Mortgage lendingOhio CSPA

Owner Finance: Prepayment Penalties Under $75,000 Illegal

Investors selling property with owner finance should be aware that they’re subject to Ohio’s Consumer Sales Practices Act. This law specifically covers individuals or entities that issue residential mortgages or loans to consumers, and would squarely include investors selling property subject to a private mortgage for the purpose of owner finance.

Prepayment penalties are controlled by Ohio statute. The rules are as follows:

1. No prepayment penalty after five years from the date of the mortgage. (Ohio Rev. Code 1343.011(C)(1))

2. No prepayment penalty if the mortgage is less than $75,000, and the lender isn’t a bank, and the mortgage is a first lien. (Ohio Rev. Code 1343.011(C)(2)(a))

The Ohio Consumer Sales Practices Act lists “[a]ttempting to enforce, by means not limited to a court action, a prepayment penalty in violation of division (C)(2) of section 1343.011 of the Revised Code…” as a violation of the CSPA.

If you violate the CSPA, you may be liable for triple damages plus attorney’s fees, which is not a situation you want to find yourself in.

If you would like your contract reviewed for compliance with the CSPA and other Ohio laws, contact Carson Law Firm LLC immediately.