§ 5-3.5-102 — Protection of obligors

Colorado § 5-3.5-102

• Jurisdiction: Colorado
• Title 05: Consumer
• Art.: Consumer Equity Protection

Text

(1) A covered loan is subject to the
following limitations:

(a) Limitation on balloon payment. No covered loan may contain a provision
for a scheduled payment that is more than twice as large as the average of earlier
regularly scheduled payments, unless such balloon payment becomes due and
payable not less than one hundred twenty months after the date of execution of the
loan. This prohibition does not apply when the payment schedule is adjusted to
account for the seasonal or irregular income of the obligor or if the purpose of the
loan is a bridge loan connected with, or related to, the acquisition or construction of
a dwelling intended to become the obligor's principal dwelling.

(b) No call provision. No covered loan may contain a call provision that
permits the lender, in its sole discretion, to accelerate the indebtedness. This
prohibition shall not apply when:

(I) Acceleration of repayment of the loan is justified:

(A) By default in which the obligor fails to meet the repayment terms of the
agreement for any outstanding balance; or

(B) Pursuant to a due-on-sale provision;

(II) There is fraud or material misrepresentation by an obligor in connection
with the loan;

(III) There is a provision permitting acceleration if the lender, in good faith,
believes itself to be materially insecure or believes that the prospect of future
payment has become materially impaired; or

(IV) There is any action or inaction by the obligor that adversely affects the
lender's security for the loan or any rights of the lender in such security.

(c) No negative amortization. No covered loan may contract for a payment
schedule with regular periodic payments that cause the principal balance to
increase; except that this paragraph (c) shall not prohibit negative amortization as a
consequence of a temporary forbearance or restructure sought by the obligor.

(d) No increased interest rate upon default. No covered loan may contract
for any increase in the interest rate as a result of a default; except that this
paragraph (d) shall not apply to periodic interest rate changes in a variable rate
loan that is otherwise consistent with the provisions of the loan agreement if the
change in the interest rate is not occasioned by the event of default or a
permissible acceleration of the indebtedness.

(e) Limitations on mandatory arbitration clauses. No covered loan may be
subject to a mandatory arbitration clause that:

(I) Does not comply with rules set forth by a nationally recognized arbitration
organization such as the American arbitration association;

(II) Does not require the arbitration proceeding to be conducted:

(A) Within the federal judicial district in which the subject property is
located;

(B) In the city nearest the obligor's residence where a federal district court is
located; or

(C) At such other location as may be mutually agreed upon by the parties;

(III) Does not require the lender to contribute at least fifty percent of the
amount of any filing fee; and

(IV) Does not require the lender to pay standard daily arbitration fees, both
its own and those of the obligor, for at least the first day of arbitration.

(f) No advance payments. No covered loan may include terms under which
any periodic payments required under the loan are paid in advance from the loan
proceeds provided to the obligor.

(g) Limitations on prepayment fees. (I) First thirty-six months only. A
prepayment fee or penalty shall be permitted only on a refinance to a different
lender other than pursuant to a sale and only during the first thirty-six months after
the date of execution of a covered loan. Prepayment fees and penalties shall not
exceed six months' interest for prepayment within the first three years of the loan.
The prepayment fees or penalties permitted by this paragraph (g) shall apply only
to covered loans that are secured by a first mortgage, deed of trust, or security
interest to refinance, by amendment, payoff, or otherwise, an existing loan made to
finance the acquisition or construction of a dwelling, including a refinance loan
providing additional sums of money for any purpose, regardless of whether related
to acquisition or construction. No prepayment fees or penalties shall be included in
the loan documents or charged to the obligor for prepayment:

(A) After the third year of the loan;

(B) Pursuant to a refinance with the same lender; or

(C) That is partial.

(II) No prepayment fees for certain refinancing. No prepayment fee or
penalty may be charged on a refinancing of a covered loan if the covered loan being
refinanced is owned by the refinancing lender at the time of such refinancing.

(III) Lender must offer choice. A lender shall not include a prepayment
penalty fee in a covered loan unless the lender offers the obligor the option of
choosing a loan product without a prepayment penalty fee. A lender shall be
deemed to have complied with this requirement if the obligor receives and executes
the following disclosure, which may be incorporated with any other required
disclosure:

LOAN PRODUCT CHOICE

I was provided with an offer to accept a product both with and without a
prepayment penalty provision. I have chosen to accept the product with / without a prepayment penalty.

Legislative History

Source: L. 2002: Entire article added, p. 1595, � 1, effective June 7. L. 2003: (1)(a) amended, p. 1894, � 9, effective July 1.