After the Garn-St. Germain Act, what is true about due on sale clauses for residential loans?

The Garn-St. Germain Act, enacted in 1982, significantly influenced how due-on-sale clauses are applied in residential loans. Under this legislation, due-on-sale clauses, which allow lenders to demand full payment of an outstanding loan when a property is sold, are generally enforceable. However, the Act provides certain protections for borrowers, particularly for residential properties consisting of one to four units.

In residential transactions involving property meant for occupancy by the owner or for families, the Garn-St. Germain Act prohibits lenders from enforcing these clauses when the property is sold under specific conditions. For example, if the transfer of the property occurs due to inheritance, or if the property is transferred to a spouse or children, the lender cannot enforce the due-on-sale clause. Thus, while the clauses themselves still exist, their enforceability is limited in certain residential contexts.

This means that while due-on-sale clauses can be enforced, there are restrictions, particularly for loans on residential properties of one to four units, ensuring that family circumstances and specific transfers do not automatically trigger the clause. This protection reinforces the idea that the law balances lender rights with the realities faced by homeowners and families.