DEAR BENNY: My father passed away in January 2008 and I have inherited his townhouse. He had an existing mortgage, and I am continuing to make the mortgage payments. I have not notified the mortgage company. I am unable to obtain financing for the home in my name at this time. I have already been turned down twice. Does state law allow me to assume this loan, or if the finance company finds out, can it pull the loan? I don’t want to lose the house. There was a will (I was the personal representative and sole beneficiary) and I had an attorney prepare the deed, which has been recorded in my name. It was my father’s wish that the house be mine upon his death. –R.N.

DEAR R.N.: Please relax. State law has nothing to do with this. Federal law — called the Garn-St. Germain Depository Institutions Act of 1982 — protects you. This law, among many other matters, specially addressed your issue. According to that Act, a lender “may not exercise its option pursuant to a due-on-sale clause upon … a transfer to a relative resulting from the death of a borrower.”

Most mortgages (usually called “deeds of trust”) contain a due-on-sale clause. That means that if the property is transferred to anyone, the lender has the right to call the entire loan. The purpose of such a due-on-sale clause makes sense. If a lender makes a loan with a low interest rate — say 5.5 percent — and interest rates rise significantly, the lender does not want another person to step into the shoes of the original borrower and continue making payments at the original low rate.

But Congress recognized that the due-on-sale clause was unfair to many people, especially in situations such as yours where you inherited the property — and the existing loan.

You should send your lender a copy of your father’s death certificate, and merely advise that you will be taking over the mortgage payments. There is absolutely nothing that the lender can do to hurt you.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column.

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