In a recently published decision, the New Jersey Appellate Division clarified that New Jersey’s Prepayment Law, N.J.S.A. 46:10B-1 to -11.1, which prohibits the imposition by a lender of a prepayment penalty in connection with the pay-off of a residential mortgage, does not apply to commercial transactions. In Lopresti v. Wells Fargo Bank, No. A-1356-12, 2014 N.J. Super. LEXIS 50 (App. Div. Apr. 8, 2014), the Appellate Division affirmed the ruling of the trial court, and determined that Wells Fargo did not violate the prepayment law by charging a commercial borrower, Body Max, Inc., a prepayment fee when it paid off its loan 10 years early. In so doing, the court held that the prepayment law does not apply to commercial transactions, even where individuals personally guarantee and secure their guarantee with residential property.
The facts reviewed by the court were as follows. On March 1, 2002, Body Max executed and delivered a promissory note in the amount of $550,000 to First Union National Bank (the predecessor to Wachovia Bank, which then became Wells Fargo Bank). The loan included an interest rate of 6.75 percent, was due and payable on March 1, 2007, and contained a 1 percent prepayment fee in the event of early payment. Salvatore Lopresti, the president of Body Max, executed the note, as well as a mortgage and an absolute assignment of leases on Body Max’s principal place of business in Washington Township. Lopresti also executed an unconditional guaranty to provide assurance that Body Max would fulfill its obligations under the note.
