A due-on-sale clause in a loan contract prohibits the buyer of a business from assuming a seller's loan even though it may carry a lower interest rate.

Question

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A due-on-sale clause in a loan contract typically requires that the entire loan balance must be paid off if the property securing the loan is sold, transferred, or conveyed to another owner. Therefore, a buyer of a business cannot assume a seller's loan if the loan contract includes a due-on-sale clause.

A Due-On-Sale Clause in a Loan Contract Prohibits the Buyer