Legal Question in Real Estate Law in California

Re: Prepayment penalty

Your post is awkwardly worded, which may have caused some attorneys to skip answering this one.

It seems as though you want to avoid paying a prepayment penalty when you get a refinance.

California's Business and Professions Code sections 10240 to 10248.9 limit the collection of prepayment penalties within the first seven (7) years after execution of the deed of trust and are limited to six (6) months' advance interest on the amount prepaid. This limited protection only applies to classes of loans secured by a first deed of trust less than $30,000 and junior mortgages less than $20,000.00. (Bus. & Prof. Code sec. 10245.)

Civil Code section 2954.10 prohibits prepayment penalties that occur as a result of acceleration and the "due on sale" clause in a deed of trust. This does not apply to your refinancing situation.

The only other statute that I am aware of, that affects or limits prepayment penalties, is Civil Code section 2954.9 subd. (b), which limits collection of a prepayment charge within five (5) years of execution of the deed of trust. The limit during that period would be six months advance interest on the amount prepaid in excess of 20 percent of the original principal amount.

It does not appear that there is any legal limitation on the bank's ability to charge you a prepayment penalty, unless you are aware of some facts not set forth in your original post.

Very truly yours,