Due-on-Sale Clause

The due-on-sale clause (also called an acceleration clause) is found in virtually all residential conventional mortgages. It gives the lender the right to call the loan due and payable when ownership transfers. This is the primary legal risk in subject-to transactions - when you take a deed subject-to an existing mortgage, you technically trigger this clause. In practice, lenders rarely enforce it on performing loans, but the risk is real. Seller-financed deals without an existing underlying loan have no due-on-sale risk. Wrap-around mortgages trigger the clause on the underlying loan. Understanding this clause is foundational to evaluating any creative financing structure.