Issue link: http://dsnews.uberflip.com/i/1401310
72 If you service loans with balloon payments, you have almost assuredly faced a situation where the loan has matured, but the borrower fails to remit the full payment amount owed. Instead, you receive a partial payment and are left with two options—reject or accept the payment. Many times, the servicer, generally at the direction of the lender, accepts the partial payment. But, by accepting, have you also inadvertently agreed to extend the loan terms? Moreover, if you accept do you also need to send a new notice of payment pursuant to Civil Code section 2924i? e answer is found in the interplay between California Civil Code section 2924i and any non-waiver clause contained in the loan documents. HOW DOES CIVIL CODE SECTION 2924I APPLY TO BALLOON LOANS? A balloon loan is a loan that does not fully amortized over the course of the loan term. at means any payments made by the borrower will not pay the loan off in full, which results in a large final payment at maturity. With respect to residential loans, the legislature decided that borrowers needed to be reminded of the final payment to ensure awareness of what was coming due and adequate time to prepare. us, Civil Code section 2924i, which requires the servicer send a notice of final balloon payment to the borrower, was enacted. In short, the statute applies to balloon loans which are for a period of longer than one year, secured by a deed of trust on real property containing one to four residential units, of which at least one is occupied by the borrower. Civil Code section 2924i(a). e statute requires the lender provide a notice of final payment to the borrower at least 90 days, but no more than 150, before the final payment is due. Civil Code section 2924i(c). is notice must identify the date the final balloon payment is due, the payment amount, where the payment should be sent, and whether the borrower has a contractual right to refinance. Civil Code section 2924i(c). Failure to send the notice timely does not invalidate the loan but will extend the loan terms via operation of law to a date at least 90 days after the notice date, thus delaying collection on the loan. Civil Code section 2924i(e), (f ). Moreover, a willful violation of the statute can result in an award of actual damages and attorney's fees. Civil Code section 2924i(f ). As relevant to our question above, this section also states that "[i]f the due date of the final payment of a loan subject to this section is extended prior to the time notice is otherwise required under this subdivision, this notice requirement shall apply only to the due date Feature By: Sarah E. Greenberg Davis and T. Robert Finlay DEFLATING A BALLOON PARTIAL PAYMENT CONUNDRUM Knowing how to handle partial payments after loan maturity is critical.