Legal Definitions - due-on-sale clause

A due-on-sale clause is a provision in a loan agreement that requires the borrower to pay off the loan in full if the asset used as collateral is sold or transferred to another party. This clause is commonly found in mortgage agreements and is designed to protect the lender's interests.

Let's say you take out a mortgage to buy a house. The mortgage agreement includes a due-on-sale clause that states that if you sell the house, you must pay off the remaining balance of the loan. If you decide to sell the house to someone else, you would need to pay off the mortgage in full before the sale can be completed.

Another example would be if you used your car as collateral for a loan. If you sell the car to someone else, the due-on-sale clause would require you to pay off the remaining balance of the loan before the sale can be completed.

These examples illustrate how a due-on-sale clause can protect the lender's interests by ensuring that the loan is paid off in full if the asset used as collateral is sold or transferred to another party.