A California Court of Appeals recently opined on what appear to be fairly normal yield maintenance provisions. The Borrower defaulted. The bank accelerated the note and later foreclosed. The note provided that the prepayment fee was due whenever the “debt was paid.” By contrast, the deed of trust said that the prepayment fee was due when the loan was accelerated. The loan documents provided that the language of the note would prevail.
While the language of the note, deed of trust and related guaranty were all similar, the court held that the prepayment fee accrued when the bank foreclosed on the property at which point payment was made and that the bank was not owed from the date upon which the loan was accelerated.
Lesson learned – precision is required of the lender and ambiguity favors the borrower and guarantor.
Next: Recent Guaranty Developments