Due-on-Sale Clause – Glossary | RJP Estate Planning

Property & Real Estate

A loan provision allowing the lender to demand full repayment when property ownership changes, restricted by federal and Arizona law for estate planning transfers.

A due-on-sale clause is a standard provision in most mortgages and deeds of trust. It gives the lender the right to demand full repayment of the loan. This is triggered if the borrower transfers ownership without lender consent.

When a Due-on-Sale Clause Cannot Be Enforced

The Garn-St. Germain Depository Institutions Act (12 U.S.C. 1701j-3) was passed by Congress in 1982. It blocks lenders from enforcing due-on-sale clauses in several estate planning situations:

Transfers into a revocable living trust where the borrower remains a beneficiary
Transfers from the death of a joint tenant or tenant by the entirety
Transfers to a spouse or children of the borrower
Transfers from a divorce decree or legal separation

Arizona further regulates enforcement through A.R.S. 33-1571. That statute adopted the federal framework. It also added transitional protections for certain older residential loans.

Why This Matters for Estate Planning

Due-on-sale clauses are a common concern when transferring a mortgaged home into a living trust. In most residential situations, federal protections prevent the clause from being triggered. Understanding this is important for trust funding and property title decisions.