Which clause in a mortgage contract allows the lender to demand full payment upon the sale of the property?

The Due on Sale or Alienation Clause is specifically designed to protect the lender's interest in the mortgage agreement by allowing them to demand full payment of the outstanding loan balance if the property is sold or transferred to another party. This clause ensures that the lender can reassess the credit risk and potentially alter the terms of the loan or deny it altogether when ownership changes hands.

When a property with an existing mortgage is sold, the lender has the right to invoke this clause, requiring the homeowner or seller to pay off the mortgage before or at the time of the sale. This function of the clause acts as a safeguard for lenders, particularly if the current terms of the loan might not be favorable to new investors or buyers. It ensures that they do not lose the security they originally had if the property is transferred without their approval.

In contrast, the other clauses mentioned serve different purposes. The Prepayment Penalty Clause imposes a fee for paying off the mortgage early, which discourages buyers from refinancing or paying off the loan ahead of schedule. The Acceleration Clause allows lenders to require full repayment of the loan under certain conditions, typically in case of default, rather than specifically upon sale of the property. The Defeasance Clause, common in commercial loans