A due on sale clause basically prevents a homeowner from selling subject to an exiting loan. It doesn't mean that people don't try to do it but it does mean the new homeowner might lose the home if the existing lender forecloses. Lenders have specific rights, and trust deeds and mortgages are written by lawyers in favor of the lenders. A due on sale clause is one of those rights inherent in the paperwork. You might have to read through 10 pages to find it, but the due on sale clause, also known as an acceleration clause, will be contained in almost all loans made after 1988.
Sample verbiage found in a mortgage for a one- to four-family dwelling is below:
Transfer of the Property or a Beneficial Interest in Borrower. If all or any part of the Property or any interest in it is sold or transferred (or if a beneficial interest in Borrower is sold or transferred and Borrower is not a natural person) without Lender's prior written consent, Lender may, at its option, require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if exercise is prohibited by federal law as of the date of this Security Instrument.
