If you have a mortgage and you’re considering selling your home — or even transferring ownership to a family member — you may encounter what’s known as an alienation clause. While the phrase “alienation” can conjure up feelings of not being part of a group, it’s actually about a lender saying it’s time to pay the piper or to fulfill a promise. In this post, we’ll explain the alienation clause, also known as the due-on-sale clause, and how it can impact your residential home sale or transfer. An alienation clause, also known as a “due on sale” clause, is a provision in your mortgage that requires you to pay off the loan balance before you can transfer your property to someone else. This clause is a standard part of many mortgage agreements and often plays an important role in the process of selling your home or transferring ownership. Its main function is to ensure that the mortgage is settled before the property changes hands, protecting both your interests and those of the lender. The clause is typically triggered when a property is sold, but it can apply in other situations, such as if you are hoping to allow a family member to take over or assume a mortgage. If your lender agreement includes an alienation clause, it activates the moment you decide to transfer ownership of your property, whether through selling, gifting, or bequeathing. Essentially, it prohibits the transfer of the property under the current mortgage terms without the lender’s consent. Here’s how it typically unfolds: 1. Notification: You must inform your lender of your intention to sell or transfer the property. 2. Loan repayment: Before the transfer can proceed, the clause requires that the remaining balance of your mortgage be paid in full. 3. Lender’s decision: In some cases, the lender may allow the new buyer to assume the existing mortgage under revised terms, although this depends on the loan type and the credit qualifications of the person assuming the loan. We’ll share more on assumed loans in a moment. Example: Imagine you’re selling your home. The sale triggers the alienation or due-on-sale clause, meaning you can’t simply hand over the keys to the buyer and let them take over your mortgage payments. Instead, the sale proceeds are first used to pay off your remaining mortgage balance. Only after this debt is cleared can the ownership transfer to the buyer proceed. This ensures the lender’s investment is protected and allows for the clean transfer of property rights.What is an alienation clause in real estate?
How does an alienation clause work?
