22 Gifford Associates v. Citicorp Mortgage, Inc.

A-5381-96T3 (N.J. Super. App. Div. 1998) (Unpublished)
  • Opinion Date: April 28, 1998

MORTGAGES; ACCELERATION; PREPAYMENT FEE—If a mortgage does not expressly provide for a prepayment fee upon acceleration, no such fee is chargeable even in the face of general language providing for the fee “whether or not the prepayment is voluntary or involuntary.”

A mortgagor sold its property despite the express disapproval of the bank holding the mortgage. The bank considered the mortgage in default and demanded payment in full along with a prepayment fee of almost $71,000. The Chancery Court entered summary judgment against the bank, holding that it was not entitled to the prepayment fee. The general rule is that prepayment fees are enforceable if the prepayment is voluntary, but unenforceable if the prepayment is involuntary. The mortgage language stated that the prepayment fee was payable “whether or not the prepayment is voluntary or involuntary.” The Court stated that this language was not dispositive. It then cited cases and commentaries for the proposition that when a mortgagee accelerates the due date of a mortgage, it is no longer accurate to speak of a prepayment because the mortgagee has advanced the date on which payment is due. In other words, it is no longer a prepayment because the mortgage has fully matured, making it a payment after maturity. The Appellate Division in this case agreed that requiring the prepayment fee in this case would be inequitable because the mortgagee has received payment in full of the amount due under the mortgage and received it in advance “as a result of its own action in accelerating the payment date.” If the bank wished for such a “prepayment” fee under these exact circumstances, it should have included such language in the mortgage.