Due-on-sale clause

What it means

Almost every mortgage says the lender may call the entire loan due if the property is sold or transferred. Read literally that would mean a family inheriting a home has to repay the mortgage immediately or refinance it, which for many families would mean selling.

Federal law says otherwise. The Garn–St Germain Act lists transfers a lender may not use to accelerate a loan, and several of them are exactly what happens after a death: a transfer to a relative on the borrower's death, a transfer to a joint tenant by survivorship, a transfer to a spouse or child, and a transfer into the borrower's own living trust where they remain a beneficiary and the occupancy does not change.

The protection is against acceleration, not against the debt. The loan continues on its existing terms and the payments still have to be made — what the exception prevents is the lender demanding all of it at once.

A servicer's first letter after a death often reads as though the loan is being called. It usually is not, and saying which exception applies, in writing, is the way to establish that.

Why it matters

It is the difference between keeping an inherited home on the existing interest rate and having to qualify for a new loan at today's.

The exceptions are not applied automatically. A family that does not know they exist can be talked into a refinance, or into a sale, that was never required.

When you are likely to meet it

• When a servicer writes after a death about the transfer of the property.
• When somebody is considering moving their home into a living trust.
• When a surviving relative wants to keep the house and assume the payments.

Related terms

• Force-placed insuranceHazard cover a mortgage servicer buys for a property when the owner's policy lapses, and charges to the loan.
• Home Equity Conversion MortgageThe federally insured kind of reverse mortgage. What happens to the house after the borrower dies is set by its own rules.
• Joint tenancy with right of survivorshipA way two or more people own something together where, when one dies, the others simply own it — with no probate.
• LienA recorded claim against property, securing a debt, that has to be dealt with before the property can be transferred cleanly.
• Revocable living trustA trust you create during your lifetime, keep control of, and can change or cancel at any time. Property held in it does not go through probate.
• Successor in interestSomebody who receives an interest in a mortgaged home from a borrower who died, and gains the borrower's rights.
• Right of survivorshipA form of shared ownership where the survivor automatically takes the whole thing.

Official sources

The authority this page describes, at the agency that publishes it. Sahvelo does not restate a rule from a secondary source.

• CFPB — inheriting a house with a mortgage (opens in a new tab)

Sahvelo guidance that uses this

• Inheriting a mortgaged home