What Is a "Due on Sale" Clause in a Mortgage?

The modern mortgage loan's due-on-sale clause goes back to 1933, though 1982 saw it gain even greater importance. Triggered whenever a mortgage loan's underlying property is transferred or sold, the due-on-sale clause is a powerful mortgage protection tool for lenders. For one, mortgage loan due-on-sale clauses prevent mortgage borrowers from letting others assume their loans. Through a mortgage's due-on-sale clause, lenders can also ensure their interests in the properties underlying their loans always take priority.

Due-on-Sale Clause

The due-on-sale clause is found in almost all mortgages and loans. Due-on-sale clauses allow mortgage lenders to call their loans due and payable if the properties underlying them are sold or transferred to others. Essentially, mortgage due-on-sale clauses ensure mortgage lenders receive top priority whenever their mortgage borrowers sell or transfer their properties. Due-on-sale clauses also prevent borrowers from letting others assume their mortgages or buy their properties using land, or installment sale, contracts.

History and Evolution

Before 1933, home mortgages featured high interest rates, short terms and big down payments. A 1933 federal law delivered lower mortgage interest rates and longer repayment terms, along with the precursor to today's due-on-sale clause. From 1933 until 1971, home mortgages were popular and affordable but became increasingly expensive through 1981, when interest rates topped 18.45 percent. 1982's Garn-St. Germain Depository Institutions Act led to lower mortgage interest rates but also a strengthened due-on-sale clause.

Garn-St. Germain Effects

The 'Garn-St. Germain' law standardized how states enforced mortgage loan due-on-sale clauses. In effect, Garn-St. Germain prevented states from overriding due-on-sale clause lender protections. Before Garn-St. Germain, California and some other states enacted laws allowing a variety of mortgage loan assumptions, including for land contracts. Mortgage assumptions and land contract sales of mortgaged properties became extremely difficult under Garn-St. Germain.


Due-on-sale clauses are also known as acceleration clauses. Using the due-on-sale clause, a lender in effect 'accelerates' its mortgage loan to the point where the entire balance is due all at once. Lenders have the right but not the legal obligation to invoke due-on-sale clauses, meaning they can allow mortgage assumptions and transfers if they'd like. The mortgage due-on-sale clause is why your mortgage lender is normally always paid off first at your home sale's formal closing.