Alienation Clause

The definition of alienation clause is the transfer or sale of a particular property or asset that can be applied once the owner has no more financial obligations to said property or asset. The most often use for the term alienation clause is in financial or insurance contracts as well as mortgage deals and property insurance contracts.

Sometimes, the possibility of a real estate Alienation can be stipulated in a contract, either allowing or forbidding it to happen. Whenever that happens, it’s referred to it by parties as “the alienation clause”. 

Alienation Clause in Mortgages

These can be quite common in the mortgage industry, and mortgage contracts usually have the clause stipulated, and lenders include them for residential and commercial properties. With the alienation clause, the lender can make sure that the payments are respected and fully repaid. The alienation clause covers the lender if the property is sold or transferred to someone else because the revenue from the sale will settle the mortgage balance.

If the alienation clause is not stipulated in the mortgage agreement the owner might transfer or sell the property along with the mortgage debt to a new owner in something that is called an assumable mortgage contract.

Alienation Clause in Insurance

Property insurance for both commercial and residential properties also have an alienation clause mentioned in their contracts. In the case of property insurance, the alienation clause absolves the account holder from any future payments in case the property is sold or transferred to someone else. Once the account holder, original owner, is acquitted of payments, the insurance is closed, and the new owner must purchase a new insurance in their own name for the property.

So, when you hear someone talking about a real estate alienation clause, know that person is mentioning the part of the contract that talks about the right to transfer property from one person to another.

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