Q. My husband and I married years after he purchased what is now our home. We are both now up in years, and we still have an outstanding home loan that we pay on each month. What happens to the home loan if he predeceases me, as my name is neither on the title to the home, nor on the mortgage loan? Will the bank foreclose?
A. Good news! No, the bank will not foreclose, so long as you continue to make the house payments when due. This is because of a federal law passed by Congress in 1982 called the “GARN — St Germain Depository Institutions Act” (aka, “Garn Act”), so named after the legislators who sponsored the law. It prohibits a lender from foreclosing on a mortgage loan on a home, or a multi-unit residential dwelling containing less than five units, or even a manufactured home used as a residence, in certain circumstances described below.
In legal parlance, it prohibits the lender from exercising the “due on sale” or “due on transfer” clauses included in most home loans in the following situations:
1) Creation of a second mortgage;
2) Termination of a Joint Tenancy;
3) A transfer to a “relative” as a result of the death of the borrower;
4) Transfer of ownership to a spouse or children of the borrower;
5) Transfer due to Divorce or Legal Separation or related court orders;
6) Transfer to an Inter-Vivos Trust (e.g. a “Living Trust”) if the borrower is a beneficiary and continues his/her occupancy.
There are some exceptions to the list of prohibitions. The most important of these is regarding a Reverse Mortgage (“RM”). So, if you later take out a RM loan, the Garn Act will not prohibit the lender from calling the loan due if you transfer or sell the home. So, just be aware.
Also, unfortunately, the word “relative” in the above list is not defined by the Act nor the implementing regulations. So, it would presumably include spouses, children, and siblings, but would it also include in-laws? The law is unclear. Again, just be aware.
In terms of your name not being on title, I would suggest that you and your husband see an attorney to discuss your future and prepare appropriate estate planning documents to plan what ultimately happens to the home upon his or both of your deaths. It may be that it might be time to add your name to title. At that time, you might also address other planning issues, such as the need to plan for the disposition of your other assets, the possible need to develop a plan to finance Long Term Care, to prepare a Trust and/or Durable Powers of Attorney to manage your financial affairs if you can no longer do so on your own, to create Advance Health Care Directives, and the like.
Every good wish to you and yours. Don’t procrastinate, especially during this time of COVID.
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References: GARN — St Germain Depository Institutions Act
Garn Regulations