Legal Question in Real Estate Law in California

Payoff penalty?

Is a 20% early payoff penalty legal for a mortgage?


Asked on 5/30/06, 10:38 pm

1 Answer from Attorneys

Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Payoff penalty?

Probably. The applicable law seems to be Civil Code section 2954.9, which I suggest you seek out (on the Web or at a library) and read in its entirety. To summarize, however, 2954.9 allows (in subpart (a)) prepayment of a loan on one-to-four unit residential property, subject to any prepayment penalty the parties have agreed upon.

Then, subparts (b) and (c) restrict the right to charge prepayment fees. Essentially, a prepayment after five years must be penalty-free, and a prepayment of 20% or less per year is also penalty-free. To see where you fall under these statutory limitations, you should review the exact wording of CC 2954.9 in the light of your particular situation.

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Answered on 5/31/06, 12:20 am


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