Four of the nine Garn–St Germain Act due-on-sale exceptions are especially relevant for estate planning.
Two of them are simple: a transfer to a relative resulting from the borrower’s death and a transfer to a spouse or child during the owner’s lifetime.
Another is a transfer on the death of a joint tenant. In a joint tenancy, two or more co-owners have equal rights and a right of survivorship, meaning that if one of the co-owners dies, their interest disappears and automatically goes to the other owner. If a joint owner dies, a lender may not enforce a due-on-sale provision.
The fourth exception is more nuanced: a transfer to an inter vivos trust in which the borrower is and remains a beneficiary and that does not relate to a transfer of rights of occupancy in the property. I’ll discuss this exception in more detail next week.
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