On February 27, 2025, the Minnesota State Legislature introduced Senate Bill 1962, aimed at reforming the use of due-on-sale clauses in residential real estate transactions. This legislative proposal seeks to limit the circumstances under which lenders can enforce these clauses, which typically allow them to demand full repayment of a loan upon the sale or transfer of the property.

The bill specifically prohibits lenders from exercising due-on-sale clauses in several key situations. These include transfers made through a transfer-on-death deed to a beneficiary, transfers resulting from the death of a joint tenant, and transfers to a borrower’s spouse or children. Additionally, the bill addresses transfers that occur due to divorce or legal separation, as well as transfers into certain trusts where the borrower remains a beneficiary. Notably, the bill excludes reverse mortgages from these limitations.

The introduction of Senate Bill 1962 has sparked discussions among lawmakers and stakeholders in the real estate sector. Proponents argue that the bill will provide greater security for families during times of transition, such as death or divorce, by preventing lenders from abruptly calling in loans. Critics, however, express concerns that limiting due-on-sale clauses could undermine lenders' rights and potentially lead to increased risk in the mortgage market.

The bill has been referred to the Commerce and Consumer Protection Committee for further consideration. If passed, it could have significant implications for homeowners and lenders alike, potentially reshaping the landscape of residential property transactions in Minnesota. As the legislative process unfolds, stakeholders will be closely monitoring the debates and amendments that may arise, as well as the bill's potential impact on the housing market and consumer protection.