Mortgage company is trying to rip me off

[signal15]

I posted this to the real estate section, but it's probably better suited to this forum:

I have an ARM loan on my house. I'm trying to refinance it, and my mortgage company is trying to charge me 6 months of interest as a prepayment penalty, which amounts to almost $7000. I live in Minnesota, and MN statutes (47.20 subsection 5, http://www.revisor.leg.state.mn.us/stats/47/20.html) state that the maximum they can charge me is 2 month interest or 2% of the unpaid principle, whichever is less.

The mortgage company claims that since it's an ARM loan, it's covered by the Federal Alternative Mortgage Parity Act of 1982, and they can charge me 6 months, but my state laws say otherwise.

I've done some searching around, and it appears to be a very sketchy argument on both sides. Does anyone have any insight into this? Should I just pay the penalty and then sue them in my state's small claims court for 4 months of interest that I shouldn't have had to pay? Should I hire a lawyer to do something terrible to them?

 

[Sherryb54]

I am having the same problem with my mortgage company in Colorado. Have you been able to find any information substantiating their claim regarding the prepay penalty? It certainly sounds like a rip off to me also!

 

[signal15]

I am having the same problem with my mortgage company in Colorado. Have you been able to find any information substantiating their claim regarding the prepay penalty? It certainly sounds like a rip off to me also!

I haven't found anything yet. I'm just going to pay it, and then sue them in small claims court. I can sue for up to $5000, and the 4 month difference is slightly less than that. I'm locked at a low rate, and I need to close soon so I don't lose my lock.

There are 3 possible outcomes to the small claims court idea:

1. They don't show up and I win by default. After lots of bureaucratic corporate BS, by the time they figure out what has happened, the court date could have come and gone.

2. They show, and I still win.

3. They show and they win. In which case, I've still annoyed them and cost them money to send someone to show up, which provides me with some satisfaction.