Alienation Clause
A provision in a mortgage contract that requires the borrower to pay the full loan balance immediately when the property is sold or transferred to another party. Also known as a "due-on-sale" clause, this prevents buyers from assuming the seller's existing mortgage without lender approval.
Example
“The alienation clause in their mortgage was triggered when they attempted to transfer the deed to their daughter.”
Memory Tip
When property becomes 'alien' to the original owner (sold to someone else), this clause kicks in.
Why It Matters
This clause protects lenders from having unqualified borrowers assume loans and ensures they can adjust interest rates to current market conditions when properties change hands.
Common Misconception
Some people think they can easily transfer their low-interest mortgage to a buyer, but alienation clauses typically prevent this without lender consent.
In Practice
When you sell your home, your existing mortgage must usually be paid off at closing from the sale proceeds, rather than being transferred to the new buyer at your original interest rate.
Etymology
From Latin 'alienus' meaning 'belonging to another,' this clause activates when property ownership is transferred to someone else.
Common Misspellings
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