what is the maximum penalty allowed by law in the state of Colorado
for pre-payment of a realestate loan.

Hi rockyj-ga,

The answer to your question lies in a couple of publications made
available by real estate authorities.


From a Goodwin-Proctor Infobyte article:

"Colorado Consumers Homeownership Equity Act Signed. On June 7, HB
1259 was signed by the Governor of Colorado. Covered loans are subject
to certain limitations such as (among other things) no “call”
provisions, negative amortization, or post-default interest increases.
Prepayment fees are limited (to 3 years) and also limited in
refinancing transactions with the same lender. A consumer cautionary
notice must be given when a covered loan is made. Fees cannot be
charged for payoff quotes. These provisions apply to loans made on or
after January 1, 2003. This law also makes it a prohibited practice
for mortgage originators to advertise loans through use of deceptive
practices, or to facilitate the making of an “unconscionable” mortgage
loan."

http://www.goodwinprocter.com/publications/IB_6_14_02.pdf

The bill being referred to in the above article states the following
information pertaining to your question:

PAGE 5-HOUSE BILL 02-1259
"(g) Limitations on prepayment fees. 
    (I) First thirty-six months only. 
A PREPAYMENT FEE OR PENALTY SHALL BE PERMITTED ONLY ON A
REFINANCE TO A DIFFERENT LENDER OTHER THAN PURSUANT TO A SALE AND
ONLY DURING THE FIRST THIRTY-SIX MONTHS AFTER THE DATE OF EXECUTION
OF A COVERED LOAN. PREPAYMENT FEES AND PENALTIES SHALL NOT EXCEED
SIX MONTHS’ INTEREST FOR PREPAYMENT WITHIN THE FIRST THREE YEARS OF
THE LOAN. THE PREPAYMENT FEES OR PENALTIES PERMITTED BY THIS
PARAGRAPH (g) SHALL APPLY ONLY TO COVERED LOANS THAT ARE SECURED
BY A FIRST MORTGAGE, DEED OF TRUST, OR SECURITY INTEREST TO
REFINANCE, BY AMENDMENT, PAYOFF, OR OTHERWISE, AN EXISTING LOAN
MADE TO FINANCE THE ACQUISITION OR CONSTRUCTION OF A DWELLING,
INCLUDING A REFINANCE LOAN PROVIDING ADDITIONAL SUMS OF MONEY FOR
ANY PURPOSE, REGARDLESS OF WHETHER RELATED TO ACQUISITION OR
CONSTRUCTION. NO PREPAYMENT FEES OR PENALTIES SHALL BE INCLUDED
IN THE LOAN DOCUMENTS OR CHARGED TO THE OBLIGOR FOR PREPAYMENT:
 (A) AFTER THE THIRD YEAR OF THE LOAN;
 (B) PURSUANT TO A REFINANCE WITH THE SAME LENDER; OR
 (C) THAT IS PARTIAL.
    (II) No prepayment fees for certain refinancing. 
NO PREPAYMENT FEE OR PENALTY MAY BE CHARGED ON A REFINANCING OF A
COVERED LOAN
IF THE COVERED LOAN BEING REFINANCED IS OWNED BY THE REFINANCING
LENDER AT THE TIME OF SUCH REFINANCING.
   (III) Lender must offer choice. 
A LENDER SHALL NOT INCLUDE A PREPAYMENT PENALTY FEE IN A COVERED LOAN
UNLESS THE LENDER OFFERS THE OBLIGOR THE OPTION OF CHOOSING A LOAN
PRODUCT WITHOUT A
PREPAYMENT PENALTY FEE. A LENDER SHALL BE DEEMED TO HAVE COMPLIED WITH
THIS REQUIREMENT IF THE OBLIGOR RECEIVES AND EXECUTES THE FOLLOWING
DISCLOSURE, WHICH MAY BE INCORPORATED WITH ANY OTHER REQUIRED
DISCLOSURE:
"LOAN PRODUCT CHOICE
I WAS PROVIDED WITH AN OFFER TO ACCEPT A PRODUCT BOTH WITH
AND WITHOUT A PREPAYMENT PENALTY PROVISION. I HAVE CHOSEN TO
ACCEPT THE PRODUCT ____ WITH / ____WITHOUT A PREPAYMENT PENALTY."

http://www.leg.state.co.us/2002a/inetcbill.nsf/fsbillcont/231FDB817D38FA0487256B41004CC235?Open&file=1259_enr.pdf

The following discusses limits on prepayment penalties of the US
states in general:

"Existing state laws generally deal with this potential
incompatibility by limiting the circumstances in which prepayment
penalties can be charged, or by limiting the amount of a permissible
penalty. In addition, some states require lenders to call their
customers’ attention to the existence of a prepayment penalty. In all,
36 states and the District of Columbia limit prepayment penalties.
Eight other states permit prepayment penalties only if they are
disclosed to the consumer. Only six states have no restrictions on
prepayment penalties in residential mortgage loans."

http://www.mbaa.org/industry/reports/01/goodwin_0720.pdf

While the above document provides general numbers, it unfortunately
does not go into further detail about Colorado. After spending a
significant amount of time searching for legislation that discusses
this further, no additional relevant results could be found. So from
the above information a preliminary conclusion can be made that while
prepayment penalties are allowed, they must be disclosed beforehand.
This would mean that Colorado is one of the 8 states referred to in
the article above. It seems that the maximum penalty must be stated in
the disclosure and the consumer would be liable if they accepted the
agreement.

There is also a couple of additional resources you could contact if
you have further questions:

Colorado Mortgage Lenders Association
303-830-3834

Colorado Mortgage Brokers Association 
303-758-9611

http://www.ago.state.co.us/CONSPROT/Mortgage.stm


If you have any problems understanding the information above please
post a clarification.

Good luck!

answerguru-ga

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Request for Answer Clarification by rockyj-ga on 25 Aug 2002 16:44 PDT

I'm not sure by reading your answer just what the law is in Colorado
at this time. I see what the law is that will go into effect in
2003,but I'm not clear on just what it is now. Is it possible for the
lender to charge anything they want or just what?

---

Clarification of Answer by answerguru-ga on 25 Aug 2002 18:05 PDT

Hi again rockyj-ga,

Yes, you are correct...prior to January 2003 there was no legislation
pertaining to prepayment penalties in Colorado so unfortunately there
is not a maximum nor was the lending association required to disclose
any information prior to January 2003.

answerguru-ga

although it was not the answer I was hoping for it was a very good job
in answering. I was unable to find out anything from the bank or
escrow companyn locally.