Due On Sale

October 6, 2013

Fort Collins, CO and Cavalier, ND

Sometimes our clients run into problems with their lenders when they transfer their home to a family member after the death of the original owner.  For example,  if mother owned property and before her death she made a quit claim to herself and her daughter as joint tenants.  Then mom died.  In that situation often the lender will not communicate with the daughter and will not give her the pay off information.  A nice remedy to that situation is to advise the lender that they cannot foreclose on the daughter because the transfer does not violate the due on sale clause.   The due on sale clause is that portion of the loan that says if the property is transferred to anyone  else the lender can foreclose.  Because in many situations that would be unfair, Congress enacted the following provision found at 12 United  States Code 1701 (j):

(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.        

This is a useful law for all homeowners to be aware of since it will protect you from lenders who refuse to recognize the above listed transfers that have been given protection by Congress.  I had heard of this law years ago, but was recently reminded of  it by a blog used by real estate lawyers.  Blogs can be very helpful in maintaining awareness of our legal rights.

Posted on October 6, 2013 .