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#1531252 - 04/04/11 07:22 PM Kansas and Demand Feature on Residential RE Ln.
Patricia Offline
Gold Star
Joined: Mar 2011
Posts: 327
Kansas
Can there be a demand feature on a Residential RE Loan?

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#1531692 - 04/05/11 07:15 PM Re: Kansas and Demand Feature on Residential RE Ln. Patricia
rockchalk02 Offline
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Joined: Jul 2009
Posts: 187
Yes, but it is subject to the following statutory restrictions which really don't make it a true "on demand" provision:

K.S.A. 16a-5-109. (UCCC) Default.
An agreement of the parties to a consumer credit transaction with respect to default on
the part of the consumer is enforceable only to the extent that
(1) the consumer fails to make a payment as required by agreement; or
(2) the prospect of payment, performance, or realization of collateral is
significantly impaired; the burden of establishing the prospect of significant
impairment is on the creditor.
History: L. 1973, ch. 85, § 85; Jan. 1, 1974. Attorney General’s Opinions:
Definitions; supervised lender; supervised financial organization. 84-11.
KANSAS COMMENT, 2000
1. One of the vital terms of every consumer credit agreement is that which sets forth the criteria
which will constitute default. By its nature “default” is not a term that is negotiated by the parties --
it is generally controlled by the creditor. It is appropriate, therefore, that its content and
implications be confined by the law so as to prevent abuse. This section is intended to
accomplish that.
2. This section recognizes that there are two entirely distinct sets of circumstances which might
constitute default on an installment obligation. The first and most common is the failure to pay an
installment as required. A default of this type is susceptible of being cured by the consumer
without impairing the continuing contractual relationship between the consumer and the creditor.
See K.S.A. 16a-5-110. The second type of default relates to behavior of the consumer which
endangers the prospect of a continuing relationship. It may be insolvency, illegal activity, or an
impending removal of assets from the jurisdiction. There must, however, be circumstances
present which significantly impair the relationship. Useful discussions of the types of factors and
circumstances which constitute "significant impairment” can be found in Prairie State Bank v.
Hoefgen, 245 Kan. 236, 777 P.2d 811 (1989); and Medling v. Wecoe Credit Union, 234 Kan. 852,
678 P.2d 1115 (1984). The burden of proof is on the creditor to justify action on a claim of default
of this type. This reverses the rule of UCC. See K.S.A. 84-1-208.
3. The "significant impairment” rule of subsection (2) prohibits so-called "insecurity clauses”
under which default and acceleration can be called whenever the creditor in good faith feels
"insecure.” This also reverses the rule of UCC.
4. Under an administrative interpretation issued by the administrator, a demand or "call” feature
may be included in a non-real estate consumer loan agreements that are "interest only” -- those
in which the regularly scheduled payments are only of interest. See Administrative Interpretation
No. 1001. This interpretation points out that calling for full payment in the middle of the regularly
scheduled term (e.g., in the 30th month of a 48 month contract) would trigger the consumer’s
right to refinance the balloon payment under K.S.A. 16a-3-308.

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#1548634 - 05/10/11 01:47 PM Re: Kansas and Demand Feature on Residential RE Ln. rockchalk02
Patricia Offline
Gold Star
Joined: Mar 2011
Posts: 327
Kansas
rockchalk02- do your 1-4 family residential loans have a demand feature? If I am reading the above correctly it would darn hard to envoke the "demand" on a 1-4 family or any other consumer loan unless it is a non-real estate consumer loan interest only loan. Am I right?

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