Maddox & Gerock

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Divorce, Mortgage Issues, and Avoiding the Due-on-Sale Clause

With the state of America's current housing market, people who are in the process of obtaining a divorce frequently have additional issues to consider if they are still paying a mortgage to include the "due-on-sale" clause often found in mortgage documents. The due-on-sale clause in connection with a mortgage may allow the lender to demand payment of the remaining balance of the mortgage when the property is sold or transferred without the lender's prior written consent. However, the Garn-St. Germaine Depository Institutions Act ("Garn Act"), codified at PL 97-320, 1982 HR 6267 (October 15, 1982), enables people to avoid triggering the due-on-sale clause in their mortgage if they meet one of the nine exceptions set forth in the Garn Act, regardless of what the contract states. Below are the exceptions that are of particular interest to people involved in a divorce proceeding:

A lender may not exercise his right to demand that the remaining amount of the mortgage is due-on-sale when the property is either sold or transferred:

With the state of America's current housing market, people who are in the process of obtaining a divorce frequently have additional issues to consider if they are still paying a mortgage to include the "due-on-sale" clause often found in mortgage documents. The due-on-sale clause in connection with a mortgage may allow the lender to demand payment of the remaining balance of the mortgage when the property is sold or transferred without the lender's prior written consent. However, the Garn-St. Germaine Depository Institutions Act ("Garn Act"), codified at PL 97-320, 1982 HR 6267 (October 15, 1982), enables people to avoid triggering the due-on-sale clause in their mortgage if they meet one of the nine exceptions set forth in the Garn Act, regardless of what the contract states. Below are the exceptions that are of particular interest to people involved in a divorce proceeding:

A lender may not exercise his right to demand that the remaining amount of the mortgage is due-on-sale when the property is either sold or transferred:

1. To the the spouse or children of the borrower and either becomes an owner of the property;

2. As a result of a Final Order of Divorce, or from a marital separation agreement, or a property settlement agreement, by which the spouse of the borrower becomes an owner of the property;

3. 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.

If one of the requirements above are met, a property owner is allowed to maintain his or her rights to the property, to remove another person from the mortgage, or to transfer the property to the other spouse without triggering the due-on-sale clause. However, to achieve a successful transfer or sale without triggering the clause, a person must be very careful. We recommend an attorney's services to assist with these kinds of transfers.

http://www.fdic.gov/regulations/laws/rules/8000-4100.html

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Maddox & Gerock, P.C.
8111 Gatehouse Road
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Falls Church, VA 22042
Phone: 703-883-8035
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