Topic:
This article discusses the payment of a pre-payment penalty for mortgages associated with the acquisition of property by an Agency.
Discussion:
Fred and Barbara Meister own and occupy a three bedroom two bath home located within the boundaries of an existing acquisition area for a bridge replacement. They purchased the home two years ago thinking the discussions of constructing a new bridge would never materialize, but due to the securing of some federal funds the Agency can now proceed with the required acquisitions. Because of the location of the home and the terms of the financing, the Meister’s were able to make the purchase of the subject home.
The complete package consisting of the fair market value of $210,000 and the maximum price differential eligibility of $25,000 is acceptable to Fred and Barbara and they are excited about the opportunity of upgrading their current status. They have gladly executed the Agreement to Sell Real Property with the Agency and are anxious to close as they have found the “perfect” replacement home. As we are progressing through the process and the lender on the subject dwelling is contacted for the pay off amount of the mortgage on the acquired dwelling, the Meisters are informed there is a prepayment penalty on the mortgage.
The prepayment penalty is six months interest which is a significant amount of money and changes the whole position of the Meister’s decision to sell their property. They are not pleased with the situation and they claim they were unaware of the prepayment clause in the mortgage. The Airport Authority’s attorney has also contacted you and said they don’t feel this is a payment the Airport should be responsible for. What do we do in this situation and who is responsible for the prepayment penalty on the mortgage?
Fortunately we have direction in 49 CFR 24.106. The payment of the prepayment is the responsibility of the Agency and we would cite 24.106 (a)(2) This is the regulation; 24.106 Expenses incidental to transfer of title to the Agency. (a) The owner of the real property shall be reimbursed for all reasonable expenses the owner necessarily incurred for: (2)Penalty costs and other charges for prepayment of any preexisting recorded mortgage entered into in good faith encumbering the property. Providing this reference to the attorney for the Agency will give the legal basis for making the payment. The displacees should be reassured the prepayment penalty will be made by the Agency and the process for closing can continue.
Note: There are some requirements when making a prepayment penalty. The term reasonable is used and the mortgage has to be preexisting and recorded.
Source:
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Ted Pluta |
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