How should a mortgage lender react if a property with an existing mortgage is sold?

A mortgage lender should call the entire loan due if a "Due-on-sale" clause exists because this clause stipulates that the lender has the right to demand full repayment of the loan upon the sale or transfer of the property. The purpose of this clause is to protect the lender's interests by ensuring that the new owner is creditworthy and meets the lender's qualification criteria.

When a property is sold, if the mortgage includes a due-on-sale clause, the lender can enact this provision to ensure they can reassess the borrower's financial standing and possibly renegotiate the loan terms or collect payment in full. This protects the lender from transferring the debt obligation to a buyer who may not qualify under their lending criteria.

In instances where there is no due-on-sale clause or the lender opts to waive this right, the options available to both the seller and buyer may differ significantly. However, when a due-on-sale clause is present, the correct and standard procedure is indeed to call the entire loan due to maintain the lender's financial security.