When engaging in a real estate transaction, it’s important to understand the details of your mortgage agreement — especially clauses that dictate how ownership can be transferred. One such provision is the alienation clause, which prevents a borrower from transferring ownership of a property without first paying off the mortgage. For homebuyers, real estate investors and sellers, knowing how an alienation clause works can help avoid unexpected complications when selling or refinancing a property.
If you’re planning to buy, sell or transfer property ownership, it can be a good idea to work with a financial advisor.
What Is an Alienation Clause?
An alienation clause — also referred to as a due-on-sale clause — requires the borrower to pay off the remaining mortgage balance before transferring ownership. It applies primarily to conventional mortgages and not government-backed loans like FHA or VA loans, which allow loan assumptions under certain conditions.
The alienation clause requires new buyers to secure their own financing, allowing the lender to evaluate their creditworthiness and set appropriate mortgage rates. Without this clause, a buyer could take over a loan at a lower interest rate, potentially leading to losses for the lender and exposing them to additional risk. However, a few exceptions do exist for borrowers, the most common being transfer of ownership as part of an inheritance due to death or illness.
Alienation vs. Acceleration Clause
While an alienation clause is triggered by the sale or transfer of property, an acceleration clause is activated when the borrower violates loan terms — such as failing to make payments. If an acceleration clause is enforced, the lender can demand immediate repayment of the outstanding loan balance, even if the borrower has not transferred ownership. Both clauses allow lenders to mitigate financial risks by requiring full loan repayment under specific circumstances.
How Is an Alienation Clause Used?
Alienation clauses are common in fixed-rate and adjustable-rate mortgages, wherelenders maintain control over loan repayment and refinancing. Here’s how the clause typically functions:
- A homeowner decides to sell. When a homeowner lists their property for sale, they must consider the mortgage terms, including the alienation clause.
- A buyer purchases the property. If the home sells, the seller must use the sale proceeds to pay off their remaining mortgage balance before transferring ownership to the buyer.
- Lender enforces the clause. If the seller attempts to transfer the property without paying off the mortgage, the lender has the right to demand immediate repayment of the loan balance.
In some cases, homeowners may attempt to transfer property through a quitclaim deed to a family member or business entity. If an alienation clause is in place, the lender can still demand full repayment, preventing unauthorized transfers.
Are There Any Exceptions to the Alienation Clause?
Although alienation clauses are typically enforced, certain situations allow homeowners to transfer property ownership without triggering the clause. Below are six common exceptions:
- Inheritance transfers: When a property is inherited, many lenders allow the new owner to assume the existing mortgage repayments without requiring the full balance upon transfer.
- Transfers to a living trust: Some lenders permit homeowners to transfer property into a revocable living trust without triggering the alienation clause. However, the original borrower must remain the primary beneficiary and occupant of the home. This exception allows homeowners to engage in estate planning while maintaining their mortgage terms.
- Divorce or separation agreements: If a property is awarded to one spouse in a divorce settlement, many lenders allow the remaining spouse to assume the mortgage without requiring immediate repayment. However, refinancing may still be necessary if the departing spouse wants to remove their name from the loan.
- Assumable loans: Certain government-backed loans — such as FHA, VA and USDA loans — are assumable mortgages that do not contain an alienation clause. This means a new buyer may take over the seller’s loan, with lender approval.
- Property transfers between family members: Some lenders allow homeowners to transfer property to immediate family members — such as parents, children or siblings — without enforcing the alienation clause. However, this is subject to lender discretion, and borrowers should review their loan agreements to confirm eligibility.
- Lender approval or waiver: In certain situations, a lender may waive the alienation clause if the borrower meets specific criteria. For example, if a buyer agrees to refinance with the same lender, they may permit the transfer without requiring immediate full repayment.
Bottom Line
An alienation clause is an important provision in mortgage agreements that prevents new buyers from assuming an existing mortgage without repayment of the original loan or approval from the lender. There are some exceptions, such as inheritance, divorce settlements and government-backed loan assumptions, so individuals navigating a home sale, transfer or refinancing, should understand how an alienation clause might impact the transaction. Working with a financial advisor or real estate advisor can provide clarity on loan terms, potential exemptions and the best financial strategies for managing real estate transactions.
Tips for Homebuyers
- A financial advisor can help you buy a home by assessing their financial situation, advising on budgeting and savings strategies. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you’re thinking about buying a home, SmartAsset’s affordability calculator can help you estimate how much house you can afford based on several key inputs.
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