Illegal prepayment penalty/fee?? - Posted by IB (NJ)

Posted by dewCOq on December 12, 2000 at 22:17:40:

Don’t know about NJ but apprently in CO there can be a difference if it is a homequity line of credit there can be, if it’s a “straight” 2nd there can’t be. On first mortgages there can be depending on whether or not it is a “B” paper loan. I’ve seen those with prepayment penalties. Conforming conventinal 1st loans, I don’t think I’ve ever seen with a prepayment penalty. For what it’s worth.

Illegal prepayment penalty/fee?? - Posted by IB (NJ)

Posted by IB (NJ) on December 12, 2000 at 21:33:29:

This topic came up in a post last week concerning a mortgage I’m in the process of getting. Ben (NJ) stated that prepayment fees/penalties were illegal in the state of NJ. Clarification was requested by a number of members on this board but none was given (I don’t think). Anyway, I finally came across my Essentials of New Jersey Real Estate book (the same guide a realtor uses to study for their license) and came across this statement regarding prepayment fees in NJ:

“Under New Jersey Law an institutional lender may not impose a prepayment fee or penalty if a mortgage is fully paid off earlier than was originally planned”.

That’s all that was stated under the “Prepayment” section of my book. My question is, what exactly is the difference between an “institutional” lender and say one that lends in the secondary market? I’m getting a conventional loan through a “licensed mortgage banker” who stated that I may have to pay .5% to waive a prepayment penalty. Does this make sense. The lender is based out of Maryland and the loan is for a property in NJ.

A funny thing happened… - Posted by IB (NJ)

Posted by IB (NJ) on December 15, 2000 at 21:10:08:

on the way to the closing.

I asked the loan officer Wednesday about the legality of the prepayment penalty. He explained that although there’s a state law in NJ that prohibits it, there’s a federal law that overrides that (???). He calls me up the next day to tell me that he was able to get the fee waived AND the interest rate dropped.

Thanks guys.

Re: Illegal prepayment penalty/fee?? - Posted by Ben (NJ)

Posted by Ben (NJ) on December 13, 2000 at 09:55:27:

Actually, I posted the statutes right then and there.
They are probably not still on the screen but maybe you can get them through the archives.

Re: Illegal prepayment penalty/fee?? - Posted by Ron (MD)

Posted by Ron (MD) on December 13, 2000 at 06:24:28:

In Maryland, prepayment penalties are explicitly prohibited. However, mortgage loans are often made here with prepayment penalties.

The catch is that if the lending institution is chartered outside of Maryland, they don’t have to abide by the same restriction. So, if your mortgage broker is local, but the lender is not, they may be able to legally impose a prepayment penalty.

Ron Guy

Re: Illegal prepayment penalty/fee?? - Posted by Houserookie

Posted by Houserookie on December 12, 2000 at 22:25:10:

That’s funny…my lender was just telling me about this yesterday. In Minnesota, there is no longer a
pre-payment penalty. PERIOD.

This is actually great news for RE investors. I can now encourage people to work with me, with my financing, and they can refinance whenever they want.