An Essex man has sued Baltimore-based Provident Bank, claiming it illegally charged him a prepayment fee when he refinanced a second mortgage last year.
Andrew Bednar's suit was filed last month in Baltimore Circuit Court. The case seeks class action status, saying other customers of Provident Bank of Maryland have been similarly affected.
According to the lawsuit, Bednar took out a $17,000 second mortgage from Provident in August 2003. Provident agreed to waive $681 in closing costs provided that Bednar kept the loan for three years. But two years later, Bednar refinanced the loan and Provident charged him $681.
The charge is essentially a prepayment penalty because the only way to trigger it is by paying off the loan early, Bednar's lawyer, John A. Pica Jr., said yesterday. Prepayment penalties are illegal in Maryland, Pica noted.
Even though Bednar signed a waiver saying the closing costs would be added to his balance if he closed the account early, Pica said the charge is still illegal. "He wasn't told nor did he know that this was illegal under Maryland law," Pica said.
Provident spokeswoman Vicki Cox said the bank hasn't been served with the papers and can't comment on the details. But the bank's disclosures on its home-equity products are very clear, she said.
"The disclosures and signed loan documents state that a customer is responsible for paying closing costs if the account is closed within three years," Cox said. "These are not prepayment penalties. These are closing costs that are waived at the time the loan is closed."
Bednar is seeking three times the fee he paid, plus any interest he paid on the loan, Pica said.
According to the lawsuit, the number of people affected "will exceed several hundred." The lawyer added that Provident made thousands of mortgage loans to Marylanders in the past several years.