Prepayment penalty

[boilrman]

What is the name of your state? Iowa

My wife and I are in our 3rd yr of an adjustable mortgage. When we signed things we had a prepayment penalty in the loan. At one yr into the loan we looked to refi and was told due to the prepayment penalty it was unfeasable cost wise. We looked into a refi again in just the last couple of months and was told that Iowa law does not allow prepayment penaltys. Is this correct? Is there anything I can do about it now that we are out of the prepayment penalty phase of our mortgage?

I did a little research on the Iowa Code and found section 535.9 entitled 535.9 Prepayment penalties on loans secured by real estate mortgages prohibited. just trying to make sure any money spent on an attorney would be worth the time and effort.

[seniorjudge]

Originally Posted by boilrman

What is the name of your state? Iowa

My wife and I are in our 3rd yr of an adjustable mortgage. When we signed things we had a prepayment penalty in the loan. At one yr into the loan we looked to refi and was told due to the prepayment penalty it was unfeasable cost wise. We looked into a refi again in just the last couple of months and was told that Iowa law does not allow prepayment penaltys. Is this correct? Is there anything I can do about it now that we are out of the prepayment penalty phase of our mortgage?

I did a little research on the Iowa Code and found section 535.9 entitled 535.9 Prepayment penalties on loans secured by real estate mortgages prohibited. just trying to make sure any money spent on an attorney would be worth the time and effort.

Did you show the lender this statute?

535.9 Prepayment penalties on loans secured by real estate mortgages prohibited.

1. As used in this section, "loan" means a loan of money which is wholly or in part to be used for the purpose of purchasing real property which is a single-family or a two-family dwelling occupied or to be occupied by the borrower, or for the purpose of purchasing agricultural land. "Loan" includes the refinancing of a contract of sale, and the refinancing of a prior loan, whether or not the borrower also was the borrower under the prior loan, and the assumption of a prior loan.

2. Whenever a borrower under a loan prepays part or all of the outstanding balance of the loan the lender shall not receive an amount in payment of interest which is greater than the amount determined by applying the rate of interest agreed upon by the lender and the borrower to the unpaid balance of the loan for a period of time during which the borrower had the use of the money loaned; and the lender shall not impose any penalty or other charge in addition to the amount of interest due as a result of the repayment of that loan at a date earlier than is required by the terms of the loan agreement. A lender may, however, require advance notice of not more than thirty days of a borrower's intent to repay the entire outstanding balance of a loan if the payment of that balance, together with any partial prepayments made previously by the borrower, will result in the repayment of the loan at a date earlier than is required by the terms of the loan agreement.

3. If any lender receives an amount of interest greater than permitted by subsection 2 of this section, or imposes any penalty or other charge prohibited by subsection 2 of this section, the borrower shall have the right to recover all amounts paid the lender which are in excess of the amounts permitted by subsection 2 of this section, plus attorney's fees and court costs incurred in any action necessary to effect such recovery.
Section History: Early form

[C79, S79, C81, § 535.9]

[url]http://www.legis.state.ia.us/IACODE/2003SUPPLEMENT/535/9.html[/url]

[HomeGuru]

Yes, let us know what the lender tells you. Until then, we'll be waiting.

[boilrman]

Originally Posted by seniorjudge

Did you show the lender this statute?

535.9 Prepayment penalties on loans secured by real estate mortgages prohibited.

1. As used in this section, "loan" means a loan of money which is wholly or in part to be used for the purpose of purchasing real property which is a single-family or a two-family dwelling occupied or to be occupied by the borrower, or for the purpose of purchasing agricultural land. "Loan" includes the refinancing of a contract of sale, and the refinancing of a prior loan, whether or not the borrower also was the borrower under the prior loan, and the assumption of a prior loan.

2. Whenever a borrower under a loan prepays part or all of the outstanding balance of the loan the lender shall not receive an amount in payment of interest which is greater than the amount determined by applying the rate of interest agreed upon by the lender and the borrower to the unpaid balance of the loan for a period of time during which the borrower had the use of the money loaned; and the lender shall not impose any penalty or other charge in addition to the amount of interest due as a result of the repayment of that loan at a date earlier than is required by the terms of the loan agreement. A lender may, however, require advance notice of not more than thirty days of a borrower's intent to repay the entire outstanding balance of a loan if the payment of that balance, together with any partial prepayments made previously by the borrower, will result in the repayment of the loan at a date earlier than is required by the terms of the loan agreement.

3. If any lender receives an amount of interest greater than permitted by subsection 2 of this section, or imposes any penalty or other charge prohibited by subsection 2 of this section, the borrower shall have the right to recover all amounts paid the lender which are in excess of the amounts permitted by subsection 2 of this section, plus attorney's fees and court costs incurred in any action necessary to effect such recovery.
Section History: Early form

[C79, S79, C81, § 535.9]

[url]http://www.legis.state.ia.us/IACODE/2003SUPPLEMENT/535/9.html[/url]

I havent actually shown this to them, but when I mentioned it on the phone to the lady I was speaking with she told me that that is the way banks make money, essentially blowing me off. I have a call in to another guy at the mortgage co and am awaiting his return call.

So am I and the others correct that it is against the law for a prepayment penalty in Iowa? Beings I didnt refi early and not pay a penalty, is there any recourse I could get by hiring a lawyer?

[rsimplicio]

Originally Posted by boilrman

I havent actually shown this to them, but when I mentioned it on the phone to the lady I was speaking with she told me that that is the way banks make money, essentially blowing me off. I have a call in to another guy at the mortgage co and am awaiting his return call.

So am I and the others correct that it is against the law for a prepayment penalty in Iowa? Beings I didnt refi early and not pay a penalty, is there any recourse I could get by hiring a lawyer?

I'm no lawyer, but it sounds like that particular part of your contract would be invalid. Most contracts I have seen have a clause that allows the rest of the contact, and all valid clauses, to survive even if there are invalid clauses in the contract.

What I'm trying to say is, no, I don't think you can get damages, etc. from their error in the contact/terms now that you are no longer subject to those terms. If you had wanted to pre-pay/refi during the period under which there would have been a penalty, you could have had to overturned in a court.

[boilrman]

I showed the above listed code to a real estate attorney and was told to "pick your battles" with the companies(mortgage was sold once) out of state, it would become lots of leg work and therefore lots of $$ for maybe minimal return.

Just a learning lesson to watch out for it in the future.