I am a Notary Signing Agent and am hired primarily by Title Companies to perform mortgage signings in borrower's homes or whatever location is convenient for them. Many of these are refinance loan signings and occur after regular business hours, but sometimes I am contacted to perform purchase closings and often these will be during office hours to facilitate immediate funding of the loan.
Recently I was closing an FHA purchase money loan in the local office of a nationwide builder. The TIL indicated that the prepayment of the loan 'May" incur a penalty. This caused some concern to the borrower as his understanding was that his loan carried no such penalty. A search through the loan documents yielded no prepayment penalty addendum to the note or prepayment penalty rider to the mortgage. There was the standard two-page FHA "Important Notice to Homebuyers" containing their required disclosures including this:
About Prepayment
This notice is to advise you of the requirements that must be
followed to accomplish a prepayment of your mortgage, and to
prevent accrual of any interest after the date of prepayment.
You may prepay any or all of the outstanding indebtedness due
under your mortgage at any time, without penalty. However, to
avoid the accrual of interest on any prepayment, the prepayment
must be received on the installment due date (the first day of the
month) if the lender stated this policy in its response to a request
for a payoff figure.
Otherwise, you may be required to pay interest on the amount
prepaid through the end of the month. The lender can refuse to
accept prepayment on any date other than the installment due
date.
This was a first-time buyer and he was being guided through the transaction by his father, who was leery of his son signing a document with such "ambiguous language" (as he termed it). Since the loan was originated by the lending subsidiary of the builder, I made a call requesting an explanation from the loan officer, whose office was in the same building. While waiting for a response we continued through the rest of the closing documents and completed the signing with the exception of the TIL.
When the loan officer came into the closing room to address the borrower's concerns, she indicated that the box was checked because of the HUD requirement for prepayment to occur only on the payment due date. After a few minutes spent discussing the reasoning behind this disclosure, the borrower finally agreed to sign the document, his loan was funded, and he received the keys to his first home.
This lender was using a very strict interpretation of "Prepayment Penalty" that I had never seen before.
It has been a couple of years since I have seen much volume of FHA loans, so I am putting this question out there for your comments.
In this case, was this proper disclosure of a possible prepayment penalty per HUD guidelines?
Comments (21)Subscribe to CommentsComment