[WSBAPT] Garn-St. Germain Act

Tue May 20 13:56:18 PDT 2014

There are 9 exceptions under the Garn-St. Germain Act in which a
due-on-sale clause may not be exercised. See 12 U.S.C. § 1701J–3(d) below.

12 U.S. Code § 1701j–3 - Preemption of due-on-sale prohibitions

a) Definitions 

For the purpose of this section— 

(1) the term “due-on-sale clause” means a contract provision which
authorizes a lender, at its option, to declare due and payable sums
secured by the lender’s security instrument if all or any part of the
property, or an interest therein, securing the real property loan is sold
or transferred without the lender’s prior written consent; 

(2) the term “lender” means a person or government agency making a real
property loan or any assignee or transferee, in whole or in part, of such
a person or agency; 

(3) the term “real property loan” means a loan, mortgage, advance, or
credit sale secured by a lien on real property, the stock allocated to a
dwelling unit in a cooperative housing corporation, or a residential
manufactured home, whether real or personal property; and 

(4) the term “residential manufactured home” means a manufactured home as
defined in section 5402 <http://www.law.cornell.edu/uscode/text/42/5402>
<http://www.law.cornell.edu/uscode/text/42/usc_sec_42_00005402----000-#6>
(6) of title  <http://www.law.cornell.edu/uscode/text/42> 42 which is used
as a residence; and 

(5) the term “State” means any State of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the
Northern Mariana Islands, American Samoa, and the Trust Territory of the
Pacific Islands. 

(b) Loan contract and terms governing execution or enforcement of
due-on-sale options and rights and remedies of lenders and borrowers;
assumptions of loan rates 

(1) Notwithstanding any provision of the constitution or laws (including
the judicial decisions) of any State to the contrary, a lender may . . .
enter into or enforce a contract containing a due-on-sale clause with
respect to a real property loan. 

(2) Except as otherwise provided in subsection (d) of this section, the
exercise by the lender of its option pursuant to such a clause shall be
exclusively governed by the terms of the loan contract, and all rights and
remedies of the lender and the borrower shall be fixed and governed by the
contract. 

(3) In the exercise of its option under a due-on-sale clause, a lender is
encouraged to permit an assumption of a real property loan at the existing
contract rate or at a rate which is at or below the average between the
contract and market rates, and nothing in this section shall be
interpreted to prohibit any such assumption. 

. . . . .

(d) Exemption of specified transfers or dispositions 

With respect to a real property loan secured by a lien on residential real
property containing less than five dwelling units, including a lien on the
stock allocated to a dwelling unit in a cooperative housing corporation,
or on a residential manufactured home, a lender may not exercise its
option pursuant to a due-on-sale clause upon— 

(1) the creation of a lien or other encumbrance subordinate to the
lender’s security instrument which does not relate to a transfer of rights
of occupancy in the property; 

(2) the creation of a purchase money security interest for household
appliances; 

(3) a transfer by devise, descent, or operation of law on the death of a
joint tenant or tenant by the entirety; 

(4) the granting of a leasehold interest of three years or less not
containing an option to purchase; 

(5) a transfer to a relative resulting from the death of a borrower; 

(6) a transfer where the spouse or children of the borrower become an
owner of the property; 

(7) a transfer resulting from a decree of a dissolution of marriage, legal
separation agreement, or from an incidental property settlement agreement,
by which the spouse of the borrower becomes an owner of the property; 

(8) a transfer into an inter vivos trust in which the borrower is and
remains a beneficiary and which does not relate to a transfer of rights of
occupancy in the property; or 

(9) any other transfer or disposition described in regulations prescribed
by the Federal Home Loan Bank Board. 

. . . . .

From: wsbapt-owner at lists.wsbarppt.com
[mailto:wsbapt-owner at lists.wsbarppt.com] On Behalf Of Douglas Bratt
Sent: Tuesday, May 20, 2014 12:51 PM
To: wsbapt at lists.wsbarppt.com
Subject: [WSBAPT] Garn-St. Germain Act

Listmates:

Please confirm my understanding of Garn-St. Germain, viz-a-viz the bar on
enforcement of due-on-sale clauses in certain real property loans.

The act states that the bar on enforcement of due-on-sale clauses extends
to “a real property loan secured by a lien on residential real property
containing less than five dwelling units.”

My understanding has been that this applies to both a owner-occupied
residence AND to rental property (with less than five units) owned by the
Decedent.

A major US national bank has made noises about trying to get paid off on a
loan on residential rental property, owned in the sole name of the
Decedent  (the surviving spouse is not mentioned on title).  The bank
filed a Creditor’s Claim in the Decedent’s Probate case, and was even nice
enough to provide a “Payoff Statement,” with a figure good through June
13, 2014.

Have any of you had any situations where banks try to enforce due-on-sale
clauses on rental property with similar tactics, within a probate
proceeding?

Insofar as a response, I am inclined to prepare and file a Denial of
Creditor’s Claim, stating that the debt will be assumed by the Decedent’s
wife, with the real property to remain the security for the loan, and
mention Garn-St.Germain, along with a statutory citation.  Any other
suggestions, legal, practical or otherwise?  

Best Regards,

Doug Bratt

Douglas J. Bratt

Lawyer

Office: (360) 213-2040 

 Fax: (360) 213-2030

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Information provided on this list should not be considered legal advice.
As with all lists - let the reader beware! No warranties or
representations are made as to the accuracy of any information provided.
All opinions and comments in this message represent the views of the
author and do not necessarily have the endorsement of the Washington State
Bar Association nor its officers or agents. 

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