In May 2003, the Appellate Division adopted Norwest in its entirety in Westmark. Here, the defendant-borrowers appealed the trial court’s entry of final judgment in foreclosure in favor of the plaintiff-lender contending, inter alia, that the prepayment premium was an “unreasonable charge.” Before evaluating the reasonableness of the prepayment premium, the Appellate Division first defined “prepayment premiums”:

[They] are designed to protect a lender against potential losses it may incur if a loan is paid earlier than it contracted for. ‘The primary purpose of these clauses is to protect the mortgagee against the loss of a favorable interest yield. Prepayment may also result in further losses, such as the administrative and legal costs of making a new loan … and in some cases additional tax liability.’ 362 N.J. Super. at 344 quoting Restatement (Third) of Property: Mortgages �6.2 comment a (1997).

Citing MetLife and Norwest, the Appellate Division held that a lender could recover a prepayment premium that was “reasonable under the totality of the circumstances.” In so holding, the Appellate Division expressly abrogated Clinton Capital and held that the prepayment premium at issue was a “reasonable charge”:

[W]e can perceive no reason why the debtor should be relieved of the terms of the contract freely entered into. The terms were clear and unambiguous, the parties clearly experienced and sophisticated in loan transactions of this type. … If we deem the clause unenforceable, we would be providing defendants with a better contract than they were able to negotiate for themselves; we decline to do so. 362 N.J. Super. at 347.

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