Due-on-Sale Clause
A due-on-sale clause is mortgage language letting a lender demand full repayment the moment title transfers to someone else — the main legal obstacle to informal loan assumptions and subject-to sales.
This clause has been standard in nearly all conventional loans since the Garn-St. Germain Depository Institutions Act of 1982, triggered by a sale or transfer of the property, though the Act carves out specific exceptions such as a transfer to a spouse or into certain living trusts.
Sellers structuring a subject-to or wraparound sale in California are relying on the existing lender not exercising this clause. Enforcement is inconsistent in practice, but it's a real, disclosed risk to the arrangement — not a loophole that has been closed or resolved.
Anyone considering a subject-to, wraparound, or informal assumption should understand this is precisely what's being risked, and should have the arrangement reviewed by a real estate attorney rather than relying on a template found online.
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