Due-on-Sale Clause

Legal information, not legal advice. Verify against the cited primary sources before acting. The interaction of a due-on-sale clause with a contract for deed or wrap turns on the underlying loan documents and the deal structure, and the state overlays below are frequently amended. Last verified: 2026-06-08.

What it is: A due-on-sale clause (also “acceleration on transfer” or “alienation clause”) is a provision in a mortgage or deed of trust that lets the lender, at its option, “declare due and payable sums secured by the lender’s security instrument if all or any part of the property, or an interest therein, securing the real property loan is sold or transferred without the lender’s prior written consent” (12 U.S.C. § 1701j-3(a)(1)). It is not a prohibition on sale; it is a contractual acceleration right the lender may exercise when the borrower conveys an interest in the collateral. Before 1982 several states (by statute or judicial decision) restricted enforcement of these clauses. The Garn-St. Germain Depository Institutions Act of 1982 (Pub. L. 97-320, § 341), codified at 12 U.S.C. § 1701j-3, preempts those state restrictions and makes the clause federally enforceable, subject to nine narrow residential exemptions. The full federal regime is treated at garn-st-germain-due-on-sale; this page maps how a contract for deed (CFD), wrap, or “subject-to” sale triggers acceleration and how the state-law overlays on such wraps diverge across jurisdictions.
Why it matters for contract-for-deed: A CFD over property the seller still owes on — a wrap-around or “subject-to” sale — conveys equitable ownership and possession to the buyer while leaving the seller’s senior institutional loan in place. That conveyance is exactly the “sold or transferred” event the clause targets. Federal regulation puts this beyond argument: the OCC’s recodified Garn-St. Germain rule enumerates “installment land sales contracts, wraparound loans, contracts for deed” among the transfers reached, and defines a triggering “sale or transfer” to include conveyance “by outright sale, deed, installment sale contract, land contract, contract for deed” (12 C.F.R. § 191.2). So a CFD wrap gives the underlying lender the contractual right to call the whole loan due — and if the seller cannot pay, the property (and the buyer’s equitable interest) is exposed to foreclosure even though the buyer’s CFD payments are current. The clause is therefore the single largest title-risk in any wrap CFD, and several states regulate the practice directly.
The split across jurisdictions: The enforceability of the clause is uniform — Garn-St. Germain preempts contrary state law in all 56 jurisdictions, and none may resurrect a pre-1982 anti-acceleration rule (12 U.S.C. § 1701j-3(b)(1); 12 C.F.R. § 591.5(a) / § 191.5(a)). The meaningful divergence is the state-law overlay on whether and how you may sell on a CFD over a due-on-sale loan:
1. Wrap affirmatively conditioned by statute — a state CFD statute permits the wrap only on lender consent/non-enforcement plus disclosure (MN), or effectively bars it absent stringent lienholder-consent and amount conditions (TX), or caps the vendor’s senior lien at the contract balance (OH).
2. Wrap permitted but risky under general law — no CFD-specific prohibition; the wrap is lawful but exposed to Garn-St. Germain acceleration and ordinary lien-priority law, with disclosure duties arising from general consumer-protection or CFD-disclosure statutes (CA, FL, MI, MD).
3. Not yet classified — the remaining jurisdictions, where no retrieved CFD-specific wrap statute has been confirmed this run (see needs_verification).
Leading authority: 12 U.S.C. § 1701j-3 (Garn-St. Germain); 12 C.F.R. § 191.2 / § 191.5 (OCC, recodifying former 12 C.F.R. Part 591); see garn-st-germain-due-on-sale. No published case is needed to establish the trigger — the regulation names the CFD and wrap expressly. (No verified due-on-sale CFD case page exists in cases/ to link yet; flagged under needs_verification.)

▸ For Sellers / Operators — If you are wrapping or selling “subject-to” an existing mortgage on a contract for deed, treat the underlying due-on-sale clause as enforceable and your CFD sale as a triggering transfer that is not within any Garn-St. Germain exemption — the (d)(1)–(9) list is for death, divorce, family, junior liens, and a settlor-beneficiary trust, not for selling the home to a buyer (12 U.S.C. § 1701j-3(d)). Three compliance facts: (1) acceleration is the lender’s option and can be invoked any time it learns of the transfer (e.g., on a rate reset or insurance change), so “the lender isn’t watching” is a business reality, not a legal defense; (2) a land trust does not cure this for a true CFD sale to a third party — (d)(8) shelters only a trust in which the borrower remains beneficiary and occupant, and marketing a wrap as “due-on-sale-proof” misstates § 1701j-3; (3) your state may regulate the wrap directly — Minnesota investor sellers may not wrap a due-on-sale mortgage absent the lender’s binding consent/non-enforcement and contract disclosure (Minn. Stat. § 559A.04, subd. 1); Texas effectively bars a wrap CFD unless the lienholder consents, the lien never exceeds the buyer’s remaining balance, and a 14-point pre-execution disclosure is given (Tex. Prop. Code § 5.085); Ohio caps the vendor’s mortgage at the contract balance absent vendee consent (Ohio Rev. Code § 5313.02(B)). Mitigation lives in the deal: pay off or formally assume the senior loan, get written lender consent, escrow a payoff reserve, and disclose the wrap and the acceleration risk to the buyer (often independently mandated by the state CFD statute).

▸ For Buyers — A wrap/subject-to CFD puts your equitable interest behind a senior mortgage the seller still owes. If the lender exercises its due-on-sale option, the loan can be accelerated and the property foreclosed regardless of whether your CFD payments are current. Insist on written disclosure of any underlying mortgage, a payoff/escrow mechanism, a right to cure the seller’s default and credit it, and prompt recording of your interest; in MN/TX/OH these protections are partly statutory.

Jurisdiction map

The clause’s enforceability is uniform (Garn-St. Germain preemption in all 56 jurisdictions). The table below maps the state-law overlay on a CFD/wrap over a due-on-sale loan, citing the controlling authority. States not listed have no retrieved CFD-specific wrap statute this run — see needs_verification; their wraps are governed by the federal rule plus general lien-priority law.

Position	Jurisdiction	Authority (primary source)
Federal baseline (all 56) — due-on-sale clause enforceable notwithstanding contrary state law; CFD/wrap is an enumerated triggering transfer; nine narrow residential exemptions do not cover a third-party CFD sale	applies in every state	12 U.S.C. § 1701j-3(a)(1), (b)(1), (d); 12 C.F.R. § 191.2 (defines “installment land sales contracts, wraparound loans, contracts for deed” as reached) — garn-st-germain-due-on-sale
Wrap conditioned by CFD statute — investor seller may not enter a CFD subject to a due-on-sale mortgage unless it has the holder’s binding consent/non-enforcement and discloses the mortgage and covenants to keep it current	minnesota	Minn. Stat. § 559A.04, subd. 1
Wrap effectively barred by CFD statute — seller may not execute an executory contract unless it owns in fee simple free of liens, except a purchase-loan lien where the lienholder consents/verifies, the lien never exceeds the buyer’s remaining contract balance, and a 14-point pre-execution disclosure (lienholder, loan number, balance, foreclosure warning) is given ≥ 3 days before signing	texas	Tex. Prop. Code § 5.085 (disclosure timing § 5.069/§ 5.085)
Vendor senior lien capped at contract balance — no vendor shall hold or place a mortgage on the property greater than the balance due under the land contract without the vendee’s consent	ohio	Ohio Rev. Code § 5313.02(B)
Wrap permitted, no CFD-specific bar — lawful but exposed to Garn-St. Germain acceleration + lien-priority law; disclosure duties arise from general consumer-protection / CFD statutes	california, florida, michigan, maryland	12 U.S.C. § 1701j-3; 12 C.F.R. § 191.2; Cal. Civ. Code §§ 2985.2–2985.3; Fla. wrap = transfer (general law); Md. Code, Real Prop. Tit. 10 (no wrap bar)

How the overlays operate

The federal trigger is not a close question. The OCC rule defines the conveyances a lender may treat as “assumed” to include “transfers of real property subject to a real property loan by assumptions, installment land sales contracts, wraparound loans, contracts for deed,” and defines a triggering “sale or transfer” to include conveyance “by outright sale, deed, installment sale contract, land contract, contract for deed” (12 C.F.R. § 191.2). A CFD wrap is squarely within the clause; the only questions are whether a § 1701j-3(d) exemption applies (it does not for a third-party sale) and whether state law adds its own conditions. Source: 12 C.F.R. § 191.2; 12 U.S.C. § 1701j-3(a)(1), (d).
Minnesota — affirmative consent-and-disclosure gate. An investor seller (“multiple seller”) may not execute a CFD subject to a mortgage or other lien containing a due-on-sale clause unless it has “procured a binding agreement with the mortgage holder whereby the holder either consents to the sale … or agrees not to exercise the holder’s rights under a due-on-sale clause,” and the contract discloses the mortgage, covenants that the seller will perform all mortgage obligations, and represents that the binding agreement was procured. Source: Minn. Stat. § 559A.04, subd. 1.
Texas — fee-simple rule with a narrow purchase-loan exception. “A potential seller may not execute an executory contract … if the seller does not own the property in fee simple free from any liens or other encumbrances,” and must maintain that status, except a purchase-loan lien where the lienholder does not prohibit the CFD and will verify the loan on request, the lien “at no time, is or will be greater in amount than the … total outstanding balance owed by the purchaser,” and a 14-point disclosure of the lienholder, loan number, balance, payments, and foreclosure risk is given at least three days before execution. This makes a classic wrap over an existing mortgage very hard to do compliantly; violation is a DTPA act. Source: Tex. Prop. Code § 5.085.
Ohio — vendor-lien cap. “No vendor shall hold a mortgage on property sold by a land installment contract in an amount greater than the balance due under the contract,” nor “place a mortgage on the property in an amount greater than the balance due on the contract without the consent of the vendee.” This limits, but does not forbid, wrapping a senior loan; the federal acceleration risk remains. Source: Ohio Rev. Code § 5313.02(B).
Permitted-but-risky states (CA, FL, MI, MD). No CFD statute prohibits the wrap. California’s real-property-sales-contract chapter (Civ. Code §§ 2985 et seq.) regulates these instruments and carries wrap/all-inclusive-trust-deed provisions at §§ 2985.2– 2985.3, but does not displace Garn-St. Germain acceleration. Florida (agreement for deed), Michigan (land contract), and Maryland (land installment contract) treat the CFD as a transfer that triggers the clause and rely on disclosure + lien-priority law; Maryland’s Real Property Title 10 contains no independent wrap bar. In each, concealing the wrap can be independent consumer-fraud exposure (e.g., Florida FDUTPA). Sources: 12 U.S.C. § 1701j-3; 12 C.F.R. § 191.2; Cal. Civ. Code §§ 2985.2–2985.3; Md. Code, Real Prop. Tit. 10.

What the clause does and does not do

It does not invalidate the CFD. Acceleration is a remedy of the lender against the borrower-seller; the CFD between seller and buyer remains binding. The risk is that the senior loan becomes immediately due, exposing the collateral — and the buyer’s equitable interest — to foreclosure if unpaid. (12 U.S.C. § 1701j-3(a)(1).)
It does not require the lender to accelerate. The clause is “at its option.” Many lenders do not monitor while payments stay current — a business reality, not a safe harbor; the contractual right persists and can be exercised later. (§ 1701j-3(a)(1).)
It does not preempt consumer-protection law. Garn-St. Germain addresses only due-on-sale enforceability; it does not displace dodd-frank-seller-financing originator/ATR rules, safe-act-mlo licensing, state CFD disclosure statutes, or recording duties, which apply independently to the CFD sale. (See § 1701j-3 scope.)
The residential exemptions do not shelter a CFD sale. The (d)(1)–(9) list covers junior liens, appliance security interests, death/descent, a ≤3-year lease without a purchase option, family/spouse/divorce transfers, and a settlor-beneficiary inter vivos trust — none of which is a sale of the home to a CFD buyer who takes occupancy. A CFD is an installment purchase, so the (d)(4) short-lease safe harbor (which excludes any interest “containing an option to purchase”) cannot apply. Source: 12 U.S.C. § 1701j-3(d)(1)–(9). See garn-st-germain-due-on-sale.

Primary sources (retrieved 2026-06-08)

12 U.S.C. § 1701j-3 (Garn-St. Germain, § 341 of Pub. L. 97-320) — (a)(1) due-on-sale definition; (b)(1) preemption of contrary state law; (d)(1)–(9) the residential exemptions and the “less than five dwelling units” threshold. Cornell LII: https://www.law.cornell.edu/uscode/text/12/1701j-3
12 C.F.R. § 191.2 (OCC, recodifying former 12 C.F.R. § 591.2) — definitions: “Assumed includes transfers of real property subject to a real property loan by assumptions, installment land sales contracts, wraparound loans, contracts for deed”; “sale or transfer means the conveyance of real property … by outright sale, deed, installment sale contract, land contract, contract for deed.” Cornell LII: https://www.law.cornell.edu/cfr/text/12/191.2
Minn. Stat. § 559A.04, subd. 1 — investor seller may not enter a CFD subject to a due-on-sale mortgage absent the holder’s binding consent/non-enforcement, with contract disclosure and covenant to perform. Minnesota Revisor: https://www.revisor.mn.gov/statutes/cite/559A.04
Tex. Prop. Code § 5.085 — fee-simple requirement; purchase-loan exception (lienholder consent/verification; lien ≤ buyer’s remaining balance; 14-point pre-execution disclosure). Texas Public Law: https://texas.public.law/statutes/tex._prop._code_section_5.085
Ohio Rev. Code § 5313.02(B) — vendor may not hold or place a mortgage on the property greater than the balance due under the land contract without vendee consent. Ohio Laws: https://codes.ohio.gov/ohio-revised-code/section-5313.02

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Due-on-Sale Clause

Due-on-Sale Clause

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