July 22, 1998
James P. Shea, Esq.
Flaherty & Shea
329 Elmwood Avenue
Buffalo, New York 14222
We apologize for the delay in our reply. You ask whether a federal
credit union (FCU) can enforce a due-on-sale clause contained
in a member's mortgage if the member transfers the property securing
the mortgage to his son. No, the National Credit Union Administration's
(NCUA) regulations prohibit the enforcement of a due-on-sale clause
if the property is transferred to a spouse or child of the member.
You state that the Buffalo Fire Department Federal Credit Union
(Buffalo FCU) includes due-on-sale clauses in all of its home
equity and collateral mortgages. One Buffalo FCU member, who
has both a collateral and home equity mortgage secured by his
residence, sold the residence to his son. The credit union wants
to enforce the due-on-sale clauses contained in the two mortgages.
The member contends that the FCU is prohibited from enforcing
the due-on-sale clauses under §1701j-3(d)(6) of the National
Housing Act. The member is correct.
Section §701.21(g)(6) of NCUA's regulations states that due-on-sale
clauses contained in FCU mortgages are governed by §1701j-3(d)(6)
of the National Housing Act. The National Housing Act, as well
as NCUA's regulations, provides that an FCU may not enforce a
due-on-clause if the borrower transfers ownership of the property
to a spouse or child. 12 U.S.C.A. §1701j-3(d)(6) (West 1989);
12 C.F.R. §701.21(g)(6)(ii)(F). Accordingly, Buffalo FCU
is prohibited from exercising the due-on-sale clauses contained
in either of its member's mortgages.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/NSW:bhs
SSIC 3500
97-1247