Due on Sale Clauses

Pursuant to federal law, state law prohibitions on the enforcement of due on sale clauses were pre-empted. 12 U.S.C. 1701j-3 This act does not apply as to reverse mortgages.

The same provision restricts the exercise of a due on sale clause as to residential property less than 5 units, based on:

1. 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;
2. the creation of a purchase money security interest for household appliances;
3. a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
4. the granting of a leasehold interest of three years or less not containing an option to purchase;
5. a transfer to a relative resulting from the death of a borrower;
6. a transfer where the spouse or children of the borrower become an owner of the property;
7. a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
8. 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; or
9. any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.