- October 20, 1997
- All Issuing Offices
- Due on Sale Clauses
Many mortgages and deeds of trust contain a "Due on Sale" clause. A typical clause reads as follows:
"If there shall be any change in the ownership of the premises covered hereby, without the consent of the mortgagee, the entire principle and all accrued interest shall become due and payable at the election of the mortgagee and foreclosure proceedings may be instituted thereon."
The effect and enforceability of a due on sale clause varies from state to state. However, if a lender feels that the clause is enforceable, the lender may demand that a borrower/buyer pay off the loan or consent to a modification of the loan terms to increase the rate of interest.
If you are closing the transaction, you may wish to avoid any possibility of a later dispute when a buyer is taking title subject to a mortgage or deed of trust that is nonassumable because of a due on sale clause. You may do this by obtaining a statement addressed to you acknowledging that the parties are aware of the effect of the due on sale clause and holding you harmless from that effect. Below is a suggested form of the statement.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.