Also known as: due-on-sale clause · due on sale clause · due on sale clauses · due-on-sale provision
Written by attorneys — see sources below.
A mortgage provision authorizing the lender to declare the entire debt due upon any transfer of the mortgaged property without the lender's consent. Federal law generally validates enforcement of the clause even when the transferee presents no increased credit risk. The clause is triggered by conveyance of legal title or an equitable interest such as a land contract.
Dorothy Daniels gave a mortgage on her rental building to Dominion Capital that contained a due-on-sale clause. Two years later she deeded the building to Diego Duarte under a wraparound contract without obtaining Dominion's consent. Dominion discovered the deed during a title search and demanded full payment of the loan balance.
Demetrius Douglas held a portfolio mortgage from Davenport Pharmaceuticals on several rental houses. He entered a land contract selling one house to Danielle Dixon and delivered possession without notifying the lender. Davenport Pharmaceuticals invoked the due-on-sale clause and accelerated the entire portfolio debt.
In 1997, Wachovia Mortgage Corporation, a North Carolina corporation engaged in real estate lending, registered with Michigan's Office of Insurance and Financial Services to conduct mortgage lending activities in the state. Michigan law at the time required such registration for mortgage brokers, lenders, and servicers that were subsidiaries of national banks, while exempting the banks themselves. As a registrant, Wachovia Mortgage paid annual operating fees, filed annual reports, and submitted to inspections by state examiners. On January 1, 2003, Wachovia Mortgage became a wholly owned operating subsidiary of Wachovia Bank, a national banking association chartered by the Office of the Comptroller of the Currency. Three months later, Wachovia Mortgage notified Michigan that it was surrendering its registration, asserting that as an operating subsidiary of a national bank it was no longer subject to state requirements. Petitioner Linda Watters, the commissioner of the Office of Insurance and Financial Services, responded that Wachovia Mortgage would no longer be authorized to engage in mortgage lending in Michigan. Wachovia Bank and Wachovia Mortgage then filed suit against Watters in the United States District Court for the Western District of Michigan. They sought declaratory and injunctive relief to prevent enforcement of Michigan's registration and inspection requirements against the operating subsidiary and to bar interference with OCC oversight. The district court granted summary judgment in favor of the banks on the preemption claims. The United States Court of Appeals for the Sixth Circuit affirmed that judgment. The Supreme Court granted certiorari to review the case.
View caseYes. Execution of a land contract transfers an equitable ownership interest and possession to the buyer, satisfying the clause even though legal title remains with the seller. The lender may accelerate upon learning of the contract.
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No. Modern federal law permits enforcement according to the clause's terms without any showing of harm to the lender's position or change in credit risk.
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No. The clause applies to any transfer of an interest in the property, including deeds to relatives, unless the mortgage itself creates an express exception.
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No. Brief acceptance of payments without evidence of intentional relinquishment does not waive the right to accelerate once the unauthorized transfer is discovered.
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…were not prepared and executed because Sellers discovered that their property was encumbered with a mortgage containing a due on sale clause. Throughout their time on the land, Buyers repeatedly requested that their contract be formalized, and Sellers responded, "We will work it out." {6} A date certain was never determined for…