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§ 1701j-3. —  Preemption of dueonsale prohibitions.



[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
  January 24, 2002 and December 19, 2002]
[CITE: 12USC1701j-3]

 
                       TITLE 12--BANKS AND BANKING
 
                      CHAPTER 13--NATIONAL HOUSING
 
Sec. 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.

(Pub. L. 97-320, title III, Sec. 341, Oct. 15, 1982, 96 Stat. 1505; Pub. 
L. 98-181, title IV, Sec. 473, Nov. 30, 1983, 97 Stat. 1237.)

                          Codification

    Section was enacted as part of the Thrift Institutions Restructuring 
Act and also as part of the Garn-St Germain Depository Institutions Act 
of 1982, and not as part of the National Housing Act which comprises 
this chapter.


                               Amendments

    1983--Subsec. (d). Pub. L. 98-181 substituted ``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'' for ``A lender''.

          Termination of Trust Territory of the Pacific Islands

    For termination of Trust Territory of the Pacific Islands, see note 
set out preceding section 1681 of Title 48, Territories and Insular 
Possessions.

                          Transfer of Functions

    Federal Home Loan Bank Board abolished and functions transferred, 
see sections 401 to 406 of Pub. L. 101-73, set out as a note under 
section 1437 of this title.



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