What is a due-on-sales clause? | Freilich Law | Michael Freilich | freilichlaw.com | (410) 321-0040
Virtually every deed of trust or mortgage in the United States on a residence has a due-on-sale clause. It means if the property is sold by the current owners, the mortgage becomes due. If it doesn’t have that clause in it, it’s typically subject to, and meaning that that mortgage or deed of trust will still apply, but you can transfer the property. There are a few exceptions.
A number of years ago, Congress enacted what is called the Garn Grahams Statute, which means that in certain limited instances if somebody dies, instead of having a due-on-sale clause, their spouse, even if they’re not on the deed, can stay on the property. If they have a child who lives with them which is in the property, they can stay on the property. Most lenders do not know about this and do not observe it.
I’ve had a number of clients over the years who’ve received letters that they’re going to be foreclosed on because they’ve violated a due-on-sale clause, and then I’ve had to go into battle and show them the statute.