Mortgage Due on Sale Clause 2026: What It Means and When It Is Triggered

The due-on-sale clause, also called the alienation clause, is a provision in virtually every residential mortgage that requires the outstanding loan balance to be paid in full when the property is sold or transferred. It is what prevents borrowers from simply handing an existing mortgage to a buyer without the lender's involvement. Federal law determines when lenders can and cannot enforce it.

Federal Preemption Under Garn-St. Germain

The Garn-St. Germain Depository Institutions Act of 1982 gave federally chartered lenders the right to enforce due-on-sale clauses and preempted state laws that had been used to prevent this. Before Garn-St. Germain, some states had allowed borrowers to transfer properties with the existing mortgage. After the Act, lenders holding most residential mortgages could call the loan due upon transfer.

Exemptions From Enforcement

Garn-St. Germain includes specific exemptions where the lender cannot enforce the due-on-sale clause even if a transfer has occurred. These statutory exemptions were designed to protect family members and specific estate planning transfers.

• ✦Death transfer: transfer to a relative upon the death of the borrower
• ✦Spouse or children: transfer where a spouse or child of the borrower becomes the owner
• ✦Divorce: transfer to a spouse or former spouse pursuant to a divorce or separation agreement
• ✦Living trust: transfer into an inter vivos (revocable) trust where the borrower remains a beneficiary and continues to occupy the property
• ✦Inheritance: transfer by devise, descent, or operation of law upon the death of the borrower

Subject-To Transactions and Practical Enforcement

Real estate investors sometimes acquire properties subject to the existing mortgage, meaning they take title but the original borrower's mortgage remains in place. This technically triggers the due-on-sale clause. Lenders have the right to call the loan but often do not, particularly if the loan is current. The practical risk is that the lender can accelerate the loan at any time after discovering the transfer. This risk sits with the investor and original borrower, not with the lender.