Due On Sale Clause

Business, Legal & Accounting Glossary

Definition: Due On Sale Clause

Full Definition of Due On Sale Clause

A due-on-sale clause is a clause in a loan or promissory note that stipulates that the full balance may be called due upon sale or transfer of ownership of the property used to secure the note. The lender has the right, but not the obligation, to call the note due in such a circumstance.

Virtually all recent mortgages made in the United States contain a due-on-sale clause. This is in contrast to the wide availability of assumable mortgages that were available in the past.

In real estate investing, the due-on-sale clause can be a concern for a property owner who wishes to extend seller financing to a potential buyer by using a wraparound mortgage. This arrangement triggers the due-on-sale clause of the seller’s underlying mortgage and thus the lender may call the loan. In this case, if the seller doesn’t have enough cash on hand to pay the full balance of the note, the bank could foreclose on the property. There is debate in the investing community as to how likely a bank is to actually call the loan due in such a situation.

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Due On Sale Clause. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. September 28, 2021 https://payrollheaven.com/define/due-on-sale-clause/.
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Due On Sale Clause. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/due-on-sale-clause/ (accessed: September 28, 2021).
American Psychological Association (APA):
Due On Sale Clause. PayrollHeaven.com. Retrieved September 28, 2021, from PayrollHeaven.com website: https://payrollheaven.com/define/due-on-sale-clause/

Definition Sources

Definitions for Due On Sale Clause are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 1st May, 2020 | 1 Views.