|
U.S. Code as of:
01/19/04
Section 1701j-3. Preemption of due-on-sale prohibitions
(a) Definitions
For the purpose of this section -
(1) the term "due-on-sale clause" means a contract provision
which authorizes a lender, at its option, to declare due and
payable sums secured by the lender's security instrument if all
or any part of the property, or an interest therein, securing the
real property loan is sold or transferred without the lender's
prior written consent;
(2) the term "lender" means a person or government agency
making a real property loan or any assignee or transferee, in
whole or in part, of such a person or agency;
(3) the term "real property loan" means a loan, mortgage,
advance, or credit sale secured by a lien on real property, the
stock allocated to a dwelling unit in a cooperative housing
corporation, or a residential manufactured home, whether real or
personal property; and
(4) the term "residential manufactured home" means a
manufactured home as defined in section 5402(6) of title 42 which
is used as a residence; and
(5) the term "State" means any State of the United States, the
District of Columbia, the Commonwealth of Puerto Rico, the Virgin
Islands, Guam, the Northern Mariana Islands, American Samoa, and
the Trust Territory of the Pacific Islands.
(b) Loan contract and terms governing execution or enforcement of
due-on-sale options and rights and remedies of lenders and
borrowers; assumptions of loan rates
(1) Notwithstanding any provision of the constitution or laws
(including the judicial decisions) of any State to the contrary, a
lender may, subject to subsection (c) of this section, enter into
or enforce a contract containing a due-on-sale clause with respect
to a real property loan.
(2) Except as otherwise provided in subsection (d) of this
section, the exercise by the lender of its option pursuant to such
a clause shall be exclusively governed by the terms of the loan
contract, and all rights and remedies of the lender and the
borrower shall be fixed and governed by the contract.
(3) In the exercise of its option under a due-on-sale clause, a
lender is encouraged to permit an assumption of a real property
loan at the existing contract rate or at a rate which is at or
below the average between the contract and market rates, and
nothing in this section shall be interpreted to prohibit any such
assumption.
(c) State prohibitions applicable for prescribed period; subsection
(b) provisions applicable upon expiration of such period; loans
subject to State and Federal regulation or subsection (b)
provisions when authorized by State laws or Federal regulations
(1) In the case of a contract involving a real property loan
which was made or assumed, including a transfer of the liened
property subject to the real property loan, during the period
beginning on the date a State adopted a constitutional provision or
statute prohibiting the exercise of due-on-sale clauses, or the
date on which the highest court of such State has rendered a
decision (or if the highest court has not so decided, the date on
which the next highest appellate court has rendered a decision
resulting in a final judgment if such decision applies State-wide)
prohibiting such exercise, and ending on October 15, 1982, the
provisions of subsection (b) of this section shall apply only in
the case of a transfer which occurs on or after the expiration of 3
years after October 15, 1982, except that -
(A) a State, by a State law enacted by the State legislature
prior to the close of such 3-year period, with respect to real
property loans originated in the State by lenders other than
national banks, Federal savings and loan associations, Federal
savings banks, and Federal credit unions, may otherwise regulate
such contracts, in which case subsection (b) of this section
shall apply only if such State law so provides; and
(B) the Comptroller of the Currency with respect to real
property loans originated by national banks or the National
Credit Union Administration Board with respect to real property
loans originated by Federal credit unions may, by regulation
prescribed prior to the close of such period, otherwise regulate
such contracts, in which case subsection (b) of this section
shall apply only if such regulation so provides.
(2)(A) For any contract to which subsection (b) of this section
does not apply pursuant to this subsection, a lender may require
any successor or transferee of the borrower to meet customary
credit standards applied to loans secured by similar property, and
the lender may declare the loan due and payable pursuant to the
terms of the contract upon transfer to any successor or transferee
of the borrower who fails to meet such customary credit standards.
(B) A lender may not exercise its option pursuant to a
due-on-sale clause in the case of a transfer of a real property
loan which is subject to this subsection where the transfer
occurred prior to October 15, 1982.
(C) This subsection does not apply to a loan which was originated
by a Federal savings and loan association or Federal savings bank.
(d) Exemption of specified transfers or dispositions
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 -
(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) Rules, regulations, and interpretations; future income bearing
loans subject to due-on-sale options
(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) of this
section, 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) Effective date for enforcement of Corporation-owned loans with
due-on-sale options
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) Balloon payments
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 this section applies.
|
|