The Garn–St. Germain Depository Institutions Act of 1982 (Public Law 97-320, signed October 15, 1982) is a landmark U.S. federal law that dramatically changed how mortgages are handled when property is transferred, especially in the context of death, divorce, or inheritance.
Why It Matters for Aging in Place and Elder Law
The most important provision for seniors and families is the due-on-sale clause exception in Section 341 (codified at 12 U.S.C. § 1701j-3). It protects heirs and certain family members from having a lender call the entire mortgage due just because the property changes hands. The due-on-sale clause is a provision in almost every mortgage that protects a lender from a property owner transferring the property to a third party without paying/satisfying the mortgage and saddling the lender with an owner the lender did not qualify or approve. Breach of the due-on- sale clause would mean that the lender could foreclose on the property and still hold the original owner personally liable for the debt if foreclosure did not satisfy the entire debt. Key Exempt Transfers (No Due-on-Sale Trigger)
The lender cannot enforce a due-on-sale clause and demand full repayment in these situations:
- Transfer to a relative resulting from the death of a borrower (e.g., to children, grandchildren, or spouse via will, trust, or intestacy).
- Transfer to a spouse or children living in the home.
- Transfer to a spouse incident to divorce or separation.
- Transfer into a living (inter vivos) trust where the borrower remains a beneficiary and does not transfer rights of occupancy.
- Transfer to a spouse or relative living in the home when the borrower becomes incapacitated.
- You can transfer your home into a revocable living trust or to heirs upon death without triggering the mortgage due clause.
- You can transfer your home into a properly drafted Medicaid Asset Protection Trust (irrevocable trust) without triggering the mortgage due clause.
- Your children or spouse can inherit the house and continue to pay the existing mortgage terms (interest rate, payment schedule) without refinancing at current (higher) rates.
- Transfers of property for estate planning and management purposes (e.g., gifting or to qualify for Medicaid) can be completed without risk of loss of the property to foreclosure.
- The Act preserves existing cash flow, which might be disrupted by an increase in the mortgage rate or a reduction in the term of repayment if a family member is forced to refinance the mortgage. This cash flow protects income needed for aging-in-place care and support, such as in-home care aides, modifications, or HCBS waivers. This stability is critical for aging in place.
Does the Family Assume the Loan?
The Act does not guarantee a legal "assumption" of the mortgage in the full sense. The language of the Act provides: "...a lender is encouraged to permit an assumption of a real property loan at the existing contract rate or at a rate which is at or below the average between the contract and market rates, and nothing in this section shall be interpreted to prohibit any such assumption." An heir doesn't automatically become personally liable for the debt. The Act merely protects heirs from the lender enforcing the due-on-sale clause, allowing them to inherit the property and continue making payments under the original terms without the lender calling the loan due or requiring a refinance. This is sometimes described as a "practical but not legal assumption," because the heir steps into the borrower's shoes for payments but doesn't formally assume personal liability unless they choose to officially assume the mortgage (which requires lender approval, lender terms and conditions, and may involve credit checks or fees).Can the Family Enforce Beneficial Mortgage Provisions (e.g., Deferment or Hardship Clauses)?
Generally speaking, under the Act, heirs who take the property through a protected transfer (e.g., inheritance) can enforce the mortgage's beneficial provisions as if they were the original borrower, provided they continue making payments. This includes hardship forbearance, deferment for veterans, or other borrower-friendly clauses. The lender must treat the heir as the borrower and honor the terms, provided the heir complies with the mortgage agreement (e.g., by making timely payments, paying property taxes, and/or maintaining property insurance). If the lender refuses, you can challenge it by filing a complaint with the Consumer Financial Protection Bureau (CFPB) or by filing a lawsuit for violation of the Garn-St. Germain Act. The Act's intent is to allow the loan to continue seamlessly without disruption, so that heirs inherit both the property and the mortgage's rights.Can the Lender Enforce Liability on Family Members After Foreclosure?
No, the lender cannot enforce personal liability on heirs or family members who take over payments but later default, unless they formally assume the mortgage. Under Garn-St. Germain, heirs can make payments without assuming the debt, so the lender's recourse is limited to foreclosing on the property; they can't pursue the heirs for any deficiency (the shortfall if the foreclosure sale doesn't cover the loan balance). This is because the Act prohibits acceleration at the time of the transfer, but doesn't require a legal assumption. If the heir(s) want personal liability (e.g., to refinance or to build credit), they must apply for formal assumption, which the lender can approve or deny. In practice, heirs often simply continue payments informally (practical assumption) without personal risk beyond the risk of losing the property in foreclosure.
Generally speaking, under the Act, heirs who take the property through a protected transfer (e.g., inheritance) can enforce the mortgage's beneficial provisions as if they were the original borrower, provided they continue making payments. This includes hardship forbearance, deferment for veterans, or other borrower-friendly clauses. The lender must treat the heir as the borrower and honor the terms, provided the heir complies with the mortgage agreement (e.g., by making timely payments, paying property taxes, and/or maintaining property insurance). If the lender refuses, you can challenge it by filing a complaint with the Consumer Financial Protection Bureau (CFPB) or by filing a lawsuit for violation of the Garn-St. Germain Act. The Act's intent is to allow the loan to continue seamlessly without disruption, so that heirs inherit both the property and the mortgage's rights.Can the Lender Enforce Liability on Family Members After Foreclosure?
No, the lender cannot enforce personal liability on heirs or family members who take over payments but later default, unless they formally assume the mortgage. Under Garn-St. Germain, heirs can make payments without assuming the debt, so the lender's recourse is limited to foreclosing on the property; they can't pursue the heirs for any deficiency (the shortfall if the foreclosure sale doesn't cover the loan balance). This is because the Act prohibits acceleration at the time of the transfer, but doesn't require a legal assumption. If the heir(s) want personal liability (e.g., to refinance or to build credit), they must apply for formal assumption, which the lender can approve or deny. In practice, heirs often simply continue payments informally (practical assumption) without personal risk beyond the risk of losing the property in foreclosure.
- The exception applies only to residential mortgages (1–4 family dwellings).
- The transferee must occupy the property as their principal residence (in most cases).
- Commercial or investment property mortgages are not protected.
- Lenders can still require assumption paperwork and credit checks in some cases.
Without Garn–St. Germain, many heirs would have to refinance at today’s rates (7% or more in 2025) or sell the home to pay off the mortgage, destroying the ability to age in place. The law ensures continuity of the low-rate mortgage, keeping the home in the family and funds available for care.
Bottom line: When drafting trusts or wills, always confirm the Garn–St. Germain exception applies, so your home and mortgage stay intact for the next generation. Need help reviewing your mortgage documents or trust language to ensure compliance? Just ask!
