Posted by Stacy (AZ) on February 08, 2000 at 13:55:41:
JD-
I meant “unfair” in the context of unfair trade practices, not that I personally thought it was unfair. The reasons I posted this is that I have a 5-year prepay penalty on my loan through Countrywide, in exchange for buying down the interest rate. However, it specifically states in the prepay addendum that a sale within those 5 years would not cause a prepay penalty (but a refi would).
Also, I think it was Rob (FL) that posted something about case-law finding that having a prepay penalty that is activated when a house is sold interferes with and diminishes the owners basic right to dispose of his real property, and that a court found that this was an “unfair practice.”
But, I’m reaching back to try and remember a post from several months ago, so I’m not 100% sure about this.
I got a house subject to on Dec 20th and after reviewing the mortgage papers I saw that there was a hefty prepayment penalty. We spoke to the seller who said that the lender would allow a sale and she didnt know what the prepayment penalty was for. She had refinanced in Nov and the penalty states that it’s for a two years from then. So we took possesion and started some repairs (first mistake). Now going on two months later I’m marketing it as a fixer upper and I’ll L/O it. The bigger mistake however is today we called the lender and they advised us that the prepayment penalty is enforceable even if sold. Now this may not be a problem if I L/O for long enough but I did have a buyer ask if he could purchase the property anytime within our L/O agreement. I’m hoping to sell this problem but I may be forced to keep it for awhile. Is the prepayment penalty really enforceable? Any suggestions?
It’s more than likely a non-conforming, sub-prime lender that holds the mortgage. Yes they will collect on the prepayment penalty. That’s how they lock in their profit and discourages the borrower from turning around in six months to a year and refinancing for a lower rate after they’ve made timely payments. Of course, you can sell but they will collect on the penalty. Find out what the penalty is and try to cover it in your sale.
Re: I thought this was illegal - Posted by Stacy (AZ)
Posted by Stacy (AZ) on February 07, 2000 at 12:43:52:
Placing a prepayment penalty on a loan that disallows the property to be sold to a NEW LOAN buyer (who would pay-off the loan) without penalty is unfair and illegal, the last I heard. I think you need a legal opinion. Did you actually read the mortgage document itself? Usually prepayment penalties are for refinancing, without selling.
yes there a prepayment penelty on sub prime loans if you refinance the loan , but if you sale your house there is non in state of texas, check with your mortgage broker . Some times lender are not fully aware of state laws.
In a few States (i.e. California) a Due on Sale Clause will void a prepayment penalty. In those States you just cant have both a Due on Sale Clause and a Prepayment penatly in the same loan, and expect to enforce the prepayment penalty upon sale. But prepayment penalties are not illegal in any States (maybe there is one odd ball State out there). If the prepayment penalty was disclosed in advance, and I think it reasonable to assume that it was, why would do you think that it is “unfair”?