Q: In 1999 my husband and I bought a house. We didn’t have any cash money for a down payment but we were able to finance 100 percent of the purchase price.
We financed the first 80 percent at 8.6 percent, and the final 20 percent at 12 percent. We were told by our loan officer that there would be a prepayment penalty for three years on the larger loan.
This March, I tried to refinance and found out that the prepayment penalty is actually for four years, and not three years, as we were led to believe. I immediately contacted my original loan officer who confirmed that the prepayment penalty is for three years and not four years.
However, when I went back and looked at the actual wording on the loan note, it states that there is a four-year prepayment penalty.
The note has been sold several times, and although our original loan officer asked the current loan service to dismiss the prepayment penalty, the company said no. The original mortgage company wrote a letter to the current holder of our note stating that an error had been made, but the company refuses to respond.
In the end, the original mortgage company offered to pay $1,000 of the $3,600 prepayment penalty. We were left to pay the remaining $2,600. Do you think that any legal action can be taken in regard to this situation?
A: When you go to a closing, the lender has you sign your name several dozen times. Each of these signatures is on a disclosure form. When you have a prepayment penalty attached to the loan, you must sign a disclosure statement that says you’ve read and understand the prepayment penalty.
Did you sign these disclosures? And if you did, did you read them first?
If you signed the disclosure statements without reading them, it’s a little bit hard to make a case that you were in some way defrauded, unless you do not read and understand English. I do believe you, and every other borrower, have some responsibility to make sure your loan documents say what you think they say.
However, if you can prove that you were misled, lied to, or coerced under false pretenses to get this loan, or if you can prove a mistake was made, then the mortgage company originally responsible for selling you this loan should have to fix this mistake. Clearly, they feel some culpability, as they’ve already contributed to the cost of the prepayment penalty. But if they were at fault, they should pick up the entire $3,600 cost.
Contact the agency or commission that regulates mortgage lenders in your state. Most states are very concerned about predatory lending, and it could be that you were a victim of this kind of undue pressure.
If you cannot get the state to look into this, contact either the Federal Trade Commission or a local real estate attorney, who may be able to guide you further.
But if the original documents state that your prepayment penalty was for 4 years, and you didn’t bother to read the documents you were signing, and you don’t have anything to prove that you were told it was originally a 3-year prepayment penalty, then the fault may in large part lie with you and you will have to eat the $2,600 cost.
Published: Feb 28, 2001