Posted by Calnotary on 6/6/07 12:02pm
Msg #193887

Prepayment Penalty question.

I had a question from a borrower last week that she said that if you sell the house you don't have to pay the Prepay penalty. I am not sure of this one here. I thought it is for refi and sell. Opinions,Facts, etc.

Reply by Joe Ewing on 6/6/07 12:09pm
Msg #193890

That is called a "soft" prepay.

Reply by Sharon Taylor on 6/6/07 12:18pm
Msg #193895

She has to ask her L.O.

I have had this question come up, and some lenders will enforce the prepay if the house is sold within the prepayment penalty time, and some won't. It depends on the lender, but if it's not in writing that they won't enforce it in the event of a sale, it is extremely likely they will.
The best scenario for a person who is still in the prepayment penalty phase and is going to sell is to call the lender, explain the circumstances, ask if they will waive the prepayment penalty in writing if there is a sale. If the lender will not waive the penalty, then the seller should find out what it will be, tell the listing agent, and adjust the asking price for the home to allow extra for payment of that penalty.
The only other alternative is to wait out the penalty period plus 1 day before holding the closing for the sale.

Reply by jba/fl on 6/6/07 12:22pm
Msg #193897

Bor needs to read pp penalty paper as LO may be long gone. n/m

Reply by Terri_CA on 6/6/07 2:53pm
Msg #193918

Re: Bor needs to read pp penalty paper as LO may be long gone.

Or the lender may have sold the loan to another lender. The new lender WILL enforce any and all prepayment penalties as per the Note.

I've seen a few Notes where the PPP clause states that in the event of a "bonafide sale" then there is no PPP. But only if it's in writing in the note. It will also state that the PPP is due from X years/mos from the "date of the note" or "date the documents were signed/executed." But what I laugh about the last one, is that notes aren't usually dated by the signer!

I try to point out the PPP clause and give the borrower's a few minutes to read it.

Terri
Lancaster, CA

Reply by JanetK_CA on 6/7/07 12:14am
Msg #193982

Re: Bor needs to read pp penalty paper as LO may be long gone.

I'm with you on this one, Terri.

BTW, I had one this afternoon with a soft prepay that stated a sale had to be a "bona fide and arms length sale", meaning that all the parties had to be independent, unrelated by "familial or financial interests". I thought that was interesting. I guess the idea is to keep people from trying to circumvent the terms.