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Exceptions to the Due on Sale Clause

The Due on Sale Clause can be found in most mortgages and simply states that a loan is due in full upon the sale or transfer of ownership of the secured property.

There are, however, several exceptions to this clause, most involving written notice to the lender in advance.

The Garn St. Germain Act at 12 USC Section 1701J-3 provides the following exceptions which should not trigger the Due on Sale Clause with respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home:

(1) the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;

(2) the creation of a purchase money security interest for household appliances;

(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;

(4) the granting of a leasehold interest of three years or less not containing an option to purchase;

(5) a transfer to a relative resulting from the death of a borrower;

(6) a transfer where the spouse or children of the borrower become an owner of the property;

(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property; or

(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property..

A lender may not exercise its option pursuant to a due-on-sale clause upon any of the above exceptions.

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