Sarah’s conclusion:
Barring anything to the contrary in Florida law, which I have not yet been able to find, it seems to me that Federal law protects people in this exact situation. This is of course all contingent upon the original contract being upheld by both sides, but it seems to me that provided we go through proper channels to ensure Cait and I inherit the home (and the mortgage contract) and continue to hold up our end of the bargain (because as soon as we inherit, it BECOMES our bargain, too) that it is illegal to call the loan due, or require more of us (such as better creditworthiness or even ability to pay) UNTIL we lapse in our adherence to the contract.
I also think it would be very beneficial to secure private financing if possible and create our own contract – I absolutely agree that a $55k max risk on a piece of property worth at least three times that would be a hell of a deal – and for Cait and me, we’d be able to reduce monthly payment, possibly reduce interest rate, and dealing with someone who cares about you is preferable in any circumstance that may arise.
But – provided Cait was able to make a smooth transfer down here and all of us were working together, I believe that even if no private financing is possible, we could make this work. We’re both willing and able to do what it takes.
I believe that what we need to look into creating for you is a Living Trust. This would leave you in control of all your assets as long as you are able to administer them, but would be an automatic transfer of your property and assets as you choose to distribute them when the time comes. A ‘pour-over’ will can be included in this, including all the regular items usually found in a Last Will and Testament, but also ensuring that all properties NOT already involved in the trust go into the trust upon your passing.
Rather than dealing with adding our names to the deed now, this is another way to ensure a smooth changeover of property ownership. The benefit to creating a trust as opposed to simply adding names to the deed is that no asset inside the trust can be seized to cover the debts of the deceased. I’ll collect info on this and send in a separate email.
The clause in your mortgage contract that has been the source of our concern:
“THIS IS A PURCHASE MONEY MORTGAGE.
IF THE MORTGAGOR SHOULD CONVEY THE PROPERTY, OR ANY INTEREST THEREIN TO ANY OTHER PARTY, WITHOUT FIRST OBTAINING WRITTEN CONSENT FROM THE MORTGAGEE, THE ENTIRE PRINCIPAL AND INTEREST THEREON, AND ANY PAYMENTS WHICH MAY HAVE BEEN MADE BY THE MORTGAGEE FOR REPAIRS, INSURANCE, TAXES, ASSESSMENTS, COSTS, CHARGES, EXPENSES, ABSTRACT FEES, ATTORNEYS' FEES, OR OTHERWISE, SHALL AT THE OPTION OF THE MORTGAGEE BECOME IMMEDIATELY DUE AND PAYABLE WITHOUT FURTHER NOTICE, AND THIS MORTGAGE MAY BE FORECLOSED IN THE SAME MANNER AND WITH THE SAME EFFECT AS IF EACH AND EVERY OF THE SAID INDEBTEDNESS HAD OTHERWISE MATURED.”
The Federal law that applies to our situation:
12 USC 1701j-3 – Preemption of due-on-sale prohibitions
The pertinent parts of the US Code:
12 USC 1701j-3 (b)(2)
“Except as otherwise provided in subsection (d), the exercise by the lender of its option pursuant to such a clause shall be exclusively governed by the terms of the loan contract, and all rights and remedies of the lender and the borrower shall be fixed and governed by the contract.”
12 USC 1701j-3 (d) [We’re looking at (d) (3,5,6)]
“Exemption of specified transfers or dispositions
With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon-
(1) the creation of a lien or other encumbrance subordinate to the lender's security instrument which does not relate to a transfer of rights of occupancy in the property;
(2) the creation of a purchase money security interest for household appliances;
(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
(4) the granting of a leasehold interest of three years or less not containing an option to purchase;
(5) a transfer to a relative resulting from the death of a borrower;
(6) a transfer where the spouse or children of the borrower become an owner of the property;
(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or
(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.”
12 USC 1701j-3 (2)(A)
“For any contract to which subsection (b) does not apply pursuant to this subsection, a lender may require any successor or transferee of the borrower to meet customary credit standards applied to loans secured by similar property, and the lender may declare the loan due and payable pursuant to the terms of the contract upon transfer to any successor or transferee of the borrower who fails to meet such customary credit standards.”
If I am reading this correctly, the lender may NOT require any successor or transferee of the borrower to meet customary credit standards and CANNOT declare the loan due and payable under the contract due to a less than desirable credit rating of the successor/transferee BECAUSE subsection (b) applies to us.