Maryland Legal Alert for Financial Services

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Maryland Legal Alert Special Edition - Court Decides Closing Costs Recapture Case

MARYLAND LEGAL ALERT keeps you updated on Maryland legal developments affecting financial service providers. If you would like more information about the items in this issue, please click on the specified links or contact any member of the Financial Services Practice Group.

Maryland's highest court issued its long awaited opinion in Bednar v. Provident Bank of Maryland on December 13, holding that the Bank's recapture of closing costs only if the loan is paid off within 3 years is a prohibited prepayment charge under Subtitle 10 of Title 12 of the Maryland Commercial Law Article. Under the Court's ruling, collection of any charge (even if otherwise authorized) that is conditioned on prepayment is a “prepayment charge” and is prohibited under Subtitle 10. The lower court's decision in favor of the Bank was reversed and the case sent back to the lower court for further proceedings.

Because Subtitle 10 governs closed-end loans only, Bednar does not directly affect revolving home equity lines that are governed by Subtitle 9 of Title 12 of the Maryland Commercial Law Article. Unlike Subtitle 10, Subtitle 9 does not prohibit prepayment charges.

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