Q: I was at the closing table for my condo purchase only to discover that there was a penalty for early payoff. I called the bank immediately and they told me to “take it or leave it.”
A great idea came immediately in my mind, and I went through with the closing. Soon, I received the money I expected and wanted to pay off the mortgage. The bank explained to me that a percentage of the payoff amount is calculated as a penalty. I sent them a payment for $5 less than the payoff amount.
After I made sure that my payment went through, I requested the payoff amount and the penalty. The penalty was of course calculated on the remaining amount of $5 and even if the penalty were 100 percent on the balance, it would not be more than $5.
Maybe your readers will benefit from this story. I want to believe that banks still charge a percentage on the payoff amount and not a fixed fee.
A: You have raised an important issue, namely dealing with any prepayment penalty that a lender imposes. Not every mortgage loan contains a prepayment penalty. You can find out if your loan has a penalty by reading the promissory note that you signed when you first obtained the loan. A typical language is: “I may make a full prepayment or partial prepayments without paying any prepayment charge.”
But some lenders will charge you for paying off the entire mortgage. In this reader’s case, his note said that he could make a partial prepayment without penalty but would be charged X percent to pay off the entire balance.
So, he creatively paid all but $5 — a partial prepayment — and then had to pay the penalty on the remaining $5.
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That works for me, so long as that’s permitted in your legal documents.
Probate advice: A recent column on a sole heir and probate matters prompted a couple of Chicago-area readers to share advice specific to Illinois. Benny L. Kass, a practicing attorney, offers real estate advice that is general in nature because state laws, customs and procedures differ.
Jan, an Illinois real estate attorney in practice for more than 25 years, wrote: The heir can sell his mother’s house with an affidavit of heirship. Illinois title companies will require a bond in lieu of probate of 2 percent of the sales price (if the house is sold within one year of the owner’s death) or 1 percent (if the house is sold between one to two years after the owner’s death). If the house is sold any time after two years from the owner’s death, the affidavit of heirship is all that is needed and there is no bond. Expensive and time-consuming probate is not necessary.
Richard, of Aurora, pointed out that the Illinois Real Estate Lawyers Association’s website, irela.org, includes a Lawyer Locator feature for finding a real estate lawyer in the state.