I sold my building to someone 4 years ago. I gave him a 30 fixed mortgage at 7% interest with a 5% late fee and 5% interest on late payments. He now wants to refinance. But he was late on every payment during the 4 years. Sometimes 2, 3, up to 8 months late on his payments. I have no problems refinancing with him at 5.25%. But i wanted to know if i can charge him a higher late fee and a higher interest rate on the late payments? And what are the legal rates to charge based on his past history?
The "agreement" that you have is not a legal one.
Lending laws (even if he/she signed it) does not allow you to collect BOTH a late fee and then double-dip on the interest rate for real estate property.
The interest gets calculated into the outstanding balance…so by charging him an extra 5%..you are double dipping…lending laws do not permit such a practice and a 5% late fee can also be possibly illegal depending on what you are basing that 5% late fee on.
You can charge up to the state maximum on the rate, but you cannot attach a separate interest rate for the outstanding balance. All you can charge is the 7% of whatever the outstanding balance is and amortize accordingly.
You need to consult with an attorney…a licensed attorney MUST draft a note attached to real estate…it is NOT LEGAL if you do it yourself…this is what makes real estate law different from other types of property law.
If you write it yourself, it won’t be worth the paper it’s written on b/c that is practicing law without a license.
Again, you need to consult with an attorney to know the maximum rate you can charge in your state and to draw up the new contract.
You cannot change the current contract without his signature and the note must be publicly recorded.
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