:: Real Estate Template System ::

	Team/ Agent's Name
	123 Agents Way City, State, 12345

Password

Learn More

Forgot Password?

MESSAGE BOARD »

BACK

Created By

Messages

Created By: John Smith Posted On: 10/21/2009 Last Update: 10/21/2009	What are mortgage prepayment penalties?	Delete
	Many mortgage companies create prepayment penalties in order to keep you from paying off the loan too soon (usually 1-5 years). If set up right, a prepayment penalties can reduce your interest rate during the term of the loan. The state of California has limited the dollar size and length of time lenders can charge borrowers for prepayment penalties. However if the lender is a bank, they are not governed by this California state law and can charge what they like.
Replied By: John Ekka Posted On: 10/22/2009 Last Update: 10/22/2009	Reply	Delete
	"Payment before maturity is not a breach of the contract, but simply an additional mode of performance on the borrower's part; the prepayment charge is not a penalty imposed for default, but an agreed form of compensation to the lender for interest lost through prepayment, additional tax liability or other disadvantage." [Ridgley v. Topa Thrift & Loan Ass'n (1998) 17 Cal.4th 970, 978, 73 Cal.Rptr.2d 378, 383; see also Williams v. Fassler, supra, 110 Cal.App.3d at 11, 167 Cal.Rptr. at 547--"in effect, the borrower is paying a fee for the 'nonuse' of the money"] Application where debt acceleration triggered by default or due-on-sale clause: The prepayment triggering an agreed-upon penalty is not necessarily limited to the obligor's voluntary prepayment. The result turns upon the terms of the note: If the note is properly worded (i.e., not limited to obligor's exercise of prepayment privilege), the lender may become entitled to a stipulated prepayment charge after accelerating the principal obligation upon the buyer's default or pursuant to a due-on-sale clause. [Ridgley v. Topa Thrift & Loan Ass'n, supra, 17 Cal.4th at 979, 73 Cal.Rptr.2d at 383, fn. 3; Biancalana v. Fleming (1996) 45 Cal.App.4th 698, 702-704, 53 Cal.Rptr.2d 47, 49-50; compare Tan v. California Fed'l Sav. & Loan Ass'n (1983) 140 Cal.App.3d 800, 809-810, 189 Cal.Rptr. 775, 782--under terms of note, prepayment penalty applied only when obligor voluntarily exercised prepayment option and thus was not triggered by lender's exercise of due-on-sale clause] (But there are statutory limits on prepayment assessments triggered by due-on-sale loan accelerations; see Ca Civil § 2954.10)

Post a Reply

Add New Message

Topic
Message

Submit

Cancel

All content & technical formatting of this template is for use by current DPS agents/ customers only.
Visitors are prohibited from downloading, utilizing, replicating, redistributing, or reselling
any element of this content without written permission from the DPS Group