The Agent's Written Due-on-Sale Disclosure: What Utah Rule R162-2f-401a Requires

A Utah licensee on a wrap or sub-to deal must give a written due-on-sale disclosure before anyone signs a binding agreement. It says a due-on-sale clause exists or may exist, and that selling without the lender's authorization has consequences. Deliver it early, get it signed, and keep it in the file.

What must the written disclosure say?

The disclosure must cover two points: a due-on-sale clause exists or may exist in an underlying encumbrance, and selling or buying without the holder's authorization has potential consequences (Utah Admin. Code R162-2f-401a(6)(d)).

That is the whole required content. It is short, but each half does real work.

The first half is about the clause itself. Notice the words "possible existence." You don't need to have read the seller's deed of trust to trigger the duty. If the seller has a mortgage, the clause possibly exists. Most residential trust deeds carry one. Write the disclosure on the assumption that it is there.

The second half is about consequences. The rule doesn't hand you a script. It requires that the potential consequences be disclosed. In practice, a useful disclosure names them in plain English:

• The lender may declare the full loan balance due.
• If the balance isn't paid, the lender may foreclose.
• A foreclosure on the underlying loan can cut off the buyer's interest.
• The seller's credit and the buyer's down payment are both exposed.

Ground that list in federal law. A lender may enforce a due-on-sale clause (12 U.S.C. § 1701j-3(b)(1)). Federal law also lists the transfers a lender can't treat as a trigger. A wrap, a subject-to transfer, a contract for deed, and a lease with a purchase option are not on that list (12 U.S.C. § 1701j-3(d)).

Make it concrete with numbers. Say the price is $425,000, the buyer puts $40,000 down, and the seller still owes $265,000 at 3.25%. If the lender calls the loan, someone needs $265,000 on short notice. A good disclosure puts that number in front of both parties before they sign.

What should the disclosure not do? It shouldn't predict how the lender will behave. Don't write anything about how often lenders act. Nobody can tell you that, and the rule doesn't ask for it.

When must it be given?

The written disclosure must be given before the parties enter a binding agreement (Utah Admin. Code R162-2f-401a(6)(d)). On a typical Utah deal, that means before the REPC and its addenda are signed and acceptance is communicated.

Earlier is almost always better. A disclosure handed over with the final signature packet is technically on time. But the buyer has already mentally bought the house by then. A disclosure given at the first serious conversation lets the parties price the risk in.

Here is how the timing typically fits into a seller-financed deal.

1. First conversation
   Ask about the existing loan
   Ask the seller whether any loan is on the property. If yes, the due-on-sale clause possibly exists.
2. Before drafting the offer
   Deliver the written disclosure
   Give both parties a written disclosure naming the clause and the potential consequences of selling without the lender's authorization.
3. Before signatures
   Collect signed acknowledgments
   Have each party sign and date the disclosure. Keep a copy for the transaction file.
4. Offer and acceptance
   Sign the REPC and addenda
   The binding agreement is formed only after the disclosure is already in the file.
5. Under contract
   Review the underlying loan documents
   The seller discloses the underlying loan documents under the addendum. Read the due-on-sale language together.
6. Before closing
   Refer the structure to an attorney
   Custom wrap terms, servicing, and the exit plan belong in attorney-drafted documents.

If terms change materially, refresh the disclosure. Say the deal starts as a straight seller carry on a free-and-clear house. Then the seller mentions a home equity line. Now an underlying encumbrance exists. Give the disclosure before the revised agreement binds anyone.

Does the rule apply to unrepresented private parties?

No. The rule governs licensees, so two private parties selling to each other without an agent are outside it (Utah Admin. Code R162-2f-401a(6)(d)). The due-on-sale risk itself doesn't change at all.

This is where agents sometimes get pulled in sideways. A seller and buyer find each other, agree on a wrap, and ask you to "just help with the paperwork." The moment you act as a licensee in that deal, the disclosure duty is yours.

The same goes for a deal where you represent only one side. If you represent the seller and the buyer is unrepresented, the rule speaks to the licensee's disclosure. The safe practice is to give the written disclosure to both parties and keep both acknowledgments.

What about an investor who holds a license but buys for their own account? That question turns on facts and on how the licensee is acting in the deal. Talk to the attorney on the deal before assuming you're outside the rule.

What's the difference between the agent's disclosure and the addendum's disclosure?

They are two different duties from two different sources. The licensee's duty comes from the licensing rule. The seller's disclosure of underlying loan documents comes from the state Seller Financing Addendum (Seller Financing Addendum § 5).

Section 5 of the addendum does two things. The seller discloses the underlying loan documents. And if a due-on-sale clause is triggered, the buyer's payoff is credited to the note's principal (Seller Financing Addendum § 5). That crediting language matters to the buyer. It doesn't replace your own written notice.

The sensible approach is to use both. Your disclosure goes out first. The addendum then gives the buyer the actual loan documents to review.

How should the agent document it in the file?

Keep a signed and dated written disclosure from each party, delivered before the binding agreement, in the transaction file. That document is your evidence. The rule sets the duty; the file proves you met it.

A clean file usually holds these pieces:

1. The disclosure itself, with the property address and the date.
2. A line naming the known lender, or stating that an underlying loan possibly exists.
3. The plain-English consequences, including that the full balance may be called due.
4. Each party's signature and the date and time of signing.
5. Proof of delivery, such as the e-signature certificate or an email with the attachment.
6. A short note of any conversation where a party asked questions or pushed back.

Compare the dates. The disclosure signature should come before the REPC acceptance. If an e-signature platform stamps both, the order will be obvious later. If you get them out of order, don't backdate anything. Give the disclosure again, note the date honestly, and talk to your broker.

Store it where your brokerage keeps other required disclosures. Your broker likely has a retention practice already. Follow it.

What should the parties do to manage due-on-sale risk once it's disclosed?

Disclosure names the risk; mitigation is how the parties live with it. The most common tools are a third-party servicer, cash reserves, correct insurance, a written exit plan, and attorney-drafted documents. None of them removes the lender's right.

These are practice points, not legal requirements. Here is what typically happens on a well-built wrap or sub-to deal:

• Third-party servicing. The buyer pays a servicer. The servicer pays the underlying lender first, then remits the spread to the seller. Everyone gets records.
• Reserves. The parties set aside cash for missed payments, insurance changes, or a short-notice payoff effort. On a $265,000 underlying loan, even a few months of payments is meaningful.
• Insurance. The policy should reflect who lives there and who holds an interest. Coordinate with the insurance agent early.
• An exit plan. The documents should say what happens if the loan is called. Usually that means a refinance window, a sale, or a payoff.
• Attorney-drafted documents. Licensees use approved forms. Custom wrap terms belong in documents an attorney drafts.

Run the numbers before anyone signs. The wrap spread calculator shows the seller's monthly margin and the balance exposure. If the spread is thin, the reserves need to be thicker.

Where does the agent's job end and the attorney's begin?

The agent discloses the risk, uses approved forms, and keeps a clean file. The attorney drafts the custom terms, structures servicing and the exit plan, and advises each party on their own risk.

This line protects you. In practice, agents work from the approved forms and leave custom legal terms to an attorney. Wrap terms go well beyond what the approved forms address. The agent guide to seller financing walks through the addendum and that boundary in detail.

When you bring an attorney in, your client keeps you. The attorney handles documents; the relationship stays yours. Our agent one-pager spells out what the attorney does and doesn't do on a deal. The For agents hub collects the rest of the agent resources. The services page lists what the $750 covers.

What Greg would tell you

Give the disclosure early, in writing, and to both sides, even when you only represent one of them. The best version uses the real loan balance and says plainly that the lender could call it due. A signed page in your file costs you ten minutes and answers the question if anyone ever asks it.

This site is for general information about Utah law and is not legal advice. Using it does not create an attorney-client relationship. Every transaction is different — talk to an attorney about yours. Attorney advertising.