Late Fee – Look Out

Late Fee – Look Out

Most loan documents have a definition for “Late Fee” and the definition goes something like this: “any payment not paid when due is subject to a (5%) late fee”. Most servicers are interpreting that to mean that a late fee of 5% can be applied to the balloon payment due at maturity.

So, let’s say your loan is $20MM and your maturity date is 7/1. Let’s say you have a grace period of 5 days. You have a new loan lined up to pay your loan off but the funding will be 7/7 (due to weekends and the holiday).  Your payoff statement will most likely include a late fee of $1,000,000.00!

That is, UNLESS the late fee language in your loan documents had a few additional words in it: “any payment not paid when due expect the balloon payment is subject to a 5% late fee”.

The biggest take away here is to be sure you don’t do this twice!  Be sure any new loan documents you sign specifically exclude the balloon payment from being subject to a late fee.