Due On Sale Clause can Trigger Balloon Payments

Due on Sale Clause in a Mortgage
Due on Sale Clause in a Mortgage

Does a due on sale clause within a mortgage in Minnesota impact an estate plan?

Individuals and families wishing to fund a trust or use a transfer on death deed can reduce their risk of accelerating balloon payments by reviewing their mortgage and lending documents.

Unfortunately, every mortgage is different because mortgages are created by hundreds and thousands of financial companies. Nonetheless, here is a brief outline of the issues to consider.

What is a due on sale clause?

First, what the heck is a due on sale or acceleration clause?  To keep it simple, this type of clause is a condition found within a mortgage or contract for deed. In general, the clause requires full payment of a mortgage upon the occurrence of certain events.

Also, the National Housing Act helps define balloon payments as they apply to a mortgage under rule 1701j.3. As you can see, this law gives mortgage companies and lenders certain opportunities to seek money from a buyer if any or part of their property is sold or transferred without the lender’s written consent.

The hard part is finding it or confirming a mortgage does not have a due on sale clause.  Sometimes, a mortgage document will use big bold headings to help.

Where will you find the acceleration clause?

When in doubt, I always read the mortgage.  If you misplaced your mortgage, you coud:

  1.  Visit the recorder’s office and ask for a copy of the recorded document; or
  2. Ask the lending company for a courtesy copy.

Minnesota definition of a due on sale clause

Transfer on Death Deed
MN Transfer on Death Deed

Minnesota has a chapter of statutes devoted to mortgages.  If you are looking for help falling to sleep, look at Chapter 47.  The rules specifically apply to financial corporations.

On the other hand, Minnesota statute ‌47.20 speaks to the lending authority of a bank.  As a starter, most case law in Minnesota devoted to the discussion of a due on sale clause in a mortgage utilize subdivision 6 and 6a.

Exceptions to a due on sale clause

Every situation is different and unique.  Assuming a piece of real estate is a person’s primary residence and they do not live in a housing complex, there are likely many exceptions to the acceleration of a balloon payment. Specifically, these exceptions can be found under the National Housing Act.

Other significant cases

Unfortunately, lenders and homeowners sometimes disagree on the terms of a due on sale clause. Here are a handful of notable cases to consider, as we try to define what will happen or not happen with a due on sale clause:   Viereck v. Peoples Sav. & Loan Ass’n, 343 N.W.2d 30 (Minn. 1984),  Akopyan v. Wells Fargo Home Mortgage, Inc., Cal.App. 2 Dist., April 4, 2013, and a United States Supreme Court case called Cuomo v. Clearing House Ass’n, L.L.C., 129 S.Ct. 2710.  

Therefore, before you fund a trust or transfer a piece of property using a transfer on death deed (TODD), make sure you know what, how and why.

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Estate Attorney Jasper Berg