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Words Matter. Due on Sale Clause in Mortgage Triggered even if Property Sold Pursuant to Involuntary Assessment Foreclosure Where Language Doesn't Limit it to Voluntary Sales

A Florida Appellate Court recently held that a due on sale clause permitting mortgagee to accelerate loan upon sale or transfer of proper without the bank’s consent was triggered when property was transferred as a result of an involuntary condominium lien foreclosure.

In 2006, mortgagor executed a promissory note and mortgage encumbering the subject condominium unit. The mortgage contained a due on sale clause stating that upon sale or transfer of the property without the Bank’s consent, the Bank would be entitled to accelerate the loan, and if the mortgagor failed to pay the accelerated loan, the Bank would be entitled to foreclose.

Following a condominium assessment lien foreclosure sale, the property was transferred to the condominium association, and then to an investment company. The Bank did not consent to either transfer. Thus, the Bank accelerated the loan and instituted foreclosure proceedings upon nonpayment of the accelerated loan.

The investment company argued that the due on sale clause was not triggered and the foreclosure proceedings were improper because mortgagor did not voluntarily initiate either transfer.

On the day of trial, the trial court dismissed the case, without pending motion, finding it futile as a matter of law because the Bank would be unable to present any testimony or evidence that mortgagor violated the due on sale clause in the mortgage because, as both parties agreed, there had not been a voluntary transfer of title.

On appeal, the Third District Court of Appeal held that because the due on sale clause at issue did not contain any language limiting it to only voluntary sales, the clause encompassed any and all transfers of the subject property – even involuntary sales.

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