What's happening
This bill prohibits prepayment penalties on loans secured by co-ops where over 50% of units are shareholder-occupied.
Why it matters
Protects co-op owners from extra financial burdens. By banning prepayment penalties on loans for co-ops where most units are owner-occupied, the bill shields residents from costly fees if they want to pay off or refinance their mortgage early.
Promotes housing stability and affordability. Removing these penalties may make it easier for shareholders to move, refinance for better rates, or sell their units, which could help keep co-op living accessible and financially flexible.
Targets communities with high owner-occupancy. The rule specifically applies to co-ops with over 50% shareholder occupancy, focusing the protections on buildings more likely to be stable, resident-driven communities rather than investor-heavy properties.
Levels the playing field with other forms of homeownership. Co-op shareholders often face different (sometimes harsher) lending terms than traditional homeowners; this change reduces that disparity, aligning co-op owners’ rights more closely with those of condo or single-family homeowners.
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Who cares
Headline styles
Ban Mortgage Prepayment Penalties
Plain English, a few words. Used as the page title.
Sponsors
No co-sponsors yet.
History
- Referred to judiciary
- Referred to judiciary
Companion bill
The same bill in the other chamber. A bill becomes law when one version passes both houses and the governor signs it, so either number can carry it.
End Co-op Mortgage Penalties
In Senate Committee · Rules · Sponsor Jeffrey Dinowitz
Full text
1 pageUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
3347
2019-2020 Regular Sessions
IN SENATE
February 5, 2019
Introduced by Sen. HOYLMAN -- read twice and ordered printed, and when printed to be committed to the Committee on Judiciary
AN ACT to amend the general obligations law, in relation to pre-payment penalties for mortgages secured by real property owned in a cooperative form of ownership
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. Paragraph b of subdivision 3 of section 5-501 of the general obligations law, as amended by chapter 472 of the laws of 2008, is amended to read as follows:
b. notwithstanding any other provision of law, the unpaid balance of the loan or forbearance may be prepaid, in whole or in part, at any time. If prepayment is made on or after one year from the date the loan or forbearance is made, no penalty may be imposed. If prepayment is made prior to such time, no penalty may be imposed unless provision therefor is expressly made in the loan contract, provided that no penalty may be imposed if prohibited by sections six-l and six-m of the banking law. No prepayment penalty or fee shall be charged or collected on a loan or forbearance secured by real property owned in a cooperative form of ownership where over fifty percent of the units are shareholder occupied. Such prepayment penalty shall be unenforceable. In all cases, the right of prepayment shall be stated in the instrument evidencing the loan or forbearance, provided, however, that the provisions of this subdivision shall not apply to the extent such provisions are inconsistent with any federal law or regulation.
§ 2. This act shall take effect immediately.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD01343-01-9
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
Title of bill
An act to amend the general obligations law, in relation to pre-payment penalties for mortgages secured by real property owned in a cooperative form of ownership
Purpose
This bill will forbid prepayment penalties and fees from being charged or collected on a loan or forbearance secured by real property owned in a cooperative form ownership where over fifty percent of the units are shareholder occupied and will make such prepayment penalties unenforcea- ble.
Summary of specific provisions
Section 1 amends paragraph b of subdivision 3 of section 5-501 of the general obligations law, as amended by chapter 472 of the laws of 2008.
Justification
The Consumer Financial Protection Bureau has rules restricting the abil- ity to impose prepayment penalties on most new mortgages for individuals and not commercial properties. The CFPB has limited prepayment penalties to fixed-mortgages that are considered to be "qualified mortgages". This rule applies to single family units, including those that are part of co-ops; therefore if an individual owns a single unit in a 200-unit building, the protections would apply. However these protections exclude the 200-unit building as a whole, due to it being considered a commer- cial property.
Currently in New York State, there are provisions that limit the ability of a lender to impose a prepayment penalty on loans with an interest rate that exceeds six percent per annum and which are secured primarily by a one-to-six family owner-occupied residence or certificates of stock or other evidence of owner in a corporation or other entity formed for the purpose of cooperative ownership of real estate. A lender may not impose a prepayment penalty on such loans on or after one year from the date the loan was made and, in the case of loans that are not fixed rate the interest rate must remain fixed for a period of at least five years for a prepayment penalty to be legally permissible. In all cases, the mortgage note must expressly provide for a prepayment penalty.
Prepayment penalties and fees can trap families and leave them in situ- ations with the only option being foreclosure. With similar legislation passed in Colorado, this elimination of prepayment penalties would be a step in the right direction for lowering the increasing number of fore- closures.
Legislative history
New bill
Fiscal implications
None
Effective date
This act shall take effect immediately.
Summaries, headlines and scores are AI-generated from the official bill text. How we score bills. Source: NYS Open Legislation.