Congressional Preemption of Mortgage Due-on-Sale Law: An Analysis of the Garn-St. Germain Act

Abstract

This Article explores the provisions, scope, and impact of the Garn-St. Germain Depository Institutions act of 1982 in substantial detail. We first describe the several major types of mortgagor transfer restrictions, and the judicial and legislative responses to these restrictions before the Act. Second, we analyze the effect and coverage of the important provisions of the Act and its attendant regulation. The complex exceptions to the application of the Act known as “window periods” are then considered. These window periods are created by Congress in an attempt to soften the impact of the Act on states that previously restricted due-on-sale enforcement, and are based on preexisting state law. We examine the difficult standards for identifying such window periods and suggest alternative approaches, using California and Arizona as models. We then describe the Act’s impact on certain federally-chartered lenders, prepayment penalties, the mortgagor’s duty to respond, and release of the original mortgagor. Finally, we discuss the problem of concealment of transfers under the Act. Throughout, we evaluate the extent to which the Act and Regulations achieve sound public policy goals. We conclude that while the intent of the Act and the resulting national uniformity should be applauded, poor drafting has resulted in needless complexity and uncertainty.

Keywords: congressional preemption, mortgage due-on-sale law, Garn-St. Germain Depository Institutions Act of 1982, mortgage transfer restrictions, window period