What is a sellability clause and how does it work?
- A sellability clause states that you must pay off your mortgage when you sell or transfer your home.
- You cannot transfer your mortgage to another person; the buyer will have to apply for his own mortgage.
- There are exceptions to the exigibility for sale clause, for example if you wish to leave the domicile to a relative upon your death.
- Learn more about mortgages and buying a home on Insider.
If you are looking to sell your home, you might be wondering what your options are. Should you put the house on the market and sell it, or transfer your mortgage to someone else, like your child?
Your decision will likely depend on what you are legally authorized to do under your mortgage contract. To find out, look for a time limit in the contract.
What is an exigibility clause?
A liability clause is a provision of a mortgage contract. It states that if you sell or transfer your home to someone else, you must pay off your entire mortgage.
When someone buys your house, you usually use their payment to pay off your mortgage balance and then pocket any proceeds. A sellability clause applies this process.
If the contract does not include an exigibility clause, the mortgage is assumable. Instead of the buyer applying for their own mortgage, they would assume your mortgage, including the interest rate and the outstanding principal.
Sale-due clauses protect the lender from someone who is unlikely to repay the mortgage by taking the seller’s loan. It also helps lenders when rates are high – rather than taking out a low interest mortgage, the buyer would apply for a higher rate mortgage and the lender would make more money.
How to avoid a liability clause?
If the mortgage contract includes a time limit, you can ask the lender if you can get around the clause. Sometimes the lender will still approve a mortgage transfer when it would be beneficial to the business. For example, if the circumstances lead the lender to believe that you might not be able to pay off the mortgage, they may approve you to transfer the mortgage to someone else.
Do not try to go behind the lender’s back and transfer a mortgage when it is prohibited in the contract. The lender will receive notification when the mortgage is transferred to a new person, and they are legally entitled to foreclose on the house.
Sometimes there are exceptions to the payability clause. For example, the house must be owned by a spouse or a child if the owners divorce. The house can also be left to someone in the event of the owner’s death. In most cases, however, the person taking out the mortgage must live in the house.
If in doubt, contact the lender to ask what your options are.
What types of mortgages do not have a time limit?
Most conventional mortgages have sellability clauses. However, a buyer may be able to assume your variable rate mortgage at the end of the introductory rate period.
FHA, VA, and USDA mortgages don’t have maturity clauses, so you can transfer them to other people. However, the buyer will have to meet requirements such as a minimum credit score and a maximum debt-to-income ratio.