What is a Due-on-Sale Clause?
By Pamela Stewart, Attorney at Law on Oct 12, 2007 in General Bankruptcy Information
A Due-on-Sale clause is a clause in a note or mortgage that gives the lender the right to call the entire loan balance due if the property is sold or otherwise conveyed. Typically, this comes up in my discussions with clients who want or need to file bankruptcy and don’t want to include their home in their bankruptcy. The client will ask if they can transfer their home (usually by a quitclaim deed) to a friend or family member, Back in the 1980’s when the real estate market went bust, a common situation was for a person to put their home in a trust and sell the trust. These scenarios are in violation of the Due-on-Sale clause provision.
Further, I must advise the debtor that any transfers of property within one year of the bankruptcy must be disclosed in their bankruptcy paperwork. Additionally, the Trustee can look back even further than one year for transfers of property. There is a probability of the transfer affecting the outcome of their bankruptcy. The bottom line is the debtor has too much at risk to violate the due on sale clause.
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