The Standard Lease Option Agreement Violates the Dueon Sale Clause in Loans

Although I know of no case nationwide where a residential mortgage or deed of trust lender has declared a loan to be in default because the borrower signed a lease-option agreement on the property securing the mortgage or deed of trust and promissory note, you need to know that the lender's discovery of a lease-option agreement can trigger the due-on-sale clause contained in residential mortgage and deed of trust loans. Section 591.2 (b) of Title 12, Banks and Banking, of the Code of Federal Regulations states:

Due-on-sale clause means a contract provision which authorizes the lender, at its option, to declare immediately due and payable sums secured by the lender's security instrument upon a sale or transfer of all or any part of the real property securing the loan without the lender's prior written consent. For purposes of this definition, a sale or transfer means the conveyance of real property of any right, title or interest therein, whether legal or equitable, whether voluntary or involuntary, by outright sale, deed, installment sale contract, land contract, contract for deed, leasehold interest with a term greater than three years, lease-option contract or any other method of conveyance of real property interests.

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