A due-on-encumbrance clause is a specific provision commonly included in mortgage or real estate loan agreements. It states that if the borrower secures a new loan or places any additional lien—called an “encumbrance”—on the property used as collateral, the lender can demand immediate repayment of the entire remaining loan balance. This action is known as “loan acceleration.” By enforcing this clause, lenders protect their financial interest and ensure they remain the first priority for repayment if the property is sold or foreclosed.
In practical terms, this clause prevents a borrower from taking on further debt against the same property without informing the original lender. For example, obtaining a second mortgage or a home equity line of credit (HELOC) can trigger this clause. Other common encumbrances include mechanic’s liens (claims by contractors for unpaid work), tax liens, and judgment liens. These claims could reduce the lender’s ability to recover their loan amount if the property is sold.
Unlike the more familiar due-on-sale clause, which requires full repayment when the property is sold or ownership is transferred, the due-on-encumbrance clause is concerned with additional claims placed on the property even if the borrower retains ownership.
If your loan includes this clause, adding a new lien might result in a notice demanding you repay your entire mortgage—often within 30 days. Ignoring such a notice can lead to foreclosure proceedings.
To manage this risk, it is critical to review your original mortgage or loan documents for any due-on-encumbrance language, typically found under borrower obligations or covenants sections. If you plan to take on additional debt secured by your property, contacting your lender in advance can clarify whether they will allow it or if they can waive enforcement.
If the lender refuses, alternative financing options that do not create a lien on your home, such as unsecured personal loans, may be safer but could have higher interest rates.
For more information on related topics, you can explore our articles about the Home Equity Line of Credit (HELOC), Mechanic’s Lien, and Due-on-Sale Clause.
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