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Garn-St. Germain Act...

Posted by Ward-CA- on October 26, 2005 at 8:41 PM

In Reply to: Re: Senior lender can enforce its due-on-sale rights against a junior REO owner... posted by David Starck on October 24, 2005 at 10:16 PM


The major authority on this issue is the federal Garn -St Germain Depository Institutions Act of 1982. I have parsed out the pertinent part of that regulation and include as follows (http://www.phil.frb.org/src/Garn.html) :

Part C Preemption of Due on Sale Prohibitions


Sec. 341. // 12 USC 1701j-3. // (a) For the purpose of this section--,

(d) 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.

(e)(1) The Federal Home Loan Bank Board, in consultation with the Comptroller of the Currency and the National Credit Union Administration Board, is authorized to issue rules and regulations and to publish interpretations governing the implementation of this section.

(2) Notwithstanding the provisions of subsection (d), the rules and regulations prescribed under this section may permit a lender to exercise its option pursuant to a due-on-sale clause with respect to a real property loan and any related agreement pursuant to which a borrower obtains the right to receive future income.

(f) The Federal Home Loan Mortgage Corporation (hereinafter referred to as the "Corporation") shall not, prior to July 1, 1983, implement the change in its policy announced on July 2,1982, with respect to enforcement of due-on- sale clauses in real property loans which are owned in whole or in part by the Corporation.

(g) Federal Home Loan Bank Board regulations restricting the use of a balloon payment shall not apply to a loan, mortgage, advance, or credit sale to which section applies.

Part D-Miscellaneous ATTORNEYS FEES

Hope this helps,


: TB,

: Yes, it has been settled that the 1st can call their loan due if there's a non-consented transfer in the ownership of the property--even if the new owner is a previous junior lienor who got the title to the property via his foreclosure auction as an REO.

: When a junior lienor takes title to property as an REO he's at the mercy of the 1st if the 1st insists on being paid off.

Is there case law that I can read regarding this issue?

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