In seller financing, what is a key risk related to due-on-sale?

In seller financing, what is a key risk related to due-on-sale?

• A. The loan cannot be prepaid.
• B. The loan is automatically assumed by any buyer.
• C. The interest rate is fixed for the life of the loan.
• D. The loan may become due in full if the property is sold.

Answer: (D)

In seller financing, a due-on-sale clause is a protection that allows the lender to demand full repayment of the remaining loan balance if the property is sold or title is transferred. This creates the key risk: when the property changes hands, the entire loan can be accelerated and become due immediately. The seller‑lender must be ready to offer payoff or refinance on short notice, which can complicate or derail the sale. It also means the buyer may not be able to simply transfer the loan to a new buyer without the lender’s consent or without arranging a lump-sum payoff. The other statements don’t capture this acceleration risk: prepayment terms, automatic assumption, or a fixed-rate for life describe different loan features rather than the potential for the loan to be called due upon sale.

In seller financing, a due-on-sale clause is a protection that allows the lender to demand full repayment of the remaining loan balance if the property is sold or title is transferred. This creates the key risk: when the property changes hands, the entire loan can be accelerated and become due immediately. The seller‑lender must be ready to offer payoff or refinance on short notice, which can complicate or derail the sale. It also means the buyer may not be able to simply transfer the loan to a new buyer without the lender’s consent or without arranging a lump-sum payoff. The other statements don’t capture this acceleration risk: prepayment terms, automatic assumption, or a fixed-rate for life describe different loan features rather than the potential for the loan to be called due upon sale.