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The latest Q & A on a compliance issue, as provided by the League's General Counsel at Norman, Hanson & DeTroy.
Question: We are a federal credit union and have a member who was the sole borrower on a loan secured by a mortgage on his house. He died and left the house to his two children, and one of the children has continued to pay the mortgage. Do we have to accept those payments, or can we require that the new owners get their own loan? We are concerned that the new owners are not personally obligated on the loan, and we are thinking we can declare a default under the due-on-sale clause in the mortgage.
Answer: The NCUA's regulation provides that the exercise of a due-on-sale clause is governed "exclusively by" regulations issued by the FHLB Board implementing section 341 of Pub. L. 97-320, which law is known as the "Garn-St. Germain Depository Institutions Act of 1982," which is codified in 12 U.S.C. § 1701j-3. That statute provides that a "lender may not exercise its option pursuant to a due-on-sale clause upon . . . a transfer to a relative resulting from the death of a borrower." The regulation implementing that provision limits the enforcement of a due on sale clause if the property was the deceased's home that he occupied and that the transfer is to a relative who will occupy the property. It appears that your deceased member lived in the house and that his will left the property to his child. If that child is living or intends to live in the house, you cannot declare a default based on your member's death. The child may continue to make payments to avoid default; but he must also comply with other provisions of the mortgage as well, i.e., keep the property insured, pay taxes, etc.
For more compliance news, please visit League INFOSight through the Maine CU League's website.