§ 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.