What is an alienation clause?

By Justin Bynum AAA
A:

Whether used in reference to insurance policies, mortgages or commercial loans, an alienation clause stipulates that should a purchaser or borrower sell his or her interest to another party, the new party must negotiate a new contract with the issuer or lender. In this way, the term "alienation" is synonymous with "transfer".

In the case of insurance contracts, if a property owner sells his or her property, an alienation clause would cause the existing homeowner's insurance to become null and void, which would force the new owner to purchase a new, unique policy. Alternatively, when an alienation clause is inserted into a loan agreement, transfer of a mortgaged asset requires that asset to be refinanced under a new agreement following a change of ownership. For real estate transactions, alienation clauses are a prime factor in the decline of assumable mortgages.

To keep reading about insurance issues, check out our Insurance 101 feature.

This question was answered by Justin Bynum.

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