The due-on-sale (a.k.a "acceleration clause") is a provision in a
mortgage document which gives the lender the right to demand
payment of the remaining balance of the loan when the property
It is a contractual right, not a law. This means that if title to the
property is transferred, the bank may (or may not), at its option,
decide to "call the loan due." An "assumable" loan is one, which is
secured by a mortgage that contains no due-on-sale provision.
FHA-insured mortgages originated before 12/89 and VA-guaranteed
loans originated before 2/88 contain no due-on-sale provisions.
Nearly all loans originated today contain a "standard" due-on-sale
clause, which usually reads something like "If all or any part of the
property herein is transferred without the lender’s prior written
consent, the lender may require all sums secured hereby
immediately due and payable."
Many people are under the mistaken impression that transferring
title to a property secured by a "due-on-sale" mortgage is illegal,
tells Bill Bronchick in his coaching. This is because most lay
people confuse civil liability with criminal liability. To be "illegal,"
you must be in violation of a criminal law, code or statute. There
is no federal or state law, which makes it a crime to violate a due-
If the lender discovers the transfer, it may at its option, call the
loan due and payable. If it cannot be paid, the lender has the
option of commencing foreclosure proceedings mentors Bill
Bronchick in his coaching. So the real question is: are you willing
to take a property subject to a mortgage containing a due-on-sale
clause with the risk of getting caught? – explains Bill Bronchick in
In his coaching, Bill Bronchick tells that the game for us is how to
transfer ownership to the property without getting caught by the
lender. You could simply get the owner to sign you a deed and not
record it, but this method is problematic (for example, what if the
seller gets a judgment against him?).
Enter the "trust assignment trick… The Garn St. Germain Act
carves several exceptions in which the lender may not enforce
the due-on-sale like the creation of a lien or other encumbrance
subordinate to the lender's security instrument which does not
relate to a transfer of rights of occupancy in the property; a
transfer by devise, descent, or operation of law on the death of a
joint tenant or tenant by the entirety; a transfer where the spouse
or children of the borrower become an owner of the property; a
transfer into an inter-vivos trust in which the borrower is and
remains a beneficiary and which does not relate to a transfer of
rights of occupancy in the property, etc.
To learn more, visit www.billbronchickcoaching.com.