Financing, 9% of the examination
Due-on-sale clause
A loan provision letting the lender call the entire balance due on sale or transfer of the property.
Also called an alienation clause. A lender may require payment on an unapproved transfer when the clause is enforceable. Federal law protects specified transfers involving residential property with fewer than five dwelling units, including qualifying family and trust transfers. An assumption requires attention to lender approval, program rules, and release of the original borrower's liability. A prepayment penalty instead concerns an early payoff.
Test the distinction
A relevant question from Financing, selected because its facts or explanation use this concept.
What does a due-on-sale clause do?
Written to DRE's published topic list. Not a real examination question, since reproducing those is a misdemeanor under B&P Code section 123.
Primary sources
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