Legal Question in Real Estate Law in California

My husband inherited a Note Secured by Deed of Trust from his mother wherein she sold a house in California directly to the buyer for a 20 years to pay mortgage and they signed the contract in which the buyer have to pay the monthly mortgage of $853.26 directly to the owner. When my mother in law died my husband inherited it. As the heir, through an attorney�s advice, he transferred the Note Secured by Deed of Trust into his name by signing the Assignment of Deed of Trust and file to the County Recorder's Office. Through legal advice, he later "grants, assigns and transfers" the said Assignment of Deed of Trust from his name into both our names when we executed our joint Family Living Trust. All are recorded in the County Recorders Office.

The buyer currently pays the mortgage to my husband and me.There is a mortgage book in which the buyer is the one writing the amount of the principal and interest being paid. Twice, the buyer paid big portion of the principal amount but not paying the interest. At first, he paid $9,146.74 together with the monthly mortgage of $853.26, a total of $10,000 in one check. He paid only the interest that goes with the 853.26. The second time, he paid $2,853.26 and again paid only the interest that goes with the 853.26 monthly mortgage. Then for the 3rd time, he sent a check of only $853.26 but wrote on a mortgage book that he paid $2,853.26 which we did NOT cash yet. In all of these, he just send the checks without notifying us if we agree or not on this type of payments. Those big payments were not done consecutively. After he paid the 10,000, he paid the regular monthly mortgage of 853.26 for the next 2 months, then he paid 2,853.26 the next month. We are not sure if what he is doing is legal or not. We feel that the buyer is cheating on us.

There is NO provision dealing with advance or larger than minimum due payments on their contract. Their contract, on the Note Secured by Deed of Trust with Assignment of Promissory Note from the buyer states: "It is mutually agreeable by both parties that the interest rate for the note secured by Deed of Trust is 7% per annum. The balance due on the note is $112.496.16. In installments as herewith stated, for the value received, I promise to pay the payee, or order at whatever designated by the payee, the sum of one hundred twelve thousand four hundred ninety six and 16/100 dollars ($112,496.16) with interest on unpaid principal in installments of eight hundred fifty three and 16/00 ($853.26) on the 15th day of each calendar month."

My question: Is it legal for the buyer to pay big amount of the principal without paying the interest on it and without notifying us first? PLEASE HELP US. My husband and I desperately need your help.


Asked on 11/11/11, 5:14 pm

2 Answers from Attorneys
George Shers Law Offices of Georges H. Shers

Since no one else wants to answer your modified question, I will again respond. thank you for the additional information. Unfortunately, the clause as to payments is unclear. The normal rule is to read it against the party who prepared it, whom I assume was your mother-in-law. It neither allows nor bans lump sum payments of principle; one would have to look at the intent of the parties as expressed else where in the mortgage or note. I assume that will not help as their is no additional language on the subject. So the more likely determination would be that a lump sum payment can be made and the buyer is acting legally.

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Answered on 11/11/11, 9:03 pm

I agree with Mr. Shers, though not his reasoning. There is a statutory right to pre-pay any debt. It is legal under certain circumstances to put a pre-payment penalty in a loan agreement or note, but it does not appear that you have any such clause in your documentation. Therefore the larger payments are perfectly legal. It sounds, however, like he is NOT legally accounting for the excess payments. Every payment should go first to all accumulated interest since the last payment, then to principal. You need to find an accountant and have them audit this "book" being kept by the buyer. Then have them give you your own book (or better yet a computer spreadsheet) to keep proper records of the account.

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Answered on 11/14/11, 11:37 am


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