Federal Law Preempts Due On Sale Clause
Federal law preempts lenders from exercising the due on sale clause in mortgages on residential real property containing less than five dwelling units in certain circumstances. If you already know this, then you know something that most real estate attorneys do not know. A law that is often overlooked is Preemption of due-on-sale prohibitions U.S. Code TITLE 12 CHAPTER 13 § 1701j. It provides a laundry list of transfers from which the lender may not exercise the due on sale clause. The list contains things such as a transfer to a relative resulting from the death of a borrower, the granting of a leasehold interest of three years or less not containing an option to purchase, a transfer resulting from a decree of a dissolution of marriage by which the spouse of the borrower becomes an owner of the property, and a few other circumstances.
