State Restricts Prepayment Penalties
Regarding “Prepayment Penalty a Surprise,” by Jack Guttentag (Oct. 14): California law, Civil Code 2954.9 controls and limits prepayment penalties in California where the loan is for residential property of four units or fewer.
A borrower is entitled to prepay the whole or any part of the balance due at any time. Only if the loan is prepaid within the first five years can there be any penalty at all, and then the penalty cannot exceed six months’ interest on the amount prepaid in excess of 20% of the original loan balance.
A borrower can prepay up to 20% of the original balance in any 12-month period and is entitled to do so without any penalty.
Finally, a lender who on conveyance of title accelerates the maturity date of a loan cannot claim or collect any prepayment penalty.
THOMAS KEISER
Arcadia
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The letter writer is an attorney.
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