CHAPTER 9.05. Due on Encumbrance

• Jurisdiction: United States

9.05. Due on Encumbrance

A due-on-encumbrance provision in a loan document states that the borrower is prohibited from further encumbering the collateral (such as with a second mortgage) and serves the purpose of triggering a default by the debtor if the collateral is further encumbered for the benefit of another creditor. The Garn-St Germain Act does not apply to due-on-encumbrance provisions; they are governed wholly by applicable state law. There do not appear to be any reported Delaware cases construing...