| The "due-on-sale" clause is probably the
| |
| | due-on-sale clause as a device for
|
| most talked about, feared and
| |
| | "preventing subsequent purchasers from
|
| misunderstood topic in real estate. This
| |
| | assuming loans with lower than market
|
| article will dispel any misunderstandings
| |
| | interest rates." This idea was also
|
| you may have about the due-on-sale and
| |
| | confirmed by the Court in Community Title
|
| suggest a simple, yet effective strategy
| |
| | Company v. Roosevelt Savings & Loan 670
|
| to get around it.
| |
| | S.W.2d 895 (Mo.App. 1984): "The
|
| Before we discuss how to get around the
| |
| | due-on-sale clause was a way of
|
| due-on-sale, we must understand what it
| |
| | eliminating these low yielding loans as
|
| is and where it came from. The
| |
| | soon as the property was sold, so that it
|
| due-on-sale (a.k.a "acceleration clause")
| |
| | could re-loan the money at current higher
|
| is a provision in a mortgage document
| |
| | rates or negotiate a higher rate in the
|
| which gives the lender the right to
| |
| | event the purchaser assumed the existing
|
| demand payment of the remaining balance
| |
| | loan."
|
| of the loan when the property is sold. It
| |
| | The homeowners fought the banks in court
|
| is a contractual right, not a law. This
| |
| | claiming that the enforcement of the
|
| means that if title to the property is
| |
| | due-on-sale was "unfair trade practice"
|
| transferred, the bank may (or may not),
| |
| | and an "unreasonable restraint on the
|
| at its option, decide to "call the loan
| |
| | alienation of property." In state courts,
|
| due."
| |
| | many homeowners were winning the
|
| An "assumable" loan is one which is
| |
| | argument. See, e.g., Wellenkamp v. Bank
|
| secured by a mortgage which contains no
| |
| | of America, 21 Cal 3d 943 (1978). The
|
| due-on-sale provision. FHA-insured
| |
| | banks ultimately won in a United States
|
| mortgages originated before 12/89 and
| |
| | Supreme Court case, Fidelity Federal
|
| VA-guaranteed loans originated before 2
| |
| | Savings and Loan Association v. de la
|
| 88 contain no due-on-sale provisions.
| |
| | Cuesta, 102 S.Ct. 3014, (1982). Congress
|
| Nearly all loans originated today contain
| |
| | thereafter passed the "Garn-St. Germain
|
| a "standard" due-on-sale clause which
| |
| | Federal Depositary Institutions Act" (12
|
| usually reads something like:
| |
| | U.S.C. 1701-j), which codified the
|
| "If all or any part of the property
| |
| | enforceability of the due-on-sale clause,
|
| herein is transferred without the
| |
| | despite state statute or case law to the
|
| lender's prior written consent, the
| |
| | contrary.
|
| lender may require all sums secured
| |
| | Many people are under the mistaken
|
| hereby immediately due and payable."
| |
| | impression that transferring title to a
|
| Banks began inserting due-on-sale clauses
| |
| | property secured by a "due-on-sale"
|
| in their mortgages in the 1970s when
| |
| | mortgage is illegal. This is because most
|
| interest rates rose dramatically. Home
| |
| | lay people confuse civil liability with
|
| buyers were assuming existing loans
| |
| | criminal liability. To be "illegal," you
|
| rather than borrowing new money from
| |
| | must be in violation of a criminal law,
|
| banks because the interest rates on
| |
| | code or statute.
|
| existing loans were lower. The banks used
| |
| | There is no federal or state law which
|
| the due-on-sale as a way to kill their
| |
| | makes it a crime to violate a due-on-sale
|
| own worst competition. They argued that
| |
| | clause. If the lender discovers the
|
| the reason for the restriction was to be
| |
| | transfer, it may at its option, call the
|
| able to police who was living in the
| |
| | loan due and payable. If it cannot be
|
| property and the collateral for their
| |
| | paid, the lender has the option of
|
| loan.
| |
| | commencing foreclosure proceedings.
|
| This argument holds little water, since
| |
| | So the real question is: are you willing
|
| most banks haven't been enforcing
| |
| | to take a property subject to a mortgage
|
| due-on-sale violations since the early
| |
| | containing a due-on-sale clause with the
|
| 80's when interest rates were high. In
| |
| | risk of getting caught?
|
| fact, Black's Law Dictionary defines the
| |
| |
|
