Legal Definitions - due-on-encumbrance clause

A due-on-encumbrance clause is a part of a mortgage agreement that allows the lender to demand full payment of the loan if the borrower puts additional liens or mortgages on the property without the lender's approval.

For example, let's say you have a mortgage on your house, and you decide to take out a second mortgage without telling your original lender. If your mortgage agreement has a due-on-encumbrance clause, your lender can demand that you pay off the entire mortgage immediately.

Another example is if you want to sell your house, but you still have a mortgage on it. If the buyer wants to assume your mortgage, but your mortgage agreement has a due-on-encumbrance clause, your lender can demand that the buyer pays off the entire mortgage instead of assuming it.

The due-on-encumbrance clause protects the lender's interest in the property and ensures that they have the first claim on the property's value. It also prevents the borrower from taking on additional debt that could affect their ability to repay the mortgage.