Alienation Clause
Standard Definition
Also known as a 'due-on-sale' clause, this mortgage provision allows the lender to demand immediate repayment of the full loan balance if the property is sold or transferred.
Detailed Examination Analysis
The Alienation Clause prevents a buyer from assuming the seller's existing mortgage without the lender's consent. When the property is sold or 'alienated' (transferred to a new owner), the entire remaining loan balance must be paid off immediately. This allows lenders to prevent buyers from inheriting low-interest-rate loans when market interest rates rise.
Real-World Examination Scenario
"A seller attempts to sell their house to a buyer by letting the buyer take over their 3% interest rate mortgage. The lender invokes the alienation clause, requiring the seller to pay off the remaining $150,000 balance immediately upon sale, forcing the buyer to obtain their own financing."
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