When a lender issues a loan with a balloon payment, New York law requires certain disclosures to be given to the borrower. 3 NYCCR § 80.4 requires a balloon disclosure to be given in junior lien situations where the loan amount is not more than $250,000. 3 NYCCR § 82.6 requires the disclosure to be given for a loan with a balloon payment on a first lien with a loan amount that is not greater than $250,000. The disclosure requirement in § 82.6 applies to any loan other than fixed rate, equal payment, and self-amortizing loans (see 3 NYCCR 82.1(a)). The last situation under which this disclosure applies is for bridge loans, specifically when the loan amount is not greater than $250,000 and has a step rate feature (see § 80.11 and § 82.10).
In general, the language that is required to be disclosed is as follows:
THE TERM OF THE LOAN IS _____ YEARS. AS A RESULT, YOU WILL BE REQUIRED TO REPAY THE ENTIRE PRINCIPAL BALANCE AND ANY ACCRUED INTEREST THEN OWING _____ YEARS FROM THE DATE ON WHICH THE LOAN IS MADE.
THE LENDER HAS NO OBLIGATION TO REFINANCE THIS LOAN AT THE END OF ITS TERM. THEREFORE, YOU MAY BE REQUIRED TO REPAY THE LOAN OUT OF ASSETS YOU OWN OR YOU MAY HAVE TO FIND ANOTHER LENDER WILLING TO REFINANCE THE LOAN.
ASSUMING THIS LENDER OR ANOTHER LENDER REFINANCES THIS LOAN AT MATURITY, YOU WILL PROBABLY BE CHARGED INTEREST AT MARKET RATES PREVAILING AT THAT TIME AND SUCH RATES MAY BE HIGHER THAN THE INTEREST RATE PAID ON THIS LOAN. YOU MAY ALSO HAVE TO PAY SOME FOR ALL OF THE CLOSING COSTS NORMALLY ASSOCIATED WITH A NEW MORTGAGE LOAN.
The language varies depending on the features of each individual loan.
3 NYCCR § 80.4(c) requires an additional disclosure when the loan is a junior lien which states:
YOU SHOULD CHECK WITH YOUR LEGAL ADVISOR AND WITH OTHER MORTGAGE LIEN HOLDERS AS TO WHETHER ANY PRIOR LIENS CONTAIN ACCELERATION CLAUSES WHICH WOULD BE ACTIVATED BY A JUNIOR ENCUMBRANCE.
Docutech is updating the print configurations and document text of NY Balloon Payment Disclosure (Cx4168) to conform to the requirements of 3 NYCCR § 80.1 et seq and 3 NYCCR § 82.1 et seq.
These changes will be in effect on February 10, 2017. Please direct any questions or concerns to Client Support at 1.800.497.3584.
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