The Due on Sale Clause is a provision of a loan contract that stipulates that if the property is sold the loan balance must be repaid. This bars the seller from transferring responsibility for an existing loan to the buyer when the interest rate on the old loan is below the current market.

A mortgage containing a due-on-sale clause is not an assumable mortgage. Normally the “due-on-sale” language states that, “the Lender may, at its option, declare immediately due and payable all sums secured by the mortgage upon the sale or transfer, without the Lender’s prior written consent, of all or any part of the Real Property, or any interest in the Real Property.” The “due-on-sale” is misleading, in fact, the mortgage may be called in if there is any transfer of any interest in the real estate, and not just a sale of the property.

Example:  A land contract, also known as a Contract for Deed. Since a Contract for Deed passes equitable title to a potential buyer, such a contract is a violation of the “due-on-sale" clause, even though the seller retains legal title. This entitles the Lender to call in their mortgage and demand payment in full.

The due on sale clause is a statement within the deed of trust or mortgage depending of the state you reside that says that if the the person who takes out the mortgage decides to sell the house then the mortgage or deed of trust given for collateral has to be paid in full.

Note the due on sale clause is rarely called into effect when transfering title or ownership by mortgage companies. Due On Sale Clause is on almost every mortgage note.