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Prepayment Penalties Waived 90 days prior to rate reset!

This applies specifically to California loans, though I'm sure there are similar civil codes in other states.

Wow.....I actually like this liberal policy!! YIPPEE!!! two happily dancing aliens!

OK, back to reality.....seriously.....I believe that this can help plenty of distressed homeowners....not the ninnies who are whining about their increase......or the ones who took cash out once a year for 5 years straight, but the ones that are TRULY faced with a rate increase that they cannot handle......

California Civil Code 1916.5.5

(5) The borrower is permitted to prepay the loan in whole or in
part without a prepayment charge within 90 days of notification of
any increase in the rate of interest.

Simple but true.....if you are a homeowner in need of assistance, a lender who may have the deal figured out but cannot get around the prepayment penalty, or a realtor who is looking to help a challenged seller, consider this often overlooked part of the civil code.

You will be glad you did......figure that for most clients if they have a $2K monthly payment, and the standard prepayment penalty is roughly six months worth of interest payments, you're looking at a savings of $12K that would otherwise go to the bank, or you could be taxed on in a short sale situation if you fail to make arrangements.

Feel free to touch base if you need additional guidance! Have fun with a fellow friend, lender, or realtor, and see the deer in the headlights look when you mention that you can do this.........

Posted by Bill Nazur on 09/18/2007 01:28 AM

Comments (19)

foreclosure prevention, asset managment, prepayment penalties, waiver, client service, mortgage advice

This post has been included in California Information

19 Comments on Prepayment Penalties Waived 90 days prior to rate reset!

SEP

2007

Bill - Looking forward to Friday. Like the tag! That is a "window" many people do not know about.

Andrew

Should be fun!

And isn't it our responsibility to open some windows, and share some fresh air with our clients and fellow realtors and lenders. :)

SEP

2007

Wow-this is amazing!

Rita

Yet, many realtors, lenders, and clients fail to use this bit of knowledge. :)

SEP

2007

Bill,

Is this for out state lenders too, for California borrowers?

Rita

Yes, the lender must comply with California law. :)

This is really great info Bill. One more thing, can you tell me how to access the Civil Codes? I feel like a big dummy but I can't find them by Googling.

Rita

Here is the best link I've found....just click on CA civil codes only, and it will pull up everything you need.

http://www.leginfo.ca.gov/calaw.html

SEP

2007

thank you again (:

SEP

2007

Bill, really good and useful information. A lot of lenders either don't know about this statute or claim they don't. I guess that if the settlement agent paid their demand (including the prepayment penalty) the borrower would have an actionable case against both the lender and the settlement agent.

Bill Roberts

Bill R.

There are so many unknown little rules that I'm not surprised many do not know. I was working on a consumer piece a while back when I ran into this, though I haven't been able to use it until recently because of the volatility in the real estate market, etc.

Bill, I saw your comments on Brian's post. I wasn't exactly sure which side of the issue you came down on. Anyway, Brian ignored my comments so I was "forced" to post my own take on this. I don't want to be left out of the conversation. See Are You Ready To Serve "Happy Meals®"? and let me know what you think.

Thank you, as always, for keeping in the middle of the change that is happening to us.

Bill Roberts

Bill R

On this one, I'm straddling....while I firmly believe that I could sell real estate better than many realtors, as I've been often told to handle that part of the transaction as well, I tend to err that human nature trumps logic and reason, meaning that while you SHOULD provide a savings by bundling the services, often times, you lose flexibility, and often times end up paying more. Let me explain:

We facilitate transactions, based on our knowledge and experience. To that end, we have to concentrate on being experts at what we do, which frankly, I don't see happening if the intent is to handle the finance AND real estate sides. Now that does not mean that each of us shouldn't be highly knowledgable in what the other does, and frankly, challenge each other if there is a question, as long as it serves the best interest of the client. That also requires a highly efficient person, which I am, based on all of the projects I have going on at one time, yet I still don't feel that I could adequately serve my clients in both capacities. Am I being too hard on myself and others, or just being a realist? That I do not know, but I suspect that I am correct in NOT wanting to have dual responsibilities of realtor and mortgage banker or broker, except in very special or specific circumstances.

I will check out your latest post....I've been thinking of something similar, though from a different perspective....you'll have to keep an eye out for it. :)

Bill, it is real easy to keep an eye out because I subscribe to your blog.

Bill Roberts

I was talking with a mortgage broker about this and she mentioned that most of the time, the bank isn't going to up the interest payments until the pre-payment penalty term is finished. Have you found this to be true?

SEP

2007

Rita

That is the way it should be, but it appears that nothing is as it seems. I've seen 3 year and 5 year prepayment penalties on 2 year fixed rate loan....it is ridiculous, and should never happen, but it does.

Wow-how does this scenario play out with your clients or potential clients?

I will have to check into that for Oregon but that is a pretty cool setup. I usually just try to time things accordingly but that would be nice!

Rita

Anytime you save someone money, they love you for life, especially when nobody had the solution I proposed. Other times, there is simply no way around it but to pay the prepayment penalty, which is counterintuitive because it costs you money, but if it saves you money in the long run, then it was worth it right?

Rick

I'm constantly pushing the envelope! This business is knowledge based, so you might as well beat the bank at their own game when you can. :)

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