Due on Sale

Due on Sale

• A. If property is sold, borrower must payoff an outstanding debt
• B. If property is sold, loan is automatically forgiven
• C. If property is sold, borrower must obtain a new loan
• D. If property is sold, taxes must be paid

Answer: (A)

Due on sale is a clause that gives the lender the right to require the loan to be paid in full when the property is sold or the title is transferred, unless the lender agrees to an assumption by the new owner. This means at the time of sale the borrower typically must payoff the existing loan at closing or obtain the lender’s consent for the buyer to assume the loan under its terms. The loan isn’t automatically forgiven, and it doesn’t automatically become the buyer’s mortgage without approval. Taxes are a separate obligation and aren’t the mechanism by which the loan is handled. The best interpretation is that the borrower's debt must be paid off at sale unless an approved assumption is arranged.

Due on sale is a clause that gives the lender the right to require the loan to be paid in full when the property is sold or the title is transferred, unless the lender agrees to an assumption by the new owner. This means at the time of sale the borrower typically must payoff the existing loan at closing or obtain the lender’s consent for the buyer to assume the loan under its terms. The loan isn’t automatically forgiven, and it doesn’t automatically become the buyer’s mortgage without approval. Taxes are a separate obligation and aren’t the mechanism by which the loan is handled. The best interpretation is that the borrower's debt must be paid off at sale unless an approved assumption is arranged.