Alienation Clause Mortgage 2026: The Technical Name for the Due-on-Sale Provision

The alienation clause, more commonly called the due-on-sale clause, gives the lender the right to demand immediate full repayment of the loan if the property is transferred to a new owner. Every conventional mortgage originated after 1982 contains this provision. The Garn-St. Germain Depository Institutions Act of 1982 established federal preemption, making the clause enforceable regardless of conflicting state law.

Statutory Exceptions Under Garn-St. Germain

• ✦Transfer on death to a relative who will occupy the property as a primary residence
• ✦Transfer to a spouse or children upon the death of the borrower
• ✦Transfer to a spouse or children where the transferee will occupy the property
• ✦Transfer resulting from divorce or legal separation to the borrower's spouse or former spouse
• ✦Transfer into an inter vivos trust where the borrower remains a beneficiary and occupancy does not change

Subject-To Investing and the Alienation Clause

Real estate investors who acquire property subject to the existing mortgage take title with the alienation clause intact. The lender retains the right to call the loan due immediately upon discovering the unauthorized transfer. In practice, many servicers do not actively monitor for title transfers when payments are current, but the legal risk is real. If a servicer discovers the conveyance, they can accelerate the loan and trigger a default event without warning.

Assumable Mortgages and the Clause

FHA and VA mortgages have assumption provisions that permit approved transfers without triggering the due-on-sale clause. A formal FHA or VA assumption extinguishes the original borrower's liability only with servicer approval. Unapproved transfers on FHA and VA loans are treated the same as conventional transfers: the lender can call the loan due immediately upon discovery of the unauthorized conveyance.