By Matthew A. Quick A due on sale clause, or acceleration clause, is the provision in a contract, most often a promissory note (a promise to pay), that authorizes the lender to demand payment of a sum when the property that is acting as security is sold or otherwise transferred. Federal law, specifically Title 12, Chapter 13, Section 1701j-3, restricts the ability of lenders from invoking such a provision under certain circumstances (also called Garn-St. Germain exceptions). These circumstances include, but are not limited to, the following:
The creation of a subordinate lender’s interest; The creation of a purchase money security interest for household appliances; A transfer on the death of a joint tenant; The granting of a leasehold interest of three years or less not containing an option to purchase; A transfer to a relative resulting from the death of a borrower; A transfer where the spouse or children of the borrower become an owner of the property; A transfer resulting from divorce; and A transfer to an inter vivos trust in which the borrower is and remains a beneficiary.