Question 1

How do Florida courts treat yield maintenance provisions?

Accepted Answer

FL courts: generally enforce yield maintenance provisions as: negotiated contractual terms between sophisticated parties. FL: treats commercial borrowers as sophisticated parties capable of: understanding and negotiating prepayment terms. Enforcement: the courts examine whether: the provision is: clear and unambiguous (the calculation method is clearly stated), agreed to by the borrower (the borrower signed the note and mortgage containing the provision), and not unconscionable (the provision is not so one-sided as to shock the conscience). FL: does not treat yield maintenance as a penalty (it is: compensation for the lender’s lost income, not punishment for the borrower’s prepayment).

Question 2

What disclosures are required for yield maintenance in Florida?

Accepted Answer

FL disclosures: commercial loans (FL does not have: specific disclosure requirements for yield maintenance in commercial loans; the terms are contained in: the promissory note and mortgage, which the borrower reviews and signs at closing), TILA (the federal Truth in Lending Act: applies to residential loans but generally does not apply to: commercial loans), and Dodd-Frank (the Dodd-Frank Act’s prepayment penalty restrictions: apply to qualified mortgages (residential) but do not apply to: commercial loans). The borrower: should have a FL attorney review: the prepayment provisions before closing to understand: the potential cost and implications of yield maintenance.

Question 3

What happens if a Florida borrower cannot pay yield maintenance?

Accepted Answer

Cannot pay: the borrower may: negotiate with the lender (some lenders will: reduce or waive yield maintenance to facilitate a sale or refinancing that benefits both parties), assume the loan (the buyer assumes the existing loan: no prepayment is needed; Section 697.05: FL recognizes loan assumptions if the lender consents), defer payment (the lender may agree to: add the yield maintenance penalty to the new loan or pay it from sale proceeds), or keep the loan (the borrower retains the property and continues making payments until the lockout period expires). Foreclosure: if the borrower defaults: the lender may waive yield maintenance to encourage a sale that avoids foreclosure costs.

Yield Maintenance Prepayment Penalty

FL Yield Maintenance Prepayment Penalty

FL Enforcement

Disclosures

Cannot Pay

Related Terms

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