Prepayment penalty and CA law - Posted by cani

Posted by Stacy Fisher on November 05, 2003 at 10:44:28:

My mother just sold her condo and her mortgage holder stated that she must pay a prepayment penalty if she sells her property less than three years after original purchase, which is the case. Does California law allow prepayment penalties on real estate?

Prepayment penalty and CA law - Posted by cani

Posted by cani on October 03, 2003 at 21:06:10:

We all know most lenders put prepayment penalty on their mortgage. But I came across this from a real estate law study book, could this mean good news?

Question: On January 10, 1982, buyer Carson purchased a single-family home in a residential subdivision by using a real property sales contract. A clause in the contract provided: “The buyer herein agrees to make even monthly payments of interest and will not prepay any part of the loan principal.” What effect, if any, will this clause have in the event buyer Carson decides to pay the entire unpaid balance?

Answer: Carson may disregard the clause. By California law, a clause in a real property sales contract on residential property in a subdivision which prohibits a prepayment by the buyer, is void by law. The contract would stand, but the clause is unenforceable.

If I’m understanding this correctly, we can basically ignore the clause, right?