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: An alienation clause, also called a due-on-sale clause, gives the lender the option to demand repayment of the secured loan when the property or an interest in it is transferred without the lender’s prior written consent, subject to applicable law.
The key is the lender’s option to accelerate the debt. The clause does not automatically prohibit every transfer or every loan assumption. The loan terms, lender consent and legal exceptions matter.
Federal law protects certain transfers involving covered residential property from due-on-sale enforcement. Examples include specified transfers to a borrower’s spouse or children and qualifying transfers into a living trust. These exceptions have conditions; see 12 U.S.C. § 1701j-3.
What to Know for the Real Estate Exam
For the exam, identify the trigger: a sale or transfer points to the alienation (due-on-sale) clause.
Acceleration is the broader concept of making the remaining debt due early. An alienation clause is a specific acceleration provision triggered by a covered transfer; a general acceleration clause commonly addresses payment default or another breach.
A question on the exam you might see is a list of different contract clauses, and you may need to distinguish which-is-which.
