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UC Law Journal

Abstract

The due-on-sale clause is a mortgage provision that affords the mortgagee the right to accelerate the mortgage debt and to foreclose if the mortgaged real estate is transferred without the mortgagee's consent. Because the clause's use often pits lenders against borrowers and real estate buyers, it has become a major economic, political, and legal issue. Congress, responding to the financial distress of many institutional lenders after a decade of judicial, legislative, and regulatory turmoil at both the state and federal levels, has attempted to resolve the due-on-sale controversy by enacting section 341 of the Garn-St. Germain Depository Institutions Act of 1982 (Act). The Act generally favors enforcement of due-on-sale clauses. This Article explores the provisions, scope, and impact of the Act in substantial detail. The Article first describes the several major types of mortgage transfer restrictions, and the judicial and legislative responses to these restrictions before the Act. The Article then analyzes the effect and coverage of the important provisions of the Act and its attendant regulation, including the complex exceptions to the application of the Act known as "window periods." The Article examines the difficult standards for identifying these window periods and suggests alternative approaches, using California and Arizona as models. The Article then describes the Act's impact on certain federally-chartered lenders, prepayment penalties, the mortgagor's duty to respond, and release of the original mortgagor. Finally, the Article evaluates the extent to which the Act and regulations achieve sound public policy goals, concluding that while the intent of the Act and the resulting national uniformity should be applauded, poor drafting has resulted in needless complexity and uncertainty.

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