Lets talk about the alienation clause, also known as the due-on-sale clause. Don’t worry it has nothing to do with extraterrestrial life.
The act of transferring title, ownership, an estate, or an interest in real estate from one party to another is alienation. The alienation clause works similarly to the typical alienation definition but has to do with mortgages, trust deeds, and real estate contracts.
A clause identifies a particular section of a real estate contract (for those of you who don’t know). There are many types of clauses in real estate, and you are likely to see many of them on your real estate exam.
What is the Alienation Clause?
Definition: The alienation clause is a provision in a mortgage or deed of trust signed with the lender that states that the borrower must pay the mortgage in full before the borrower can transfer the property.
So what does that mean? Well, think of the alienation clause as insurance for the banks or lenders. The clause prevents new buyers from taking over an existing or the previous mortgage. If the borrower decides to transfer the property, the mortgage must be paid in full immediately.
It’s also worth noting alienation clauses are almost always standard, especially in mortgages.
What to Know for the Real Estate Exam
What’s important to understand for the real estate exam is like other clauses, you need to remember what the alienation clause is.
Remember, the alienation clause or due-on-sale clause is the clause that makes the mortgage immediately due and in full.
A question on the exam you might see is a list of different contract clauses, and you may need to distinguish which-is-which.