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24. What is the attorney likely to say?
There is no applicable statute.
One year later, the man received an unexpected cash gift of $1 million and wished to pay off the $495,000 principal balance still owed on the loan. Concerned that the bank might refuse prepayment, despite a rise in market interest rates in the year since the loan was made, or at least insist on the 5% prepayment fee, the man consulted an attorney concerning the enforceability of the above-quoted clause.
The mortgage provided as follows: «No prepayment may be made on this loan during the first two years after the date of this mortgage. Thereafter, prepayment may be made in any amount at any time but only if accompanied by a prepayment fee of 5% of the amount prepaid.»
A man borrowed $500,000 from a bank, securing the loan with a mortgage on a commercial building he owned.
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C is correct. Mortgage agreements may dictate prohibitions on prepayment and prepayment fees. Here, the mortgage agreement does not allow for prepayment during the first two years and a 5% prepayment fee. The prohibition and fee provisions are likely valid and enforceable.
A is incorrect. As explained above, prohibitions on prepayment and prepayment fees are generally enforceable.
B is incorrect. The note can dictate interest rates.
D is incorrect. As explained above, both the prepayment prohibition and the fee are enforceable.