alienation clause

Definition

A mortgage provision requiring full loan repayment if the property is sold or transferred, effectively preventing you from passing your sweet 3% interest rate to the next owner. Also known as a 'due-on-sale clause' for those who prefer their contract language less sci-fi sounding.

Example Usage

The alienation clause meant the buyer couldn't assume the seller's existing low-interest mortgage and had to get new financing at current rates.

Origin

Derives from the legal term 'alienation' meaning the transfer of property ownership to another party, from Latin 'alienare' (to make foreign)

Fun Fact

The Garn-St. Germain Act of 1982 made alienation clauses federally enforceable, ending creative workarounds buyers used during high-interest rate periods.

Source: Federal mortgage banking regulations

Related Terms

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