4.44 Due-On-Sale Clause


In General

A due-on-sale clause is a clause found in some mortgages or deeds of trust giving the mortgagee or beneficiary the right to declare an acceleration of the mortgage debt if the property is sold subject to the mortgage without the mortgagee's written consent. The clause is also called an alienation clause, call clause, or a right to sell clause.

Provisions closely related to the due-on-sale clause are the due-on-encumbrance clause, which authorizes the mortgagee to accelerate the debt if the mortgagor further encumbers the mortgaged real estate, and the increased-interest-on-transfer clause, which enables the mortgagee to use a transfer by the mortgagor as the basis for increasing the interest yield on the mortgage.

Due-on-sale and related clauses frequently come under judicial attack as being forms of unreasonable restraints on alienation. Their validity and enforceability are exclusively legislative and judicial matters and not matters to discuss with proposed insureds or insure over in a title insurance policy.


Lack Of Loan Assumption Statement

In times of rising interest rates, buyers and sellers devise many methods to close a sale based upon the buyer's assuming the prior loan at the lower interest rate without notifying the lender, especially if the mortgage contains a due-on-sale clause. The purpose is, of course, to avoid a renegotiation of the loan terms.

The Company or agent may honor a written request from the parties not to order an assumption statement from the lender. The Company or agent must require from them a disclaimer of responsibility as a settlement agent.

The following form may be used as a disclaimer guideline:

_____________________ , seller(s), and ______________________________, buyer(s), instruct (Stewart Title __________________ ) ( Agent's Name ) to close this transaction without an assumption statement form or notice to the lender of the loan to be assumed. (We will provide to you) (or listed below are...) the loan balances, monthly payments due, interest for the month, and reserve account balances to be used in our settlement statements.

We know that the lender may later require the loan to be paid in full or renegotiated as to its terms because of this sale. We know that the lender may charge us fees and other expenses in connection with the assumption of the loan or may make other requirements under the terms of the loan.

You shall have no duty or responsibility to us for any consequences which may result from the closing of this sale without the lender's consent to the assumption or statement of amounts due and on deposit.

Buyer ______________________

Seller _____________________