Interstate Federal Savings & Loan Association has agreed to reimburse 89 persons who paid mortgage prepayment penalties and or advance interest after April 1, 1975 tp settle a class action suit filed by two Rockville homeowners.
The owners, George and Kathryn Schmidt, said that when they sold their Rockville house in 1975, they were surprised that Interstate charged them a prepayment penalty of $375.22 on a $45,300 mortgage taken out three years earlier. There was no mention of a prepayment penalty in the mortgage contract.
Interstate contended that the prepayment penalty was "in conformity with the prepayment penalties allowable under Maryland law." The Schmidts asked for punitive damage of $1,000 for each person affected. On May 16 Interstate consented to the refunds in exchange for dismissal of the suit. It also agreed not to asses such penalties in the future unless specified in the mortgage contract.
Although the Schmidts made their final mortgage payment on April 11, Interstate charged them interest for the period of April 11 through April 30 - after they had sold the house. Interstate said that the deed of trust note specified that loans may be paid off on the first day of each month.
The refunds amount to between $12,000 and $13,000, according to attorney Benny L. Kass, who represented the borrowers. Interstate says it stopped assessing unspecified prepayment penalties in August, 1975 when the Schmidt suit was filed.