My Analysis of the Garn St. Germain Act and the Federal Regulations
Over the last few years there has been much debate about whether or not a transfer into a trust violates a lender’s due on sale clause. However as most of us already know, according to The Garn St. Germain Depository Institutions Act of 1982, (U.S.C.) 1701j-3(d)(8),
“With respect to a REAL PROPERTY LOAN secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon 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”.
Doesn’t it interpret the real or true meaning the legislators wanted to achieve when they enacted the “Garn Act”?
My answer is no.
You see §591.5 of Title 12 of the Code of Federal Regulations, is NOT an interpretation of the law (“Garn Act”), it is the law itself.
When did it happen?
Well, according to § 1701j-3(d)(9) of the Act; any OTHER transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board (now known as The Office Of Thrift Supervision), are also exempt transfers within the meaning of the Act.
Therefore §591.5 of Title 12 of the Code of “FEDERAL REGULATIONS”, in nothing more than an addition to and re-emphasis of some, but not all of the laws enacted by the “Garn Act”.
Now let’s compare U.S.C. 1701j-3(d)(8) with C.F.R.§591.5(b)(1) (vi).
Do they contradict each other? Again my answer is no.
You see, according to §591.5(b) of the CFR, it has “specific limitations”. And just what are those specific limitations?
Well, with respect to ANY loan on the security of a home OCCUPIED or TO BE OCCUPIED by the borrower, a lender shall not (except with regard to a reverse mortgage) exercise its option pursuant to a due-on-sale clause upon etc. etc. etc. happening.
Have you noticed that it specifically says “ANY LOAN” and “OCCUPIED”.
What about a personal loan secured by real property occupied by the borrower? Would such a loan fall within the meaning of the CFR?
Of course it would. As it is ANY loan.
Secondly, what about a REAL PROPERTY LOAN secured by a multi-family home (5+ residential dwelling units), which are owner occupied? Would such a loan fall within the meaning of the CFR?
Again it would, as it is ANY loan.
Now would a personal loan secured by real property occupied by the borrower fall within the scope of 1701j-(3)(d)(8) of the Garn Act?
No it would not, because the Act refers to REAL PROPERTY LOANS on residential dwellings of 4 units or less, exclusively.
Therefore I contend that §591.5 of Title 12 of the Code of “FEDERAL REGULATIONS”, is LAW and does not “interpret” The Garn St. Germain Depository Institutions Act of 1982, (U.S.C.) 1701j-3.
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