[WSBAPT] Garn St. Germain & Exception for transfer where child of borrower becomes owner

[Timothy Wagar]

I'm wondering if anyone here could point to some resources or offer thoughts/advice regarding the following situation:

Clients (H and W) own 2nd home in greater Seattle area that they rent to son and daughter-in-law (S and DIL). S and DIL currently pay close to fair market rent, but would like to purchase the home. However, S and DIL do not have financial means to obtain conventional financing from a lender given today's higher rates. H and W's 2nd home is worth $500,000. Balance remaining due is $250,000 (secured by DOT) with excellent interest rate compared to current market interest rates.  H and W would like to sell 2nd home to S and DIL, but don't want to pay off current mortgage balance (and use up all their cash) to offer 100% seller financing to them. It appears that 12 USCS Section 1701j-3 (Garn St. Germain) under subsection (d)(6), specifically excepts from enforcement a due on sale clause for "a transfer where the spouse or children of the borrower become an owner of the property." H and W previously contacted mortgage lender and advised of their intent to transfer 2nd home to S. No response has been received and it has been approximately 9 months. H and W have been waiting patiently, but would like sell property to S and DIL at Fair Market Value with S and DIL assuming current mortgage and executing a 2nd note (for $250,000) secured by 2nd DOT.

Is it problematic that the home sought to be transferred is a rental (from my reading of the regs it seems okay -but anyone else think otherwise)?
Anyone generally have a best practice with respect to proceeding if written consent is not forthcoming from lender?
Thoughts on whether this is a bad or good idea?

FWIW, lender is United Wholesale Mortgage. Thanks in advance for any thoughts, ideas, advice.


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Timothy A. Wagar LLM
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