September 13, 2006
Re: General Obligations Law §5-501
Your letter, dated August 16, 2006, to Robert Mengani, Assistant Deputy Superintendent, New York State Banking Department, has been referred to me for response. In your letter you asked for confirmation as to whether the one-year limitation, prescribed by Section 5-501 of the General Obligations Law, during when a lender can assess a prepayment is only applicable to loans secured by owner-occupied real property.
This is confirmation that your conclusion is correct. By its express terms, the one-year limitation prescribed by §5-501, during when a lender can assess a prepayment penalty, only applies to loans secured by real property improved by one to six family residences occupied by the owner. Accordingly, the period during when a lender can assess a prepayment penalty on loans secured by other types of real property is determined by terms of the contract (note) between the borrower and the lender, and not by statute.
I trust the foregoing is responsive to your inquiry.
Very truly yours,
Harry C. Goberdhan