A property owner borrowed $200,000 from a lender to purchase a home and executed a mortgage that included a due-on-sale clause. Five years later, the property owner sold the home to a buyer. The buyer agreed to take over the mortgage payments but did not notify the lender of the transfer. After discovering the sale, the lender initiated foreclosure proceedings, asserting that the transfer triggered the due-on-sale clause. Does the lender have the legal right to foreclose?
The lender cannot foreclose because the buyer assumed responsibility for the mortgage payments.
The lender has the right to foreclose because due-on-sale clauses are enforceable when ownership of the property is transferred without the lender's consent.
The lender cannot foreclose because federal law restricts enforcement of due-on-sale clauses without state authorization.
The lender can foreclose if the due-on-sale clause in the mortgage agreement applies to this situation.
The correct answer is based on the Garn-St. Germain Depository Institutions Act of 1982, which generally allows lenders to enforce due-on-sale clauses when property ownership is transferred without prior lender consent. This federal law does not require the lender to prove financial harm or adhere to additional state-based restrictions unless specific legal exceptions apply (e.g., transfers to family members in certain situations). Other answers introduce requirements that do not exist under federal law or misstate the legal framework governing due-on-sale clauses.
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What is a due-on-sale clause?
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