2025 SESSION
INTRODUCED
25104304D
SENATE BILL NO. 1452
Offered January 17, 2025
A BILL to amend the Code of Virginia by adding a section numbered 6.2-419.1, relating to certain restrictions on conveyance or assumption; prohibited.
PatronSturtevant
Referred to Committee on General Laws and Technology
Be it enacted by the General Assembly of Virginia:
1. That the Code of Virginia is amended by adding a section numbered 6.2-419.1 as follows:
6.2-419.1. Certain restrictions on conveyance or assumption; prohibited.
A. As used in this section:
"Eligible governmental or nonprofit program" means a program operated pursuant to a program established by federal law, operated by the Commonwealth or a locality, or operated by an eligible nonprofit organization, if the program is designed to assist the purchase of low-income or moderate-income housing including rental housing.
"Eligible nonprofit organization" means an organization of the type described in 501(c)(3) of the Internal Revenue Code as an organization exempt under 501(a) of the Internal Revenue Code, or any successor section, that has two years of experience as a provider of low-income or moderate-income housing; a voluntary board; and no part of its net earnings inuring to the benefit of any member, founder, contributor, or individual.
"Legal restriction on conveyance" means any provision of a legal instrument, law, or regulation applicable to the owner or the encumbered property including a lease, deed, sales contract, declaration of covenants, declaration of condominium, option, right of first refusal, will, or trust agreement, that attempts to cause a conveyance, including a lease, made by the owner to: (i) be void or voidable by a third party; (ii) be the basis of contractual liability of the owner for breach of an agreement not to convey, including rights of first refusal, preemptive rights, or options related to owner efforts to convey; (iii) terminate or subject to termination all or a part of the interest held by the owner in the encumbered property if a conveyance is attempted; (iv) be subject to the consent of a third party; (v) be subject to limits on the amount of sales proceeds retainable by the seller; or (vi) be grounds for acceleration of the mortgage or deed of trust or increase in the interest rate.
"Low-income or moderate-income housing" means housing that is designed to be affordable, taking into account available financing, to individuals or families whose household income does not exceed thresholds established by the U.S. Department of Housing and Urban Development.
"Tax-exempt bond financing" means financing that is funded in whole or in part by the proceeds of qualified mortgage bonds described in 143 of the Internal Revenue Code, or any successor section, on which the interest is exempt from federal income tax. "Tax-exempt bond financing" does not include financing by qualified veterans' mortgage bonds as defined in 143(b) of the Internal Revenue Code.
B. No holder of the obligation secured by a mortgage or deed of trust on residential real estate that is improved by the construction thereon of housing consisting of four or fewer dwelling units shall impose, agree to, or enforce a legal restriction on conveyance or restriction on the assumption of a residential mortgage or deed of trust unless specifically permitted by this section or applicable federal law.
C. If the mortgage or deed of trust requires approval of the holder for a conveyance or assumption, the holder shall approve the sale or transfer of all or part of the encumbered property, or the sale or transfer of a beneficial interest in a trust of all or part of the property, if:
1. At least one of the people acquiring ownership is determined to be creditworthy under generally accepted mortgage underwriting standards;
2. The seller retains an ownership interest in the property; or
3. The transfer is by devise or descent.
D. Provided any of the conditions in subsection C are met, the holder shall transfer the existing residential mortgage or deed of trust to the assuming purchaser under the same terms and conditions applicable to the seller including interest rate, monthly payment amount, and outstanding loan balance. At such time, the holder may effect the release of the seller from personal liability on the residential mortgage loan.
E. A legal restriction on conveyance is acceptable if:
1. The restriction is part of an eligible governmental or nonprofit program; and
2. The restriction will automatically terminate if title to the encumbered property is transferred by foreclosure or deed in lieu of foreclosure, or if the mortgage is assigned to a governmental entity or eligible nonprofit organization.
For purposes of this subsection, the following restrictions are permitted for eligible governmental or nonprofit programs:
a. The holder may prohibit the owner from selling the property for a price greater than the price permitted under the housing affordability program, or the holder may be required to pay a portion of the sales proceeds to a governmental body or an eligible nonprofit organization, as long as the owner is not prohibited from recovering the original purchase price, reasonable costs of sale, reasonable costs of improvements made by the owner, any negative amortization, and a reasonable share of the appreciation in value. An eligible governmental or nonprofit program may establish a sliding scale starting at zero for the holder's share of the appreciation in value provided that within two years the owner should be permitted to retain at least 50 percent of the appreciation in value. If the program sets a maximum sales price restriction, the owner shall be permitted to retain 100 percent of the appreciation;
b. Legal restrictions on conveyance may extend beyond the term of the mortgage or deed of trust subject to subdivision 2;
c. Rights under an option to purchase, preemptive rights to purchase, or rights of first refusal shall only be held by a governmental body or eligible nonprofit organization and shall be exercised by them, or an assignee who will purchase and occupy the property, only within a reasonable time after the event permitting exercise of the rights occurs, not to exceed five years.
d. In addition to the restrictions stated in subdivision c, the purchase price under an option to purchase shall not be less than the sum of the owner's original purchase price, the owner's reasonable costs of sale, the reasonable costs of improvements made by the seller, and a reasonable share of the appreciation in value.
e. The owner may be required to continue to be an owner-occupant.
f. The owner may be limited in his or her ability to choose a purchaser for the property, but only to the extent necessary to ensure that the property is preserved as low-income or moderate-income housing.
g. The owner for a rehabilitation loan may hold title subject to a condition subsequent, provided that the holder of the right of entry for condition broken also executes the mortgage or deed of trust, and that the right is exercisable only for failure by the owner to complete the rehabilitation or occupy the property as agreed by the owner.
F. A mortgage or deed of trust may be funded through tax-exempt bond financing and may include a due-on-sale provision that permits the holder to accelerate a mortgage that no longer meets the requirements for tax-exempt bond financing.
G. Encumbered property may be subject to protective covenants that prohibit or restrict occupancy by, or transfer to, persons who are not elderly if:
1. The restrictions do not have an undue effect on marketability; and
2. The restrictions do not constitute illegal discrimination and are consistent with all applicable state and federal nondiscrimination laws.