Investor's wiki

Alienation Clause

Alienation Clause

What Is an Alienation Clause?

The term alienation clause alludes to a provision commonly found in numerous financial or insurance contracts, particularly in mortgage arrangements and property insurance contracts. The clause generally only permits the transfer or the sale of a specific asset to be done once the primary party satisfies its financial obligation.

Figuring out Alienation Clauses

Alienation clauses — likewise alluded to as due-on-sale clauses — are generally a standard, particularly in the mortgage industry. So it's elusive a mortgage contract that doesn't have an alienation clause of some sort. Lenders remember the clause for mortgage contracts for both commercial and residential properties so new purchasers can't assume control over an existing mortgage. This guarantees the lender that the debt will be completely reimbursed in the event of a real estate sale or on the other hand assuming that the property is transferred to another party. The alienation clause basically releases the borrower from their obligations to the lender since the proceeds from the home sale will pay off the mortgage balance.

Alienation clauses are additionally called due-on-sale clauses.

They are likewise remembered for property insurance policies. In residential and commercial property insurance contracts, alienation clauses release an account holder from paying insurance on a property in the event that property ownership is transferred or on the other hand assuming that the property is sold. This release additionally requires the new homeowner to acquire new insurance in their name for the property later on.

Alienation Clause Terms

Mortgage alienation clauses prevent assumable mortgage contracts from happening. An alienation clause requires a mortgage lender to be immediately reimbursed on the off chance that an owner transfers ownership rights or sells a collateral property. These clauses are incorporated for both residential and commercial mortgage borrowers.

On the off chance that an alienation clause is excluded from a mortgage contract, the owner might be free to transfer the mortgage debt to another owner in a assumable mortgage contract. Assumable mortgage contracts permit another owner to assume control over the previous owner's leftover debt obligations, making the scheduled payments to the mortgage creditor under similar terms as the previous borrower. Assumable mortgage contracts are not common, in any case, they could be utilized in the event that an owner is in fear of disclosure and doesn't have an alienation clause in their mortgage contract. An assumable mortgage contract can assist a distressed borrower with easing their debt obligations through a simplified transfer process.

Mortgage lenders structure mortgage contracts with alienation clauses to guarantee immediate repayment of debt obligations from a borrower. Essentially all mortgages have an alienation clause. An alienation clause shields the lender from unpaid debt by the original borrower. It guarantees that a creditor is reimbursed in an all the more convenient way in the event that a borrower generally disapproves of their mortgage payments and can't pay. Alienation clauses likewise safeguard a lender from outsider credit risk which would be associated with another borrower taking on an assumable mortgage contract since the new borrower has a fundamentally unique credit profile.


  • Alienation clauses likewise exist in insurance policies on any property that has been sold.
  • An alienation clause voids certain contractual obligations to an asset assuming that asset is sold or on the other hand in the event that ownership is transferred to another entity.
  • These clauses are common in mortgage loans, which release borrowers from the lender once the property has been transferred to another owner.