Mortgage borrowers often assume that as long as they make their payments, their lender won’t interfere with their property ownership. However, loan acceleration and due-on-sale clauses can create unexpected financial and legal challenges. In Texas, banks can accelerate a loan if the borrower defaults, and in rare cases, they may also enforce a due-on-sale clause if the property is transferred. This article explains how these processes work, what borrowers can do to respond, and key legal considerations.
What Is Loan Acceleration?
Loan acceleration occurs when a lender calls the full balance of a loan due immediately instead of allowing the borrower to continue making monthly payments. This usually happens after repeated missed mortgage payments or some other breach by the borrower.
What Is a Due-on-Sale Clause?
A due-on-sale clause is a provision in most deeds of trust in Texas that allows the lender to demand full repayment if the borrower transfers ownership of the property. While many borrowers assume they can deed a home into an LLC or trust for asset protection, doing so without lender approval may trigger the due-on-sale clause.
When Do Lenders Enforce the Due-on-Sale Clause?
- Most banks don’t enforce it. In fact, it is extremely rare for banks to call a performing note due based on a violation of the due on sale clause. Most deeds of trusts in Texas give the lender the option of calling the note due, as opposed to automatically placing the borrower in breach.
- If a lender enforces it, they may accelerate the loan, demanding full payment.
- If the borrower wants to reverse the transfer, simply deeding the property back may not be enough to undo acceleration.
The Garn-St. Germain Depository Institutions Act of 1982 (12 U.S.C. § 1701j-3) provides some exemptions, such as allowing a homeowner to transfer property to a spouse or child without triggering the due-on-sale clause. However, most other transfers require lender approval.
Can You Reverse Loan Acceleration or a Due-on-Sale Clause Enforcement?
If a bank accelerates a loan due to default or enforcement of a due-on-sale clause, borrowers may or may not be able to undo it. Some deeds of trust allow a 30-day cure period, during which the borrower can fix the issue. However, if acceleration has already occurred, reversing it typically requires the lender to officially rescind the acceleration. Getting approval from the lender to deed the property back to the borrower may also stave off the due on sale remedy.
Steps Borrowers Can Take:
- Contact the Lender Immediately – Ask if they will rescind the acceleration if the issue is corrected.
- Check for a Cure Period – Some mortgages allow a short time to fix the problem.
- Consult a Real Estate Attorney – If facing foreclosure, legal guidance is critical.
- Monitor the Four-Year Foreclosure Limit – If a lender fails to act within four years after acceleration, they may lose the right to foreclose.
Conclusion
Loan acceleration and due-on-sale clauses can catch borrowers off guard. While acceleration is common after mortgage default, due-on-sale enforcement is rare—but rising interest rates may increase its use. Simply deeding a property back to the original owner may not undo acceleration, and lenders typically must formally rescind the acceleration notice. If you’re facing foreclosure or a due-on-sale issue, consulting a Texas real estate attorney can help you navigate the legal and financial risks.
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