Due-on-Sale Clauses

Garn St. Germain Act

DOS clauses are enforceable; federal preemption of state law for all first-m'ge loans; political compromise: no pre-payment penalty is allowed when lender "calls" the loan due upon transfer for residential loans (1-4 buildings); EXCEPTIONS: intra-family transfers, m'ge loans in appliance agreements, home improvement loans, transfers on death, lease of three year or less; the lender must release the original m'or after it approves assumption; m'or or his lawyer should always get the release to prevent problems (GET THE RELEASE IN WRITING!!!)

Concealment of Transfer

It is common to do this and ethics rules actually don't prohibit a lawyer in assisting with this; BUT YOUR CONSCIENCE WILL KEEP YOU UP AT NIGHT!!!; it doesn't constitute fraud that would require the lawyer to withdraw representation; law can withdraw ifclient's conduct is imprudent or repugnant; but lawyer should advise them of risks, should document the coversation;

Due-on-Sale

Lender can "call" the loan and get all the money then; accelerate the entire debt or foreclose if not paid; if a lease is more than three years then it can trigger the DOS clause; ILKs can trigger the DOS clause! ;

Transfers as a Breach of M'ge Contract?

Transfers are not a per se breach, unless it is a breach of implied duty of good faith and fair dealing (no case law finds such); unless m'ge expressly provides a duty to disclose a transfer (but there's no duty under the Fannie Mae m'ge);

Due-on-Encumbrance

Triggered by junior m'ges and other encumbrances; some cts will only enforce these if they're reasonable (i.e. can demonstrate that collateral is impaired)