Understanding the Due-on-Encumbrance Clause and Its Impact on Mortgages

Q: Can I negotiate a due-on-encumbrance clause?

Yes, you may be able to negotiate terms with your lender before signing the mortgage agreement.

Q: Are due-on-encumbrance clauses common?

Yes, they are commonly included in mortgage agreements to protect lenders.

Definition & Meaning

A due-on-encumbrance clause is a provision found in a mortgage or deed of trust. It allows the lender to demand full repayment of the loan if the borrower takes on additional debt secured by the same property without the lender's consent. Essentially, if a borrower encumbers the property with junior financing, this clause gives the mortgage holder the right to accelerate the mortgage, meaning they can require immediate payment of the remaining loan balance.

Table of content

Legal Use & context

This clause is primarily used in real estate and mortgage law. It protects lenders by ensuring that they maintain control over the property's financial obligations. Borrowers should be aware of such clauses when entering into mortgage agreements, as they can significantly impact their ability to refinance or secure additional loans. Users can manage these situations with the help of legal templates available through US Legal Forms, which can guide them in understanding their rights and obligations.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A homeowner takes out a mortgage to buy a home. Later, they decide to take out a home equity loan without notifying their original lender. The lender can invoke the due-on-encumbrance clause and demand full repayment of the mortgage.

Example 2: A borrower refinances their property and adds a second mortgage without the first lender's consent. The first lender may accelerate the loan due to the due-on-encumbrance clause. (hypothetical example)

State-by-state differences

State	Enforceability of Clause
California	Generally enforceable, but may be subject to limitations.
Texas	Enforceable, but courts may scrutinize for fairness.
Florida	Enforceable, with specific conditions outlined in state law.

This is not a complete list. State laws vary, and users should consult local rules for specific guidance.

Comparison with related terms

Term	Description
Due-on-sale clause	Requires full repayment of the loan when the property is sold.
Acceleration clause	Allows the lender to demand full repayment under certain conditions, including default.

Common misunderstandings

What to do if this term applies to you

If you are considering taking on additional financing secured by a property with a mortgage, first review your mortgage agreement for a due-on-encumbrance clause. If such a clause exists, consult with a legal professional to understand your options and obligations. You may also explore US Legal Forms for templates that can assist you in navigating this situation.

Find the legal form that fits your case

Browse our library of 85,000+ state-specific legal templates.

This field is required

Quick facts

Typical fees: Varies by lender and state.
Jurisdiction: Primarily real estate law.
Possible penalties: Acceleration of the loan and demand for full repayment.

Key takeaways

Frequently asked questions

What happens if I violate a due-on-encumbrance clause?

If you violate this clause, the lender may demand immediate repayment of the entire loan amount.