What Is a Due on Sale Clause?
What is the real impact of a "Due on Sale" clause? If you have to sell your house in today's troubled market you will no doubt be faced with conversation from your real estate agent or financial advisor where they mention the "due on sale" clause.
It's commonly referred to as "paragraph 17" and it's probably one of the most misunderstood and misinterpreted clauses in your mortgage.
The "due on sale" clause is a banking doctrine included in mostly all residential mortgages which states that you cannot sell your house without the bank's approval.
Understand that it does NOT say that it is unwise, illegal, immoral, or unethical for you TO sell your house without getting their permission...
just that they want you to "ask" them first.
It's a contract clause, not a crime, so please don't turn a financial decision that you might need to make into moral one.
If you choose to sell your house without their approval you're not going to get in "trouble," you're not going to go to jail, no one is going to think you're bad, shameful, unworthy, or a horrible person.
You're making a FINANCIAL decision, because keeping that house may not make any financial sense.
Your #1 job is to protect your family's economic strength and to stop "spending money on an object that, in the big picture, is hurting you to "own.
" If it doesn't make any sense for you to keep your house and you've tried everything else (modification, short sale, etc), well...
the bottom line is you have to do what you have to do.
Your larger responsibility is to your family's welfare and to increasing the chances that your family's financial needs will be met in the future.
You can't do that if you keep straining to pay thousands of dollars every month on an OBJECT that's worth ½ of what you paid for it.
If you sell your house without their approval, the bank could exercise the "due on sale" clause, which means they can immediately make the whole loan due and payable.
Will they? Who knows, but typically this decision is a financial one: for example, if prevailing interest rates are 3% and your loan was written at 7%, why would the bank exercise this option to take back their 7% money only to turn around and give it out to a new borrower at 3%? That just wouldn't make any financial sense.
There are, of course, other issues that you need to be clear on if you feel you've run out of options and need to sell your house now, like the risk of deficiency judgments, and a qualified financial advisor can help you sort through them to find the one that is truly best for you.
It's commonly referred to as "paragraph 17" and it's probably one of the most misunderstood and misinterpreted clauses in your mortgage.
The "due on sale" clause is a banking doctrine included in mostly all residential mortgages which states that you cannot sell your house without the bank's approval.
Understand that it does NOT say that it is unwise, illegal, immoral, or unethical for you TO sell your house without getting their permission...
just that they want you to "ask" them first.
It's a contract clause, not a crime, so please don't turn a financial decision that you might need to make into moral one.
If you choose to sell your house without their approval you're not going to get in "trouble," you're not going to go to jail, no one is going to think you're bad, shameful, unworthy, or a horrible person.
You're making a FINANCIAL decision, because keeping that house may not make any financial sense.
Your #1 job is to protect your family's economic strength and to stop "spending money on an object that, in the big picture, is hurting you to "own.
" If it doesn't make any sense for you to keep your house and you've tried everything else (modification, short sale, etc), well...
the bottom line is you have to do what you have to do.
Your larger responsibility is to your family's welfare and to increasing the chances that your family's financial needs will be met in the future.
You can't do that if you keep straining to pay thousands of dollars every month on an OBJECT that's worth ½ of what you paid for it.
If you sell your house without their approval, the bank could exercise the "due on sale" clause, which means they can immediately make the whole loan due and payable.
Will they? Who knows, but typically this decision is a financial one: for example, if prevailing interest rates are 3% and your loan was written at 7%, why would the bank exercise this option to take back their 7% money only to turn around and give it out to a new borrower at 3%? That just wouldn't make any financial sense.
There are, of course, other issues that you need to be clear on if you feel you've run out of options and need to sell your house now, like the risk of deficiency judgments, and a qualified financial advisor can help you sort through them to find the one that is truly best for you.
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