What Is a Due-on-Sale Clause?
Nearly every mortgage in America contains a due-on-sale clause (also called an "acceleration clause upon transfer"). This provision states that if the borrower sells, transfers, or conveys the property, the entire remaining balance of the loan becomes immediately due and payable.
The clause was designed to protect lenders from the risk of a borrower selling their home to an unqualified buyer who then assumes the existing low-interest mortgage without the bank's approval.
The Garn-St. Germain Act Exceptions
The federal Garn-St. Germain Depository Institutions Act of 1982 established critical exceptions where a lender cannot invoke the due-on-sale clause. These exceptions allow the following transfers without triggering acceleration:
- Transfer to a Spouse — Transferring the property to your spouse (including in a divorce settlement).
- Transfer to Children — Transferring the property to your child or children.
- Death of Borrower — When a borrower dies and the property passes to their heirs through probate or a living trust.
- Transfer to a Living Trust — Transferring the property into a revocable living trust where the borrower remains the beneficiary.
- Junior Liens — Creating a second mortgage or lien on the property does not trigger the clause.
Real Estate Investor Implications
The due-on-sale clause is a major concern for Florida real estate investors who use "subject-to" financing (buying a property while leaving the seller's existing mortgage in place). If the bank discovers the transfer, it can theoretically call the entire loan due. In practice, most banks do not enforce the clause as long as payments continue to be made, but the risk remains.
Related Terms
- Mortgage — The loan containing the due-on-sale clause
- Living Trust — A transfer method specifically exempted from the clause
- Deed — The document that triggers the clause when recorded
Barnes Walker Real Estate Transactions
Barnes Walker's real estate attorneys advise Florida property owners and investors on structuring transfers that fall within the Garn-St. Germain exceptions, protecting our clients from inadvertently triggering the due-on-sale clause and facing immediate loan acceleration. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC