In which situation might a due-on-sale clause be enforced?

A due-on-sale clause is a provision in a mortgage or trust deed that allows the lender to demand full repayment of the loan when the property is sold or transferred to another party. The purpose of this clause is to protect the lender's interest by ensuring that the original borrower remains responsible for the debt.

When the property is transferred to another party, it triggers the due-on-sale clause because the lender may want to reassess the borrower's creditworthiness or the value of the property under new ownership. This enforcement helps the lender maintain control over the liability of the loan and mitigate risks associated with the transfer of ownership.

In contrast, inheriting the property or renting it out does not typically trigger a due-on-sale clause, as these actions don’t change the original ownership structure in a way that affects the loan agreement. Similarly, refinancing the loan would involve the original borrower, meaning that the lender is likely to be aware of the situation and can adjust the terms or transfer the debt rather than enforce a due-on-sale clause. Thus, the most appropriate situation for enforcing a due-on-sale clause is when the property is transferred to another party.