The Basics

• A mortgage is a loan secured by real estate. As such, the lender may take possession of the real property in the event a borrower defaults. In California, the lender must first file a notice of default, initiating the foreclosure process. Late fees can accrue when a payment is received after the initial grace period. Penalties accumulate when the borrower misses more than one payment, but in California, the lender cannot charge more than once for the same missed payment.
  
  

Identification

• California real property loan statutes govern late charges and prepayment penalties. Prepayment penalties involve paying a fee for early repayment of a mortgage. The California statutes apply to owner-occupied, one- to four-unit, single-family dwellings and multi-family residences. The grace period must last at least 10 days from the due date for single-family primary residences. Lenders may assess no more than 6 percent of the installment due after the grace period on this property type. They may charge up to 10 percent on loans for all other property types.
  
  

Required Notice

• Lenders must provide borrowers with a statement notifying them of the late fee amount, prior to charging them. They must also notify them of the date after which such charge is assessed, i.e., the final day of the grace period. This notice must be in writing and sent at least 10 days before assessment of the late fee, or along with the bill. These rules are most often noted on the lender's payment coupon each month.
  
  

Considerations

• Any late charge imposed on a California mortgage must be no less than $5.00. Additional rules on late fees apply to first mortgages with balances of $30,000 or less and junior liens with balances of $20,000 or less. Lenders may not pyramid late charges, i.e., make the borrower pay more than one penalty for the same missed payment. An example of this is if a lender increases your interest rate after a certain period of default, and also charges a six-percent late fee for the month.