Surprised By That Pre-payment Penalty? Wonder How You Missed It? Ask The Agent or Broker Who Sold You On It!
Loan brokers or real estate agents who steer their clients into loans have a fiduciary duty to their clients, and this means that they are required by law to look after their client's best interests, even if that means the agent or broker might earn less on a loan or a deal to protect their client. Most consumers do not know about this duty, but instead just assume that the person or company they are dealing with is honest, and would not take advantage of them. One can wish it were always true, but unfortunately, history, and in particular recently history, has demonstrated that greed and self-interest are very powerful motivators, and frequently are in control of people who seem otherwise to have integrity, with the result being that trust is misplaced in them with seriously bad results. The daily paper is replete with examples of this type of financial misconduct.
An example that has cropped up lately is the problem of the so-called "pre-payment penalty" in a consumer home loan. A pre-payment penalty is a fee charged when a loan is paid off before a pre-determined number of years, such as 3-5 years from the date the loan was originated. Such a penalty might be as much as $25,000 to $50,000, or more.
For the uninformed, a pre-payment penalty is nothing more than a way for the selling agent or broker or the lender to make sure that no matter what, they will earn a profit from the loan. In other words, the pre-payment penalty is usually equal to the amount of fees or commissions charged on the loan (which are rarely, if ever, disclosed in full to the borrower).
Here is the rub: loans that stink for borrowers carry pre-payment penalties. Loans that are favorable to borrowers do not. The simple reason is, that borrowers keep good loans and they try to get out of bad ones. Go figure. The net result is that if you got screwed when you took out your loan, you will probably get screwed if you try to get out of it.
Fortunately, under California law, if the broker or loan officer has failed to adequately discuss the pre-payment penalty with the borrower, so as to make sure that the borrower is exercising informed consent, the broker or the loan officer may be liable for the harm caused by the bad loan or pre-payment penalty. Those of us who are luckly enough to live in California should be proud that our State is making a sincere effort to look after its citizens. The upshot is that all is not lost for borrowers who took out bad loans with pre-payment penalties. A borrower who has been shafted by a loan officer or agent on a bad loan may have valuable legal rights based upon a breach of fiduciary duty by the officer or agent.
Please feel free to give us a call at (858) 259-7790 or contact us online.
An example that has cropped up lately is the problem of the so-called "pre-payment penalty" in a consumer home loan. A pre-payment penalty is a fee charged when a loan is paid off before a pre-determined number of years, such as 3-5 years from the date the loan was originated. Such a penalty might be as much as $25,000 to $50,000, or more.
For the uninformed, a pre-payment penalty is nothing more than a way for the selling agent or broker or the lender to make sure that no matter what, they will earn a profit from the loan. In other words, the pre-payment penalty is usually equal to the amount of fees or commissions charged on the loan (which are rarely, if ever, disclosed in full to the borrower).
Here is the rub: loans that stink for borrowers carry pre-payment penalties. Loans that are favorable to borrowers do not. The simple reason is, that borrowers keep good loans and they try to get out of bad ones. Go figure. The net result is that if you got screwed when you took out your loan, you will probably get screwed if you try to get out of it.
Fortunately, under California law, if the broker or loan officer has failed to adequately discuss the pre-payment penalty with the borrower, so as to make sure that the borrower is exercising informed consent, the broker or the loan officer may be liable for the harm caused by the bad loan or pre-payment penalty. Those of us who are luckly enough to live in California should be proud that our State is making a sincere effort to look after its citizens. The upshot is that all is not lost for borrowers who took out bad loans with pre-payment penalties. A borrower who has been shafted by a loan officer or agent on a bad loan may have valuable legal rights based upon a breach of fiduciary duty by the officer or agent.
Please feel free to give us a call at (858) 259-7790 or contact us online.
