Illegal Prepayment Penalty!
Under Iowa code 535.9 prepayment penalties on owner occupied one and two family dwellings are illegal.
I am trying to purchase a property and the bank (Fairbanks) insists that their prepayment penalty is legal.
She sites the Garn-St Germain Depository Institutions Act of 1982 gives her the right to charge a prepayment penalty. I read 12 USC 3801-3806 but don't see such wording.
Anything I can do before I contact my attorney?
Thanks
See if it can be turned into a soft prepay which you don't have to pay if you seel, only if you refi.
There are weirdness that I don't understand on the precedence of State v. Fed law.
While Fed law ALWAYS takes precedence over state law, I don't recall any such wording in GStG Fed law...could be there, just don't recall.
Suggest you spend a few dollars and ask a local IA lawyer to check this out and maybe even negotiate with the bank for you...even if you have a legal fee of $1000-2500, if your profits are going to be substantial, that's a pretty small cost to you for some critical info.
myfrogger,
What does your contract say?
My contact with them stated that it expired after 2 years. At 26 months I was refinancing (just to get rid of Fairbanks) and they tried to collect the prepayment. I faxed them a copy of the contract and a letter and in a bout a day and a half, got it cleared up.
Robert
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The contract says there IS a prepayment penalty but under Iowa law this is illegal.
It is similar in that I could agree to pay you 38% interest on a loan but that would violate usury laws.
This sounds like a big legal battle. You have to prove that their contract is illegal, which I'm sure their lawyers wrote knowing the local state laws.
Good luck. I wish you well in this.
Robert
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