Posted by Nike on April 15, 2007 at 22:48:38:
Holy God–was it passed in 1982? And folks around here are still squawking about it. I can’t believe how folks fret over this thing. Federal law trumps state law if Congress intended it to. I’m sure some poor-sap has a copy of the Congressional record and can confirm whether Congress intended to pre-empt any subsequent state action.
States where law prohibits DOSC? - Posted by Brad
Posted by Brad on April 14, 2007 at 18:28:58:
It just occured to me, after reading through the standard due on sale clause in a mortgage on a property I’m looking at that most read “…However, this option shall not be exercised by Lender if such exercise is prohibited by Applicable Law,”
Just out of curiosity, are there any states where the lender CAN’T call the loan due?
Find Bronchik article: No Due on Sale Jail nt - Posted by John Merchant
Posted by John Merchant on April 16, 2007 at 18:08:03:
x
Re: States where law prohibits DOSC? - Posted by Brad Crouch
Posted by Brad Crouch on April 15, 2007 at 12:53:08:
Brad,
“…However, this option shall not be exercised by Lender if such exercise is prohibited by Applicable Law,”
This sentence is designed to mislead and confuse the average reader. It actually is a sentence of no consequence.
There IS, and they know there is “applicable law”, which is Federal law and supercedes all state laws on this issue. The “applicable law” is the Garn St. Germain Depository & Institutions act of 1982.
When the drafters of this sentence were writing this, it was their hope that nobody would notice that there was indeed “applicable law”, and that they would be intimidated enough to allow the lenders to prevail.
But we’re wise to them now, aren’t we?
Brad
Re: States where law prohibits DOSC? - Posted by rehabber
Posted by rehabber on April 15, 2007 at 08:39:40:
Good answer by Zach…just to clarify…it is NOT
“illegal” to take over payments on someone’s loan.
Yes - the current lender can call the loan due, if
they so choose, but it’s not illegal to take over pmts.
Your’s is a good question, and I diverge a but… but it still amazes me
why soooooo many people get hung up on the fear
of doing something ‘illegal’ if they take over
payments. Notice the word below is ‘MAY’
from Fannie Mae/Freddie Mac Uniform Instrument Mtg:
clause 18: “… If all or any part of the Property
or any Interest in the Property is sold or transferred…
without Lender’s prior written consent, Lender MAY
require immediate payment in full of all sums secured
by this Security Instrument…”
Yes - calling the loan due will kill some investor’s
deals if they need to keep the place for a few months
(years?) taking over payments, but worrying about
doing something ‘illegal’ by taking over payments
is a misguided fear.
Re: States where law prohibits DOSC? - Posted by Zach
Posted by Zach on April 15, 2007 at 03:33:53:
I don’t know of any state law that says the DOSC in total is not valid. You just need to look closely at the due on sale clause and ask yourself: If I were an attorney and I wanted to write a contract that made it sound like there is no possible ways to transfer
ownership without a new loan (banks new paper, or stamp, if you want to compare banks to the British of the 1750’s; in other words banks today seem to be like the Brits were, wanting to make money on all transactions, well RE transactions).
So what you do if you are a clever attorney and you want to make it clear that transferring ownership by any other means than a new loan is a big no no; but having an aversion to spending time in jail, for even a fat cat banker, you put in a disclaimer. Why a disclaimer? Because you are not only a clever attorney but also a fairly knowledgable one, and you know you have just made a few statements that doesn’t quite agree with a law a couple of senators got the rest of the class to agree to back in '82. Things like: No lender can kick someone out of their house if they only rent it out for a little while (under 3 yrs.). Or: A lender can’t make someone get a new loan for getting married and putting their new spouse on the title. Or the really important one (for savvy investors): Lenders can’t hold their breath till they turn blue if Grampa Jones put’s his home into a living trust.
So you see it’s not any state that says the DOSC don’t work. It’s these rascally Senators, Garn & St. Germain, who kind of fouled things up for the lenders. But these senators didn’t require the lenders to announce these exceptions to their clients, so they don’t. They just stand at the doors to their treasures acting really indignant if someone wants to conduct a transaction without there stamp on it (which they charge for). But of course they don’t deny such a law might exist therefore the disclaimer that in essence says: We have just written up a bunch of words and have spent millions of dollars to make sure we get everything just right. Therefore puny consumer, borrower, investor, be still and know that it is just and lawful, however if anything in this bunch of words is not just and lawful, well, uh, shucks…JUST KIDDING.
Re: Find Bronchik article: No Due on Sale Jail nt - Posted by Brad
Posted by Brad on April 16, 2007 at 18:27:20:
Thanks, had already read that a couple times. I just had a question about that particular terminology. No fear here.
Get the cart out from front of the horse - Posted by JT-IN
Posted by JT-IN on April 15, 2007 at 22:05:14:
Brad:
The US Congress did sign the “Garn-St Germain” into law in 1982. This law does NOT trump state law. Yes, this law does NOT trump state law. Garn only applies to Federally chartered institutions, but in reality that boils down to 99% of Banking / Lending institutions today, due to failures of the State Chartered Insurance Funds.
Garn makes the statement “such exercise is prohibited by Applicable Law”, being written in 1982, how could they ever say that any state doesn’t pass a law that would preclude the exercise of a DOSC in any mtg. Any State surely could. There is this thing called “States Rights”, and any state would have the right to enact a law that could strike down the authority of Garn, now or in the future. There will be repercussions to that state for doing so… like Federal Hwy money, other fed’l funding of other programs, refusal by certain lenders to fund loans in that state, etc…
Garn must contain such language for the very reason that it could happen, now or in the future. But don’t hold your breath on seeing it.
JT-IN
Re: States where law prohibits DOSC? - Posted by Billy
Posted by Billy on April 15, 2007 at 11:59:33:
Zach
Garn-StGermain did not foul things up for the lenders, they were the lenders stooges.
Without their valuable assistance I’m quite sure we would have seen the demise of the due on sale clause.
And if lenders weren’t so stupid they would get rid of it anyway and put in a clause that raises the interest rate to market rates automatically if rates are higher upon the whole or partial transfer of ownership.
That way when they find a change of ownership they could go back to the time of transfer and adjust the loan balance and payment. It would be much more profitable to them then the present system.
Billy, for this post anyway
Re: Get the cart out from front of the horse - Posted by Brad Crouch
Posted by Brad Crouch on April 16, 2007 at 20:23:30:
JT,
When I got the e-mail notification and saw that you had responded to
my post, I knew I was in trouble!
I stand corrected.
Brad Crouch