What is the purpose of an alienation clause?

An alienation clause, often found in mortgage agreements or property contracts, serves the specific function of stipulating that if the property secured by the mortgage is sold or transferred to another owner, the outstanding debt becomes immediately due and payable. This clause protects the lender's interest by ensuring that they can demand full repayment of the loan if the property changes ownership, thus preventing potential risks associated with a new owner who may not have the same creditworthiness as the original borrower.

The absence of this clause could allow a borrower to sell the property without notifying the lender, which could pose significant financial risks to the lender if the new buyer is unable to manage the mortgage payments. Therefore, the alienation clause is an important tool for maintaining the lender’s security and securing their position in the event of a property sale.