Prepayment Penalties - How to Avoid - Views?

[Andrew W.]

I have 8 separate 5 yr fixed rate mortgages (and P.notes) that the same bank (in Wisconsin) has made to two of my LLC's and secured each loan on a separate property. I personally g/tee these loans.

Rates have moved down significantly and I recently had all properties appraised showing significant increases in value.  I am looking at a major cash out refi at lower rates with another local institution.

On each of my notes it says - PREPAYMENT PENALTY - Upon prepayment of this note Lender is entitled to the following prepayment penalty: 2% prepayment penalty if refinanced at another financial institution.   Except for the forgoing Borrower may pay all or a portion of the amount earlier than it is due.

I have cash (due to sale of a property one of the LLC's owned free and clear) that is sufficient to pay down 3 of these mortgages. I also have a large HELOC line available on my personal residence.

Despite their language (above) the bank involved is (at least in my preliminary discussions) pitching a fit and indicating that if I use the HELOC to bring additional funds to the transaction or do 3 mortgages (pay down with my cash and then refi to get funds to do the next 3 and then the final 2) that it deems either strategy as equivalent to directly (and in the first instance) refinancing with another financial institution and will not release my collateral unless I pay their penalty.

I am prepared to call this a mistake on their part and am seeking legal advice, but I am interested if anyone else has been through a similar episode.

I don't get how they think I should be stopped from mortgaging my personal residence and then bring those funds as equity into the LLC's (the actual borrowers) to pay them (the bank) off. At this point they are accusing me of being in breach of the "good faith" intention of the above clause on prepayment.

Anyone?

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[Matthew Crivelli]

If you signed a personal guarantee agreeing to the pre payment penalty I don't know if you have much recourse here.