The due-on-sale clause is a section of a mortgage that stipulates that the balance of the loan must be paid if the home is sold. Although this may seem obvious, the due-on-sale clause is customary language in home loan agreements. This clause reiterates to the borrower that the mortgage balance must be paid off before the seller is entitled to any proceeds of a sale. During the home-selling process, there are processes in place that are meant to discover lien holders of the property for sale such as title searches. Ultimately, it would be difficult for the proceeds of a home sale to directly flow to the seller if the home is currently financed. The lender who is financing the property for the new buyer performs the appropriate research in order to determine who is entitled to payment.
