[WSBAPT] Garn - St. Germain Act and HELOC

[Douglas Bratt]

Hello Listmates:

 

I would appreciate comment on the following from all of you wise members:

 

I have found Credit Unions to be particularly aggressive in trying to
hassle heirs in situations where the Decedent’s residence is going to be
retained by a family member as part of his/her inheritance (thus,
qualifying for special treatment under Garn-St-Germain, as a “relative” of
the Decedent Borrower).  Usually it all starts when the PR (who might not
even be the relative who will be taking over the house) coming into the
Credit Union to open up an Estate account (because that is where the
Decedent banked) and immediately being told that whomever gets the house
will have to come down “to apply” for a new loan, and that that person
will have “to qualify,” etc. etc.  It really reaches the point of bullying
in some instances.)

 

In usual instances, we are able to get things settled down by citing
Garn-St. Germain, and identifying that the financial institution involved,
all of which are regulated by an appropriate federal agency, is subject to
its terms.

 

However, I have now run into several recent instances where, during the
first month after the death of the borrower, the Credit Union is taking
the position that a HELOC is being “transferred” into an ordinary loan by
the borrower’s death, and the Credit Union then places an
amortization-determined monthly minimum payment requirement on the
account, as opposed to the interest-only payment program permitted by most
HELOC’s.  As is usual, the HELOC is a second mortgage on the residential
property, with that first mortgage having a substantially greater payment
requirement.  Usually, estates and families involved in the estates need
to catch their collective breath and figure out how to make payments while
the probate is getting started, so imposition of a much greater monthly
outflow than the Decedent borrower was facing is a real hardship.

 

I acknowledge that I have not yet read the HELOC loan documents, but most
such documents have provisions that will allow for interest-only payments,
but (usually) with a 15 year balloon payment of principal as part of the
promissory note, and, of course, I agree that that provision is, and
should be, enforceable, because the Decedent Borrower was facing that
problem.  

 

Given that the HELOC constitutes a lien on the real property, the Credit
Union, by increasing the total required monthly payment by about 250%,
effectively forces a sale or refinance (which is exactly what
Garn-St.Germain was designed to prevent, in order to allow family members
to retain houses).

 

Have any of you had much experience with such practices, and have wisdom
as to what can be done to remedy this problem.  (I have also not yet
researched what one has to do to have Garn-St. Germain recognized as
validly being part of the picture in a probate situation.  State court,
Federal court??)

 

Thanks to all for any thoughts/opinions/experiences you might have.

 

Regards,

 

Doug Bratt

 

 

Douglas J. Bratt

Lawyer

 

 

 

Office: (360) 213-2040 

 Fax: (360) 213-2030

 

 

 

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