In a loan, what is the purpose of an alienation clause?

An alienation clause, also known as a due-on-sale clause, serves the purpose of protecting the mortgagee's position. This clause allows the lender to require that the full loan balance be paid off if the borrower sells or transfers the property without the lender's consent. This mechanism helps the lender maintain control over who holds the loan and minimizes the risk associated with having a new borrower who may not be as financially stable or reliable as the original borrower.

For a lender, knowing who is responsible for the mortgage is crucial, as it affects their ability to collect payments and manage the risk of default. By having this clause in place, the lender can prevent a situation where the property is transferred to someone who could negatively impact their investment. This provides a layer of security for the mortgagee, ensuring they have the right to call the loan if circumstances change with respect to ownership of the property.