<BLOCKQUOTE><font size="1" face="Verdana, Arial">quote:</font><HR>Originally posted by cmust:
I was told that I can assume my mother's mortgage after her death under the Garn - St. Germain Act. The probate lawyer did not know much about it. If anyone has any information on this topic, please reply.
Thanks.<HR></BLOCKQUOTE>
My response:
The Act allows a relative to purchase and pay off a Mortgage as a result of death of a mortgagee, and forces the mortgagor to place the deed into the name of the payor(s) of the mortgage.
Garn-St. Germain Act (1982)
Legislation that liberalized investment policies for savings and loan associations in the United States, leading to substantial losses covered by deposit insurance in the late 1980s.
Garn-St. Germain Act
The de la Cuesta decision gave Congress the courage to pass the Garn-St. Germain Depository Institutions Act of 1982 on October 15, 1982. The Garn bill pretty much said due-on-sale clauses were enforceable, period.
"If all or any part of the Property or an interest therein is sold or transferred by Borrower
without Lender's prior written consent, excluding (a) the creation of a lien or encumbrance
subordinate to this Mortgage, (b) the creation of a purchase money security interest for
household appliances, (c) a transfer by devise, descent or by operation of law upon the death of a joint tenant or (d) the grant of any leasehold interest of three years or less not containing an option to purchase, Lender may at Lender's option declare all the sums secured by this Mortgage to be immediately due and payable."
To understand the clause, you have to break it down into small parts. When you do, you immediately find that "due-on-sale" is a misnomer. A better name would be "due-on-transfer-on-any-interest clause." The list of actions covered by the actual clause is far broader than just "sales." The federal regulation (12 C.F.R. 591.2) says the due-on-sale clause is triggered by:
"...transfers of real property subject to a real property loan by assumptions, installment land sales contracts, wraparound loans, contracts for deed, transfers subject to the mortgage or similar lien, and other like transfers."
A great many exceedingly ignorant investors think that all you have to do to get around a due-on-"sale" clause is a transaction that is not a "sale" per se. As the regulation shows, that is not true.
Land contracts
Note that the first sentence covers transfers of "an interest." That, and the regulation, make the clause cover not only sales, but land contracts. Many investors erroneously think that because the deed does not change hands in a land-contract sale, it is not a "sale" that triggers Paragraph 17 of the FNMA/FHLMC mortgage.
Lease options
Many gurus say you can get around the due-on-sale clause by doing a lease option instead of a sale. Wrong. Subparagraph (d) of the longer clause covered that. Now you have to look at the law itself [§1701j-3(d)(4)] to learn that the due-on-sale clause is triggered by any lease longer than three years. And it's triggered by any lease that contains an option to purchase the property, regardless of the length of the lease.
In the mortgage (Paragraph 6), you promise to "...occupy, establish, and use the Property as Borrower's principal residence within sixty days after execution of this Security Instrument and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy..." The lender is prohibited from "unreasonably withholding" permission to not occupy during that period and "extenuating circumstances beyond Borrower's control" are an exception to the occupancy promise. In the absence of lender unreasonableness or extenuating circumstances, you may not do any kind of lease until you have lived in the property for a full year. If you habitually buy properties and immediately lease-option them, you will not be very credible arguing extenuating circumstances.
Land trusts
Another guru gimmick is for the current owner to transfer the property to a trust, then sell the beneficiary interest in the trust to the guy who wants to take over the mortgage.
The statute [12 USC 1701j-3(d)(8)] and the federal regulation [12 C.F.R. 591.5 (b)(vi)] say transfer of a home into an inter vivos trust does not trigger the due-on-sale clause.
Statute "...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;"
Regulation "A transfer into an inter vivos trust in which the borrower is and remains the beneficiary and occupant of the property, unless, as a condition precedent to such transfer, the borrower refuses to provide the lender with reasonable means acceptable to the lender by which the lender will be assured of timely notice of any subsequent transfer of the beneficial interest or change in occupancy"
Their purpose was to enable people who wanted to make use of the probate-avoiding aspects of those trusts. Note that the regulation exception does not cover subsequent sales of the inter vivos trust to someone else, only transfer of the home to an inter vivos trust owned by the same people as the original mortgage borrowers. The regulation's purpose most definitely was not to open up a loophole for avoiding due-on-sale clauses.
Remember also the title of paragraph 17 in the mortgage document: "Transfer of the Property or a Beneficial Interest in Borrower."
The exception to the due-on-sale enforcement only applies to owner-occupied homes. If you put the property into a trust then sell the beneficial interest in the trust and move out, you have triggered the due-on-sale clause.
Finally, the regulation says with regard to the inter vivos trust exception that the borrower must not refuse "to provide the lender with any reasonable means acceptable to the lender by which the lender will be assured of timely notice of any subsequent transfer of the beneficiary interest or change in occupancy..."
Triggering is dangerous, but not illegal or immoral
Taking an action that triggers the due-on-sale clause is neither illegal nor immoral. It simply gives the lender the right to call the loan, that is, to make you pay it off completely right now. If you cannot afford to do that, and most people cannot, that is a financially dangerous situation. Entering into a deal where the due-on-sale clause has been triggered puts a Sword of Damocles over your head.
Concealment is illegal or immoral
Triggering a due-on-sale clause may not be illegal or immoral, but concealing the fact that such a clause has been triggered could possibly be both. Various gurus urge different methods of concealing the transfer of ownership and/or occupant. Each of those methods probably requires one or more parties to the deal to breach ethics or to commit crimes or violate common laws like fraud or breach of contract.
IAAL
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