Enforcement of a Commercial Loan After the Property Securing the Loan is Sold or Transferred -

Enforcement of due-on-sale clauses started growing in popularity in the 1970s as a result of instability in the economy and rising interest rates. To circumvent higher interest rates, borrowers resorted to alternatives to conventional bank financing, such as mortgage assumptions. Because of this trend, lenders began exercising their rights contained in the due-on-sale clauses of their loan documents and requiring the balance of their loans to be paid in full when properties were sold. In response, borrowers mounted challenges to such clauses as against public policy for unreasonably restraining alienation of property.