What Is A “Due On Sale” Clause In Real Estate?

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What Is A Due On Sale Clause In Real Estate?

What Is A Due On Sale Clause In Real Estate?

When studying for your real estate exam, it is important to know about the due-on-sale clause. This clause is included in most mortgages and gives the lender the right to demand full payment of the mortgage if the property is sold.

Let's take a closer look at what this means for buyers and sellers. The due-on-sale clause is important for two reasons. First, it protects the lender's interest in the property.

If the property is sold, the lender wants to make sure that they are paid in full before the new owner takes over.

Second, it ensures that buyers are getting a mortgage with terms that they have agreed to.

For buyers, the due-on-sale clause can be a good thing or a bad thing. If interest rates have gone up since you got your mortgage, you may be able to get a better deal by refinancing. However, if you try to sell the property before you've paid off the mortgage, the lender can demand that the entire balance be paid in full.

A seller must be aware of the due-on-sale clause when they are negotiating with buyers. If the buyer wants to assume their mortgage, make sure that you understand the terms of the mortgage and that they are comfortable with them.

Due-on-sale clauses can be tricky, but with a little bit of knowledge, you can navigate them without any problems. As always, if you have any questions or need help studying for your real estate exam, we are here to help!

Are There Exceptions To The Due-On-Sale Clause Law?

Yes, there are a few exceptions to the due-on-sale clause law. The most common exception is when a property is transferred to a relative through inheritance or divorce.

Other exceptions include transfers made to certain types of trusts and transfers made by certain government agencies.

It's important to note that these exceptions only apply in specific circumstances and do not automatically exempt property from the due-on-sale clause.

When in doubt, it's always best to check on the side of caution and get permission from your lender before transferring your property.

What Happens If You Sell Your Property Without Permission?

If you sell your property without getting permission from your lender, they may demand that the entire balance of the loan be paid immediately. In some cases, they may also initiate foreclosure proceedings. However, this is not always the case.

Lenders are typically more lenient if the property is sold to a qualified buyer who agrees to assume the mortgage. It's important to remember that each lender is different, so it's always best to check with your lender before selling your property.

The bottom line is that the due-on-sale clause is an important part of most mortgages. It's important to understand what it is and how it works for your real estate exam.

Conclusion

The due-on-sale clause is an important part of most mortgages. It protects the lender's interest in the property and ensures that buyers are getting a mortgage with terms that they have agreed to.

There are a few exceptions to the due-on-sale clause, but it's always best to check with your lender before selling your property.

If you want to see some examples of questions that will be on the actual real estate exam, check out our free real estate practice exam. We have been named as the best real estate exam practice for 7 years in a row!

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