Question: My spouse borrowed money to buy our home and held sole title to the land. He died and I became the sole owner of the home. The lender is threatening to call the balance due on the loan and foreclose on the property. Can the lender force me to refinance and foreclose on the home if I do not refinance?
Answer: No. A federal statute called the “Garn–St Germain Depository Institutions Act of 1982” prohibits lenders from enforcing due on sale clauses in certain situations. A due on sale clause refers to language in loan documents that gives the lender an option to demand payment in full of the balance owned if the borrower transfers title to land that is security for the loan.
When a loan document contains a due on sale clause and the one borrower dies the lender may or may not be able to call the loan. If the land that is security for the loan goes to the spouse of the borrower the Garn St. Germaine Act prohibits the lender from enforcing the due on sale clause. See 12 USC Section 1701j-3, which states:
“With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units . . . or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon— . . .
(3) a transfer by devise, descent, or operation of law on the death of a joint tenant . . .
(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 . . .(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.”
See a Chicago Tribune article called “6 Situations Where The Lender Can’t Call Your Mortgage.”