by Phoenix attorney Christopher A. Combs, partner with Combs Law Group, P.C.

Question:

We want to sell our small office building in Tempe to an all-cash buyer. The loan on the office building is assumable, but contains a prepaymnet prohibition that provides that no portion of the loan may be paid off in the first five years. The lender says that because the loan has been in place for only one year, the prepayment prohibition will be enforced.

Due to the lender insisting on enforcing this prepayment prohibition, we will lose our sale. Can the lender enforce this prepayment prohibition?

Answer:

The prepayment prohibition probably is not an illegal restraint on the sale of property because it does not actually prohibit the sale or transfer of the office building.

Therefore, unless you find a buyer who is willing to assume the loan during the first five years of the loan term, you will not be able to sell your office building.

The above is for informational purposes only and is not intended as definitive legal or tax advice. You should not act upon this information without seeking independent legal counsel. If you desire legal, tax or other professional advice, please contact your attorney, tax advisor or other professional consultant. Reprinted with permission. Copyright 2007, all rights reserved.

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