A due-on-sale clause in a mortgage is a contract provision which gives the lender the option to declare the entire amount of the loan due and owing upon the sale or other transfer of the property. A California Supreme Court case, Wellenkamp v. Bank of America (1978) 21 Cal. 3d 943, 148 Cal. Rptr. 379, 582 P.2d 970, declared due-on-sale clauses to be unenforceable. Shortly after this decision, however, the United States Supreme Court found that state laws on this subject were pre-empted by federal law. Fidelity Federal Sav. and Loan Ass’n v. de la Cuesta,(1982) 458 U.S. 141, 102 S. Ct. 3014, 73 L. Ed. 2d 664. After that decision, Congress passed a law, which expressly declared due-on-sale clauses to be enforceable. 12 U.S.C. Sections 1701(i)-3(b)(1).
Federal law, in short, governs the enforceability of due-on-sales. Federal law does impose some restrictions upon due-on-sale clauses. 12 U.S.C. 1701j(3). In general, transfers of title within a family, such as upon death of the owner, divorce or some similar transfer cannot be used as reason to trigger a due-on-sale clause.