We believe that under the Garn–St Germain Depository Institutions Act of 1982, due-on-transfer clauses are generally enforceable unless they fall into the exceptions enumerated in that law and the OCC’s implementing regulations (which apply to both state-chartered and federally-chartered banking organizations).

Garn–St Germain generally preempts state laws that attempt to limit lenders’ ability to enforce due-on-transfer clauses in mortgages. The law includes nine exceptions, which allow the transfer of mortgages secured by residential real property to a relative on the death of the borrower, to the borrower’s spouse or children, and in other specified circumstances.

Freddie Mac’s Single-Family Seller/Servicer Guide states that “the Servicer must accelerate the maturity of a Mortgage that contains a due-on-sale or due-on-transfer clause when a Transfer of Ownership occurs, unless acceleration is prohibited by provisions of Sections 8406.3 or 8406.4 or applicable law.” Section 8406.3 incorporates the nine Garn–St Germain exceptions, and Section 8406.4 adds that Freddie and its servicers cannot restrict transfers of ownership when the security instrument does not contain a due-on-transfer clause, the due-on-transfer clause is unenforceable, and in two other circumstances involving foreclosure or eviction.

As to Freddie’s treatment of due-on-transfer clauses, Freddie’s Guide outlines its requirements for servicers with respect to the enforcement of due-on-transfer clauses in the provisions copied in the resources below.

For resources related to our guidance, please see:

• Garn–St Germain Depository Institutions Act of 1982, 12 USC 1701j-3(b)(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), enter into or enforce a contract containing a due-on-sale clause with respect to a real property loan.”)

• Garn–St Germain Depository Institutions Act of 1982, 12 USC 1701j-3(d) (“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.”)

• OCC Regulations on the Preemption of State Due-on-Sale Laws, 12 CFR 191.5(b) (“With respect to any loan on the security of a home occupied or to be occupied by the borrower,

(1) A lender shall not (except with regard to a reverse mortgage) exercise its option pursuant to a due-on-sale clause upon: . . .”)

• Freddie Mac Single-Family Seller/Servicer Guide, Section 8406.4(a) (“In addition to the federal restrictions on the exercise of the due-on-transfer clause provided in Section 8406.3, Freddie Mac will not, and the Servicer may not, restrict a Transfer of Ownership of the Mortgaged Premises in the following situations: . . . The Security Instrument contains an unenforceable due-on-transfer clause.”)

• Freddie Mac Single-Family Seller/Servicer Guide, Section 8406.1 (“Ownership of the Mortgaged Premises securing a Mortgage that does not contain a due-on-transfer clause can be transferred without restriction. However, the Servicer must accelerate the maturity of a Mortgage that contains a due-on-sale or due-on-transfer clause when a Transfer of Ownership occurs, unless acceleration is prohibited by provisions of Sections 8406.3 or 8406.4 or applicable law. References in the Guide to ‘due-on-transfer clause’ includes ‘due-on-sale clauses’ and similar provisions in the Mortgage documents that require acceleration upon a Transfer of Ownership. . . . Upon learning of a Transfer of Ownership that is subject to acceleration under the terms of this chapter, the Servicer must accelerate the debt and initiate appropriate foreclosure action in accordance with applicable law, the terms of the Security Instrument and Chapter 9301.”)

• Freddie Mac Single-Family Seller/Servicer Guide, Section 8406.3 (“For the following Transfers of Ownership, when the Mortgaged Premises is occupied or is to be occupied by the Borrower, the Servicer may not accelerate the maturity of the indebtedness: . . .”)

• Freddie Mac Single-Family Seller/Servicer Guide, Section 8406.4(a) (“In addition to the federal restrictions on the exercise of the due-on-transfer clause provided in Section 8406.3, Freddie Mac will not, and the Servicer may not, restrict a Transfer of Ownership of the Mortgaged Premises in the following situations: . . .”)

• Freddie Mac Single-Family Seller/Servicer Guide, Section 8406.4(b) (“In situations where all of the following conditions are met, Freddie Mac will permit a Transfer of Ownership of the Mortgaged Premises: . . .”)

• Freddie Mac Single-Family Seller/Servicer Guide, Section 8406.4(c) (“In the following situations, the Servicer must determine the creditworthiness of the transferee, even if the transferee is not assuming the Mortgage, and process the Transfer of Ownership in accordance with Sections 8406.5 through 8406.10: . . .”)

• Freddie Mac Single-Family Seller/Servicer Guide, Section 8406.4(d) (“If the transferee requests an assumption of the Mortgage obligation as part of a Transfer of Ownership, the Servicer must determine the creditworthiness of the transferee in accordance with Topics 5100 through 5500. . . . In addition, if the transferor requests to be released of liability, once the Servicer has determined the creditworthiness of the transferee, the Servicer must require a written assumption and release of liability agreement, which then must be executed by all parties concerned in accordance with Section 8406.7. Servicers must accelerate the Note if title is further transferred by the transferee to someone who is not an eligible transferee under Sections 8406.3 or 8406.4.”)