Also known as:prepayments · pre-pay · prepay · prepayment penalty · prepayment clause
Written by attorneys · grounded in primary & secondary sources — see below
A payment made on a debt or obligation prior to its scheduled due date. Full prepayment of a mortgage debt satisfies the underlying obligation by operation of law and entitles the mortgagor to a release or satisfaction of the mortgage together with reconveyance of title if the mortgagee held title. Prepayment rights and any associated premium are governed by the terms of the note and applicable state law.
Sources & Authorities
How it applies
Common Examples
3
Mortgage Prepayment Triggers Discharge
Preston Pratt borrowed from Prosperity Investments to buy commercial property and later sold a division of his business. He tendered the full outstanding principal five years early. Prosperity Investments refused to record a satisfaction because of an ambiguous yield-protection clause. Preston Pratt sued for an order compelling release of the mortgage. The tender satisfied the debt in full, so the mortgage was discharged and Prosperity Investments had a duty to record the satisfaction.
Junior Receiver Keeps Collected Rents
Premier Manufacturing held a junior mortgage on an office building owned by Platinum Partners. After default, Premier obtained a receiver who collected net rents after taxes and repairs. A senior mortgagee later obtained its own receiver. The junior receiver retained the collected rents for Premier Manufacturing because the senior receiver had not yet been appointed when the rents accrued.
Put it into practice
Test Yourself
8
Practice Questions3
· 10 primary sources
Select any source to read its text and confirm it supports the definition.
Statutes
Uniform Acts
Common Law
Restatements
Study Supplements
Unauthorized Rent Prepayments Must Be Accounted
A junior receiver appointed for an office building collected a large lump-sum prepayment from a new tenant under a below-market lease. After a senior receiver took over, the junior receiver had to turn over the portion of the prepayment covering periods after the senior appointment. The senior receiver could apply those funds to the senior obligation.
Common questions
Frequently Asked
3
Does tender of the full principal balance discharge a mortgage even if the note contains an ambiguous prepayment-premium clause?+
Yes. Full payment of the debt satisfies the obligation by operation of law and triggers the mortgagor's right to a recorded release. An ambiguous clause does not create an enforceable premium, so the lender must record the satisfaction once the stated principal is paid.
Supporting sources
What rights does a junior receiver have to rents collected before a senior receiver is appointed?+
The junior receiver may retain net rents after paying taxes and reasonable maintenance expenses and may apply the excess to the junior obligation. The junior receiver must account to the senior receiver for any unauthorized rent prepayments covering periods after the senior appointment.
Supporting sources
When is a mortgagor entitled to a release after prepaying the debt?+
A mortgagor is entitled to a release once the full debt is paid, including by prepayment. Recording the satisfaction clears title but is not a condition precedent to discharge. The lender's refusal to record does not keep an already satisfied mortgage alive.
Supporting sources
Business Associations RelationshipsFormation, management, and control of general partnerships · Formation, management, and control of general partnershipsNEXTGENIntermediate