interpreting a prepayment clause.

I recently refinanced 4 commercial mortgages for 4 million and 1 mtge was paid 1 and a half years early. The first bank's prepayment clause called for 1% per year or any part thereof, and I paid 2% with no disagreement. The other 3 mtges were with a different bank and the prepayment language was 1% per year penalty, with no provision for a partial year. and I paid them 2% in penalties, even though the mortgages only had 1 and a half years to go. I believe the 2nd bank had no authority to charge me for the partial year on each mortgage, and I was overcharged $29,000. What do you think? Tx, Dave at

1 Answer

Probably need to have a real estate attorney examine the exact verbage of the contracts, Dave. It wouldn't surprise me in the least if the fact you had over 1 year left on 2nd bank's loans could be interpreted as you owing prepays on 2 years. The intent of prepayment penalties, especially on commercial loans, is to guarantee the lender receives a minimum amount of interest/income for doing the loan, and if you paid off with, say 23 months remaining on the prepayment penalty, the lender is getting far less interest than if you pay off at 12 months. Hope that makes sense, but for $29K (potentially), I'd spend a couple of hundred (or whatever) for a quick opinion from a local real estate attorney....