Garn-St. Germaine Act protects families against certain mortgage acceleration

Home mortgages typically have a mortgage acceleration clause, called a “due on sale” clause. This is a clause that says that the mortgage becomes due and payable if the property is sold or transferred to another individual without the lender’s prior written consent. There is a federal law that prevents lenders from applying that clause when the homeowner transfers their property to their spouse or children. It’s known as the Garn -St.Germaine Depository Institutions Act of 1982, which is in the U.S. Code of laws at 12 USC.1701j.

Section d. specifies the situations in which a lender may not enforce the due-on-sale clause. The exemptions that are most relevant for elder law and estate planning are these:

(d) Exemption of specified transfers or dispositions  …. (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 …. “

There are times that transferring the ownership of residential property makes good sense for asset protection purposes. No transfer should be made without legal advice, as there are so many considerations to take into account. For example, can the new owner in the family pay the mortgage? if not, who will pay it, and is that person going to be making ongoing gifts to the new homeowner, or is there some other legal relationship at play? But it’s good to know that there is this protection available when there’s a mortgage on the property. Preferably, the Deed itself should make reference to the mortgage that’s on the property at time of transfer.

Call us for advice on asset preservation planning and real estate transfers … 732-382-6070

SSA issues emergency memo re: Notice to recipients of Special Needs Trust problems

A person who receives SSI (Supplemental Security Income) or is applying for SSI needs to report their resources (assets), income and transfers or gifts that they have made. If the individual is under 65, they sometimes shield their excess resources by transferring them into a first-party Special Needs Trust for their own sole benefit, which enables them to have some money on the side for supplemental needs and still receive benefits if they are otherwise eligible. The Trust has to meet specific federal criteria which are contained in the SSI statute and regulations, and which are further detailed in state regulations such as N.J.A.C. 10:71-4.11(g). Sometimes when the Trust arrangement is reviewed by the Social Security Administration caseworker, the worker determines that the Trust is nonconforming or has been improperly managed, and they issue a Notice of ineligibility.

If an adverse action is taken by the SSA, the applicant or recipient has a right to appeal, called Request for Reconsideration. The problem is that the Notice often fails to state just what the problem is, leaving the hapless individual seeking an appeal without knowing just what the issue is. The SSA has just issued an Emergency Message that is intended to solve this problem. Here it is: https://secure.ssa.gov/apps10/reference.nsf/links/03022016015517PM.

According to the new instructions, the SSA notice must inform the individual as to (1) which section of the trust agreement contains the problem or issue, (2) the citation to the specific section of the SSA POMS (Procedural and Operations Manual) which tells what the policy requirements are for that issue, and (3) a reference or link to where the reader can access the POMS online.

Depending on the specific issue and the precise wording of the Trust, some amendments might be made administratively by the Trustee, but others must be made through a state court proceeding referred to as “trust reformation.” This may take several months. In any event, the individual should preserve their rights by filing for reconsideration as well.

Call us to write, evaluate pursue legal action concerning Special Needs Trusts…. 732-382-6070