Due on Sale Clauses

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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.