Syracuse – New York State Assemblyman William B. Magnarelli (D-120th) announced Assembly and Senate passage of legislation that restricts the ability of state-chartered banks to exercise a ‘due-on-sale’ mortgage clause when property owners receives property through a transfer from a family member or trust (A251). The legislation is now sent to the governor.

A ‘due-on-sale’ clause in a mortgage agreement requires that the borrower pay the remaining balance of a mortgage when a property is transferred. Currently, Federal law restricts federally-chartered banks from using the ‘due-on-sale’ mortgage clause when a residential property is transferred between family members; the property transfer in these cases is not a sale and, therefore is not subject to the repayment of the balance.

Currently, state-chartered banks are not subject to the same rule as federally-chartered banks. State-chartered banks have had the option to exercise the ‘due-on-sale’ clause in the case of a death of the property owner when a home is thereafter transferred to a survivors spouse by will or trust, transfer of property to children, transfers during a divorce and in other cases.

“Just as the Federal law protects families from this clause, New York State should have this protection in place,” Magnarelli said. “Time and time again, our laws must reflect on-going practices. This legislation ensures protection of families during such property transfers. In many cases, family-to-family property transfers include a death or divorce. These are already challenging and difficult times for the family, and the undue stress caused by the possible exercising of a ‘due-on-sale’ clause – requiring full payment of the mortgage balance – is simply wrong.”

In short, the legislation would protect all consumers when receiving property through a transfer from a family member or trust.