Opinion ID: 1354688
Heading Depth: 2
Heading Rank: 2

Heading: Complete Prohibition Against Prepayment as a Penalty

Text: Having determined that the RHLA applies to the contract in question, we next consider whether the complete prohibition against prepayment is a penalty forbidden by the Act. Section 56-8-30 provides that [n]o provision in a home loan, the evidence of indebtedness of a home loan, a real estate contract or an obligation secured by a real estate mortgage requiring a penalty or premium for prepayment of the balance of the indebtedness is enforceable. Plaintiffs argue that a complete prohibition against prepayment is as much a penalty as requiring a surcharge when prepayment occurs. Defendants assert that the RHLA does not apply and that under common law principles, a purchaser has no right to prepay, absent a contract provision allowing him to do so. Thus, defendants reason, prohibiting that which one has no right to do cannot amount to a penalty. We observe that since the RHLA applies, it confers upon plaintiffs the statutory right to prepay the balance of the contract and we need not resort to common law doctrines, as defendants advocate. It is self-evident that a complete prohibition against prepayment is a penalty of the most extreme kind and, thus, is forbidden by the Act. We note that the trial judge had no difficulty in concluding that if the RHLA applied to the contract in dispute, the complete prohibition against prepayment contained in the contract would constitute an unlawful penalty. The prohibition against prepayment is unenforceable under the terms of the RHLA.