Awareness of the mortgage due-on-sale clause.

Mortgage due-on-sale clauses are clauses that provide the loan balance is accelerated if there is an unauthorized conveyance of the property by the borrower.  At one time, due-on-sale clauses were legally dubious because they were viewed as restraints on alienation, but Congress intervened in the 1980s and codified their enforceability in all states. See 12 USC 1701J-3.

Most standard mortgages / deeds of trust utilized in Washington contain a due-on-sale clause buried in the boilerplate.  The clauses are not heavily enforced in Washington, at least in this author’s experience.  This may be because, post-2007 financial crisis, lenders are content with performing loans.  Or, lenders may be ignorant of unauthorized transfers because they do not closely monitor title [however, if the loan is “escrowed” for property taxes, meaning the lender pays taxes through an escrow account, the lender will inevitably learn of a complete change of ownership in its review of the tax rolls].

Borrowers and lenders should be aware of the due-on-sale clause and the potential rights and liabilities of the parties following an unauthorized transfer.  An unauthorized transfer triggering the clause does not have to be a full conveyance of the property.  It could be as benign as a boundary line adjustment between neighbors involving a partial conveyance.  Such a transfer, albeit benign, could technically trigger the clause and provide a window for the lender to escape a loan it deems unfavorable.  The borrower could then be forced into a situation where he has to sell or refinance (an un-intended consequence of a boundary line adjustment). 

If a lender has questions about enforcing a due-on-sale clause, or a borrower is considering a conveyance and needs to avoid triggering it, Washington counsel can provide guidance.