Do you think this wording on a real estate financing agreement is binding?

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We were just going over the papers before signing our loan agreement for the purchase of a newly built home. The lender is affiliated with the builder, though they’re separate companies (Shea Homes and Shea Mortgage). We will receive a $ 5,000 incentive if we finance through this lender.

One paper they require us to sign says the following:

“I have applied for a mortgage loan with Shea Mortgage. I acknowledge that I have no intention of refinancing or paying off this loan within 180 days of closing.”

We were told that this is because the loan will be sold ASAP, and the investors require that the loan will not be paid off within that time, in order to get at least a minimum amount of interest. But here’s the question:

Since it says that “I have NO INTENTION” of refinancing or paying it off in that timeframe, and not “I AGREE THAT I WILL NOT…”

Does that mean that it is not binding? I mean, we may have no such intention when we sign the paper, but may change our mind if our circumstances change within that time (for example, if our current house sells). Would they have legal recourse against us if we do pay it off before their 6 month requirement?

Thanks for your advice!
(I realize it is not binding, just a suggestion on your part)

  1. Reply
    May 16, 2011 at 4:36 am

    A couple things, is there a prepayment penalty in the contract? If so then they could enforce the terms of that penalty.

    I am not a lawyer, just think that the intentions here are to protect their ability to sell the mortgage and no recourse is available other than a prepayment penalty. They obviously do not want to be in the business of servicing mortgages although they provide the initial financing.

    They are trying to avoid having the house flipped and attract investors.

    I also would make sure they aren’t doing an FHA mortgage or that the type being granted doesn’t prohibit incentives. I had many difficulties with financing a lease/option because incentives are prohibited for some mortgages for various reasons, and part of our terms were recognized as an incentive.

    I did end up financing a different house and received assistance towards closing costs as well as an appliance allowance. The wording was crucial and it was the term incentive that set up red flags.

  2. Reply
    May 16, 2011 at 4:46 am

    IANAL. But we knew that.

    That said, intention does play a part when it comes to the Law. Now, the subject of this doesn’t apply directly, but it does show how intent makes a difference (at least in Wisconson)
    “An intent under the law merely means that the person intended to do that act which then resulted in the commission of a crime. For example, a drunk driver might not intend to cause a death or even an accident, but if he or she got behind the wheel of a car and drove it, then the intent to drive (which then resulted in a death) is the intent element of the crime of vehicular homicide.

    Intent is one of the elements of a murder charge that the state (or federal) government must prove beyond a reasonable doubt in order to convict a person. Intent is an element of the crimes of Felony Murder, Intentional Homicide, Reckless Homicide, and Vehicular Homicide. The mere fact that the defendant did not intend to cause a death does not remove criminal liability. ”

    Now, your question here could be used to prove intent, in that you Intended to pay off your loan within 180 days of closing to keep it from being sold off.

    You are correct in that the wording is vague… however, you should definitely consult a local contract attorney in your area to make sure that the contract still doesn’t prevent you from paying off the loan early. Intent can make a difference, and proving intent can make a difference.

    end of line

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