deed of trust language

[starclay]

Borrower may prepay the principal amount outstanding under this note, inwhole or part, at any time without penalty except with consent of note holder, who may require compensation for adverse income tax consequences of such early payments

does this mean note holder can ask borrower for all note holder taxes due?

IS THIS BLACK MAIL?

this is scary language if you are the borrower

what does it really mean legally?
THANK YOU

 

[Uncle Jack]

Welcome to the forum.

Have you omitted the word "not" before "may"? Or perhaps "except" is in the wrong place. There is a logical inconsistency in it as it stands.

No, it is not blackmail. It is fairly standard in contracts related to borrowing to have a clause restricting early repayment. In what way is it scary?

 

[starclay]

the word order is correct. know you now why there is confusion. Scary for what i read the lender is asking or requiring compensation for taxes and lender can or may ask borrower for lenders taxes?
THE FIRST PART OF THE PARAGRAPH I FEEL IS VERY CLEAR ON NO PENALTY TO PREPAY. It is the second part that is killing me to understand?
Thank you Uncle Jack

 

[Uncle Jack]

The first part isn't clear at all. It says that the borrow can prepay without penalty, unless he has consent, which does not make sense.

Exactly how much compensation may be payable depends on what the lender's tax arrangements are, but I would guess the only difference is the tax relief applicable to the original payments and term, which might be less if higher payments are made over a shorter period, in which case of course the lender will want the borrower to pay the difference. But you need to consult an accountant rather than an English language forum to find out what it means in practice.

In any case, if you make payments at the agreed rate and at the agreed time over the agreed period of the contract, you will suffer no penalty at all.

 

[cubaMania]

I agree: it is scary. You need to talk to a lawyer.
It is not standard to declare that the borrower can prepay at any time without penalty, then to require "consent of note holder", and then to declare that the note holder can require compensation for (the note holder's) tax liability arising from the prepayment.
Don't sign this thing without getting professional legal advice.
It's not "blackmail", but it is a contradictory mess. I doubt the language would hold up in any court of law.