Federal Law Protects Against "Due On Sale" Clauses When Inheriting Mortgage Property From Relatives

A Real Estate Mailbag Q&A article by attorney and syndicated columnist Benny Kass serves as a reminder of the Federal law that protects those who inherit a mortgaged home of 4 units or less from relatives. Specifically, it prohibits lenders from demanding that the new owner(s) immediately fork over the entire outstanding balance on the loan by exercising a "due-on-sale" clause in the mortgage, even though all the payments are current.

• Federal law - called the Garn-St. Germain Depository Institutions Act of 1982 - protects you. [...] According to that law, a lender "may not exercise its option pursuant to a due-on-sale clause upon ... a transfer to a relative resulting from the death of a borrower."(1)

***

• Congress recognized that the due-on-sale clause was unfair to many people, especially in situations [...] where you inherited the property - and the existing loan. You should send your lender a copy of [the deceased owner's] death certificate, and merely advise that you will be taking over the mortgage payments. There is absolutely nothing that the lender can do to hurt you.

For the column, see Federal law protects those who inherit homes.

(1) For the Federal law, see 12 USC 1701j–3(d)(5) - Preemption of due-on-sale prohibitions (Exemption of specified transfers or dispositions).