, and charge origination fees on a new loan). Exceptions: the Garn-St. Germain Act (12 U.S.C. §1701j-3) prohibits enforcement of due-on-sale clauses for certain transfers: transfers to a spouse or children, transfers upon the borrower's death (to heirs), transfers creating a lien junior to the mortgage, and transfers to a living trust for estate planning.

Florida Legal Definition

Due-on-sale clauses in Florida are governed by federal law (the Garn-St. Germain Depository Institutions Act, 12 U.S.C. §1701j-3) and Florida contract law. Under the Garn-St. Germain Act: the lender may not exercise the due-on-sale clause for: nine categories of exempt transfers (including transfers to spouses, heirs, and living trusts). Under Florida practice: due-on-sale clauses are standard in residential and commercial mortgages. Under Florida contract law: the due-on-sale clause is enforceable according to its terms (the lender may demand full payment upon sale or transfer). Under Florida practice: the clause is a significant consideration in: seller financing, land trusts for privacy, and property transfers between family members.

How It's Used in Practice

Attorneys manage due-on-sale issues. For borrowers: identify exempt transfers under the Garn-St. Germain Act (transfers to spouses, heirs, and trusts), structure transfers to qualify for exemptions, notify the lender of the transfer (if required by the mortgage), and obtain the lender's consent for non-exempt transfers (through assumption or refinancing). For lenders: monitor property transfers, exercise the clause for non-exempt transfers, evaluate assumption requests (assessing the new owner's creditworthiness), and negotiate new loan terms. The attorney advises: the Garn-St. Germain Act protects many common transfers; borrowers should verify whether their transfer qualifies for an exemption before proceeding.

Key Takeaways

• Due-on-sale: entire balance due upon property transfer.
• Garn-St. Germain Act: prohibits enforcement for 9 exempt transfers.
• Exempt: transfers to spouse, heirs, and living trusts.
• Standard in residential and commercial mortgages.
• Verify exemption before transferring property.

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Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC