Lopresti v. Wells Fargo Bank, N.A. - 435 N.J. Super. 311, 88 A.3d 944 (Super. Ct. App. Div. 2014)

Rule:

The New Jersey Prepayment Law, N.J.S.A. §§ 46:10B-1 to 46:10B-11.1, applies to individual consumers, not commercial mortgagors, as the New Jersey Legislature clearly intended to protect individual mortgagors from being locked into long-term mortgages with excessive interest rates, but felt that more sophisticated commercial mortgagors needed no such protection. Indeed, the Superior Court of New Jersey, Appellate Division has upheld the use of prepayment fees negotiated on commercial loans between sophisticated parties. A borrower does not have the right, under New Jersey law, to prepay a commercial loan, unless the documents afford that right. Thus, since a lender has the right not to have the loan prepaid but rely on collecting the interest contracted for, the lender is entitled to charge a penalty to the borrower for the privilege of the prepayment. Prepayment clauses are designed to protect a lender against potential losses it may incur if a loan is paid earlier than contracted for. 

Facts:

The underlying action was instituted by plaintiffs Salvatore and Margaret Lopresti against defendant Wells Fargo Bank, N.A., successor to Wachovia Bank, N.A. and First Union National Bank (Wells Fargo), alleging the Bank wrongly collected a prepayment penalty on a commercial loan to their business, Body Max, Inc. (Body Max), which the Loprestis personally guaranteed and secured by a mortgage on their primary residence. On Wells Fargo’s motion for summary judgment, the trial judge dismissed Loprestis’ complaint, finding that the proscription against such a charge in the New Jersey Prepayment Law, N.J.S.A. 46:10B-1 to -11.1, does not apply to commercial transactions like the one involved here. The Loprestis appeal and argue, alternatively, that if the fee is allowed, it is excessive.

Issue:

Did the trial court err in dismissing the Loprestis’ complaint alleging that Wells Fargo violated both the New Jersey Prepayment Law?

Answer:

No

Conclusion:

The court upheld the dismissal of the Loprestis’ complaint alleging that Wells Fargo violated both the New Jersey Prepayment Law, N.J.S.A. §§ 46:10B-1 to 46:10B-11.1, and the New Jersey Consumer Fraud Act (Consumer Fraud Act), N.J.S.A. §§ 56:8-1 to 56:8-20, by assessing and collecting a prepayment charge as provided for in the promissory note executed in connection with the business loan because the Prepayment Law was held to apply to individual consumers, not commercial mortgagors. The court determined that having found no violation by Wells Fargo of the Prepayment Law, and therefore no unlawful conduct or unconscionable commercial practice, the Loprestis simply failed to establish a viable, valid claim under the Consumer Fraud Act as well and dismissal of the complaint was proper.