The Due-on-Encumbrance Clause is a provision in a mortgage contract that gives the lender the right to request full repayment of the loan if the borrower places additional mortgages on the property without obtaining the lender’s consent. This provision allows the lender to demand full repayment of the mortgage if the borrower attempts to secure additional financing using the property as collateral. Federal law governs this clause, which is intended to safeguard the lender’s stake in the property.
A due-on-encumbrance clause is a provision in a mortgage agreement that grants the lender the right to require immediate repayment of the loan if the borrower places additional liens or mortgages on the property without obtaining the lender’s consent. For instance, suppose you have a mortgage on your house and decide to obtain a second mortgage without informing your original lender. If your mortgage agreement includes a due-on-encumbrance clause, your lender can demand full repayment of the mortgage without delay. Another scenario is when you intend to sell your house but still have an outstanding mortgage. If the buyer wishes to assume your mortgage, but your mortgage agreement contains a due-on-encumbrance clause, your lender can insist that the buyer pays off the entire mortgage instead of assuming it. The purpose of the due-on-encumbrance clause is to safeguard the lender’s interest in the property and ensure that they have the primary claim on the property’s value. Additionally, it prevents the borrower from incurring additional debt that may impact their ability to repay the mortgage.
A Due-On-Encumbrance clause is a provision in a loan agreement that allows the lender to demand full repayment of the loan if the borrower places any additional encumbrances on the property, such as a second mortgage or lien.
Yes, a lender can enforce a Due-On-Encumbrance clause if the borrower violates the terms of the loan agreement by placing additional encumbrances on the property without the lender’s consent.
Yes, Due-On-Encumbrance clauses are legal and commonly included in loan agreements to protect the lender’s interests.
While borrowers can challenge the enforceability of a Due-On-Encumbrance clause, it is generally difficult to succeed unless there are specific legal grounds, such as a violation of state or federal lending laws.
Yes, a lender has the discretion to waive a Due-On-Encumbrance clause if they agree to allow the borrower to place additional encumbrances on the property.
If a borrower violates a Due-On-Encumbrance clause, the lender can demand immediate repayment of the loan in full. If the borrower fails to comply, the lender may initiate foreclosure proceedings.
In most cases, transferring the loan to another person, such as through a sale or inheritance, will trigger the Due-On-Encumbrance clause. However, there are certain exceptions, such as transfers between spouses or transfers to a living trust.
Borrowers may have limited negotiating power when it comes to the terms of a Due-On-Encumbrance clause, as it is typically a standard provision in loan agreements. However, it is always worth discussing any concerns or potential modifications with the lender.
Yes, lenders may offer alternative clauses, such as a Due-On-Sale clause, which allows the lender to demand repayment if the borrower sells the property. These clauses serve a similar purpose of protecting the lender’s interests.
Refinancing the loan may be an option to avoid triggering the Due-On-Encumbrance clause, as it involves obtaining a new loan agreement. However, the borrower would need to meet the lender’s requirements and potentially pay additional fees and costs associated with refinancing.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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