A 1982 law still decides what lenders can do when title moves

Most residential mortgages contain a due-on-sale clause. It lets the lender demand the full balance if the property is sold or transferred without consent. Before 1982, some states limited lenders from using it. In Fidelity Federal Savings and Loan v. de la Cuesta (1982), the Supreme Court held that federal regulations override those state limits. Congress then confirmed the lender's right in the Garn-St Germain Depository Institutions Act, 12 U.S.C. 1701j-3.

The Act also lists transfers a lender cannot call on residential property with fewer than five units. Examples include a transfer to a relative after the borrower dies, a transfer in which the borrower's spouse or children become owners, a transfer under a divorce decree, a transfer into a living trust in which the borrower is and remains a beneficiary and occupant, and a lease of three years or less with no option to buy.

What it means for terms deals

A sale to an investor is not on the list. A lease with an option to buy is not a short lease without an option. A land trust where the investor is the beneficiary is not a trust where the borrower stays the beneficiary. So these structures sit outside the exceptions, and the lender keeps its right to call the loan.

That does not mean the lender will call it. It means a careful buyer plans for the day it might. Write the plan into the agreement and tell the seller in plain words.

What to check

• Your seller's loan type. FHA and VA loans have their own transfer and assumption rules.
• Whether the seller understands the loan stays in their name.
• Your funding path if the lender demands payment: refinance, sale, reserve or return of the property.

Sources

• 12 U.S.C. 1701j-3: https://www.law.cornell.edu/uscode/text/12/1701j-3
• 12 CFR 191.5: https://www.law.cornell.edu/cfr/text/12/191.5
• Fidelity Federal Savings and Loan Ass'n v. de la Cuesta, 458 U.S. 141 (1982): https://supreme.justia.com/cases/federal/us/458/141/

This is general information, not legal or tax advice. Please check with a licensed professional in your state.