Refinancing your mortgage might sound simple, especially with rates dropping or your property gaining value. But for many Florida homeowners, the process hits an unexpected roadblock: buried mortgage clauses that the bank didn’t mention when you first signed the loan.
At our law firm, we help homeowners, investors, and business owners understand the fine print that lenders often overlook during closing, and we’ve seen firsthand how one hidden clause can derail what should be a routine refinance.
Here’s what you need to know before you start the refinancing process.
Can a Mortgage Clause Really Block You From Refinancing?
Yes, certain clauses in your original mortgage agreement can limit, delay, or even prevent your ability to refinance, even if you’re current on your payments and otherwise qualify.
These clauses are often standard in loan documents but rarely explained to borrowers in detail. You may not realize they’re even there, until it’s too late.
Common Mortgage Clauses That Affect Refinancing
1. Due-on-Sale Clause
While most people associate this with selling a home, some due-on-sale clauses can be triggered during title transfers or certain refinancing events. If your new loan involves adding or removing a borrower, the lender may treat it as a sale, and demand full repayment of the loan.
2. Prepayment Penalty Clause
Some mortgages include a prepayment penalty if you refinance within a certain time frame, usually within the first 3 to 5 years. While not a total block, this clause can make refinancing financially impractical due to high fees.
3. Lock-in Clause
A lock-in clause can restrict your ability to refinance with another lender during the initial years of the mortgage. This clause often benefits the lender by ensuring they keep your business for a fixed period.
4. Subordination Clauses (in Second Mortgages or HELOCs)
If you have a second mortgage or a home equity line of credit (HELOC), your second lender has to agree to “subordinate” their interest in favor of the new refinance lender. If they refuse, your refinancing deal may collapse.
5. Escrow or Impound Account Clauses
Some mortgages tie refinancing to escrow account status. If you’re behind on escrow payments, or there’s a dispute over taxes or insurance, your refinance could be delayed or denied.
Why Don’t Banks Disclose This Up Front?
In many cases, banks simply don’t explain these clauses in detail at closing, either because they don’t think they’ll ever be enforced, or because it’s not in their financial interest to highlight restrictions on your future options.
Unfortunately, by the time a borrower discovers these terms, they’ve often already spent time and money on an appraisal, credit checks, or even loan processing.
That’s why reviewing your mortgage agreement with a real estate attorney before refinancing can save you time, frustration, and unexpected costs.
How to Know If Your Mortgage Has One of These Clauses
You won’t find these restrictions in your monthly statement. You’ll need to look at your:
- Original loan agreement
- Mortgage or deed of trust
- Riders or addendums signed at closing
- Title documentation, especially if your loan is part of a larger development or condo association
If you’re unsure what you’re looking at, don’t worry, that’s what we’re here for.
What to Do If a Clause Is Preventing Your Refinance
Here are your legal options if a clause is standing in the way:
Review the Terms with a Real Estate Attorney
At Ayala Law , we can analyze your mortgage documents and identify what’s enforceable and what’s negotiable. In some cases, lenders include boilerplate language that may not actually apply to your situation, or may be invalid under Florida law.
Negotiate With the Lender
Some restrictions, like subordination clauses or due-on-sale triggers, can sometimes be waived or modified by your lender, especially if refinancing improves your financial position.
Consider a Title Transfer Strategy
If you’re restructuring ownership (like moving the title into a trust or LLC), we can advise on how to do it without activating problematic clauses.
Explore Legal Remedies if Clauses Are Unfairly Enforced
If your lender is wrongfully denying your right to refinance, there may be legal grounds to challenge that decision or seek damages.
Read the Fine Print Before You Refinance
Refinancing should be a financial step forward, not a legal headache. But the truth is, many borrowers don’t learn about these clauses until they’re mid-way through the process and stuck.
Whether you’re refinancing to lower your rate, access equity, or restructure ownership, make sure you understand the terms that govern your current mortgage.At Ayala Law, we help homeowners and investors across Florida navigate these legal issues with clarity and strategy.
If you’re getting ready to refinance, or already facing pushback from a lender, contact an experienced attorney in Miami at 305-570-2208.
You can also contact attorney Eduardo A. Maura at eduardo@ayalalawpa.com.
Schedule a case evaluation online here.
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