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.

RELATED FAQS
  1. What is a "force majeure"?

    A force majeure is derived from the French term meaning "greater force" and refers to any natural and unavoidable catastrophe. ... Read Answer >>
  2. Can you sue an insurance company for not paying a claim over a waiver of subrogation ...

    Learn more about insurance and why waivers of subrogation are common with property insurance. Find out about liability risk ... Read Answer >>
  3. What’s the Difference Between a Mortgage Lender and a Mortgage Servicer?

    Buying a home is an exciting and confusing process. Once the loan is secured, it's important to know who gets the payment: ... Read Answer >>
  4. How is the consumer price index (CPI) used in market escalation contracts?

    Understand the purpose of market escalation contracts and learn how the consumer price index (CPI) is often used to make ... Read Answer >>
Related Articles
  1. Taxes

    What is a Resident Alien?

    A resident alien is a foreigner who is a permanent resident of the country in which he or she resides but does not have citizenship.
  2. Taxes

    Tax Rules For Resident And Nonresident Aliens

    This article examines the definition and tax treatment of these types of non-U.S. citizens.
  3. Personal Finance

    Why Your Will Needs a 'Titanic Clause'

    If you don't have a Titanic clause in your will and disaster strikes, there's no guarantee that your intended beneficiaries will inherit your assets.
  4. Insurance

    What is a Force Majeure?

    A force majeure clause frees both parties in a contract from fulfilling their obligations in the event of some catastrophic or unexpected occurrence.
  5. Investing

    Contingency Clauses In Home Purchases Contracts

    Real estate contracts often contain contingency clauses, which are conditions or actions that must be met for a contract to be binding.
  6. Insurance

    Why You Don’t Need Mortgage Protection Life Insurance

    Mortgage protection life insurance sounds great – a guarantee that your mortgage will be paid if you die. But first take a hard look at what you get.
  7. Insurance

    Is Loan Protection Insurance Right For You?

    This coverage can keep you from defaulting on your loans when you're in financial trouble.
  8. Investing

    Financing Basics For First-time Homebuyers

    If you're looking to get your first mortgage, there are many financing options available.
  9. Insurance

    Understanding Your Insurance Contract

    Learn how to read one of the most important documents you own.
RELATED TERMS
  1. Release Clause

    A release clause is a mortgage term that refers to a provision ...
  2. Alien Corporation

    A corporation that was created in another country. Alien corporations ...
  3. Assumption Clause

    A provision in a mortgage contract that allows the seller of ...
  4. Acceleration Clause

    A contract provision that allows a lender to require a borrower ...
  5. Negative Pledge Clause

    A negative covenant in an indenture stating that the corporation ...
  6. Waiver Of Inventory Clause

    A clause in an insurance policy that says that the insurance ...
Trading Center