Getting Around the “Due on Sale” Clause

Typically, when an owner sells a house encumbered by a mortgage, a “due on sale” clause comes into effect. According to federal law, however, the due on sale clause does not apply in three situations involving estate planning:

Joint Tenant: When an individual owns property jointly with the decedent, the individual gets full ownership of the property and the mortgage continues.

Tenants by Entirety: When the decedent and the decedent’s spouse own property jointly as tenants by entirety, the surviving spouse receives full ownership of the property and the mortgage continues.

Inheritance: When the decedent devises property to a relative through a will, trust, or intestacy, the mortgage can continue following the devise.

For more information on estate planning with mortgages, see Deirdre Wheatley-Liss, What Happens to the Mortgage When Property is Transferred to Beneficiaries at Death?, New Jersey Estate Planning & Elder Law Blog, Nov. 14, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.