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. When Is Mortgage Insurance Typically Required?

    Learn about the situations in which borrowers may be required to buy private mortgage insurance, and discover who this insurance ... 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 >>
Related Articles
  1. Insurance

    Life Insurance Clauses Determine Your Coverage

    Understanding these key parts of your policy will help you to ensure that your family will be covered.
  2. 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.
  3. Investing

    Corporate Bonds and the Importance of Covenants

    Any type of investor, private or institutional, should be acquainted with the significance of covenants in corporate bond agreements.
  4. Insurance

    5 Bizarre Insurance Policies

    If you can dream up a risk, you can probably insure it. From interesting to bizarre, here are five of the weirdest insurance policies.
  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

    Is Loan Protection Insurance Right For You?

    This coverage can keep you from defaulting on your loans when you're in financial trouble.
  7. Personal Finance

    Insuring Federal Housing Authority Mortgages

    This insurance has an edge over private mortgage insurance. Find out why.
  8. Insurance

    What To Do If Your Insurance Won't Pay

    Before paying for coverage, find out what you need to do to ensure you get paid.
  9. Personal Finance

    Guidelines for FHA Reverse Mortgages

    FHA guidelines protect borrowers from major mistakes, prevent lenders from taking advantage of borrowers and encourage lenders to offer reverse mortgages.
RELATED TERMS
  1. Alienation Clause

    A clause in a mortgage contract that requires full payment of ...
  2. IRS Publication 519 - U.S. Tax Guide For Aliens

    A document published by the Internal Revenue Service (IRS) that ...
  3. Full Reporting Clause

    Full reporting clause is an insurance policy provision requiring ...
  4. Resident Alien

    A foreigner who is a permanent resident of the country in which ...
  5. Valuation Clause

    A provision in certain insurance policies that specifies the ...
  6. Nonresident Alien

    A non-U.S. citizen who doesn't pass the green card test or the ...
Trading Center