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To What extent is Prepayment Penalty Legal? (Real Estate & Property Law)

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• Sun, 12 Mar 2006 10:02:00 GMT(1)
• Ok, if you have a fax number I could let you take a look at the note. Thanks
• Thu, 09 Mar 2006 09:21:00 GMT(2)
• Were the prepayment penalties listed in your original mortgage? Get it out and read (mine is listed in a paragraph titles "Prepayment Penalty" - if I refi within 3 years I have a 3% penalty). Post back and let us know.
• Thu, 09 Mar 2006 22:40:00 GMT(3)
• yes it does list the penalties, but they are at 6% if I prepay with 2 years. I did prepay after 1. However isnt this high? In the indiana home owner protection act it states "For high cost loans a lender may not charge a penalty for paying off the loan early after the first two years of a loan. In the first two years of the loan a prepayment penalty can not be greater than 2 percent of the loan amount. In addition, the lender must offer the borrower a choice of receiving a loan without a prepayment penalty." This law took affect Jan 1st 2005. I made my first payment Jan 1st 2005, even though the contract was signed before this, isnt the actual payment for services rendered the first legitimacy of this contract?
  In addition to knowing this a friend of mine said her mother received all of her prepay back because they told her prepay was illegal in state of Indiana. This was a few years back. What is the truth?
• Wed, 08 Mar 2006 12:23:00 GMT(4)
• Where did your friend get the information?
• Fri, 10 Mar 2006 06:21:00 GMT(5)
• It's true that is illegal in certain states under certain conditions, i.e. if it's for primary residence financing. Though, there are ways to get around it. If the recission period has ended, it's very difficult to contest it. The only way I can think of is if you asked the loan officer if there was a prepay and told you there was not one. Otherwise I think they make it the borrower's responsibility to go over the terms of the note, if no questions are asked.
  In the Ameriquest case, they set up the loan so that the borrower would pay a prepayment penalty no matter what happened. So that's a little different.
  In my experience, I've worked for a lender/broker that was prohibited from selling loans w/ prepayment penalties to certain states...but have had that same customer receive other offers WITH prepayment penalties. So there is quite a bit of gray area there.
  If you want me to take a look at the note, I'd be glad to do so for you. Usually a prepay penalty is 6 months interest on the loan amount, although I have seen it as low as 1 point of the loan amount. It will vary by state and lender.
  "Thats where consumer protection laws have kicked in. In some states, the law says that a lender cant enforce a prepayment penalty. However, these laws generally apply to a first mortgage on a residential loan and usually only on a homeowners primary residence.
  So if you take out a loan on a condominium you own as an investment or you have a junior mortgage, the prepayment penalty can, and most likely will, be enforced.
  In some states where prepayment penalties are allowed, state laws only permit them to be enforced during the first few years of the loan. Unfortunately, just because a states laws forbid or limit prepayment penalties doesnt mean your loan wont carry one.
  Federally chartered banks follow Federal law, not state law, and recent court decisions have concluded that Federally-chartered banks have the right to ignore State consumer protection laws, including prepayment penalty limits."
• Thu, 09 Mar 2006 10:35:00 GMT(6)
• If the recision period is over and you signed on the dotted line it's legal and you're stuck with it, If the loan officer lied to you telling you there wasn't any prepay then invetigate the company. Ameriquest is know for doing this and has many class action suits against them, who knows you may be able to join that suit.
• Wed, 08 Mar 2006 12:19:00 GMT(7)

• Quote:

  Originally Posted by wanttobesure

  What is the name of your state? IN. Thanks! I just refinanced and the prepayment penalties were outrageous.

  But signed anyway. I just don't get it.
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