BBB Tips Columns – May 2007
Buying a Foreclosed Home? Know the Facts Home prices are falling all across the country, but foreclosures are on the increase. According to Realty.com, an online marketplace for foreclosure properties, more than 1.2 million foreclosures were filed in 2006. And industry experts expect that number to continue to rise in 2007. Losing a home to foreclosure can be devastating for any family. However, foreclosure property can provide a window of opportunity for those in the market for a house. The Better Business Bureau cautions home buyers who want to take this route to homeownership to do some research and know the facts about purchasing foreclosed homes before venturing into this type of deal. The BBB offers the following tips: Know your options. Home buyers can purchase foreclosed properties through pre-foreclosure which allows you to purchase a house directly from the homeowner before it goes into bank foreclosure; at auctions where you will bid against other interested buyers; or properties that are Real Estate Owned, also known as REO. Conduct a “title search.” This process can help you find out whether the property has a second mortgage or lien against it. If it does, you may be responsible for paying off the initial mortgage, any second mortgage loans and any liens on the property before you can take ownership. Be aware that if you purchase the house in an auction, you may not be able to look inside the home or conduct a home inspection in advance of the sale. Properties sold at auctions are usually sold “as is.” This can create problems when trying to obtain a mortgage loan. Obtain help if you need it. Find a real estate agent that is experienced in foreclosures and check them out with the BBB (www.bbb.org). The BBB offers free reliability reports on more than three million businesses. Have your agent check nearby or comparable homes to see if the asking price for a foreclosed home is, in fact, a bargain. Foreclosure laws vary from state to state so check the laws in your area by contacting your county clerk’s office. ###
Home Buyers: Protect Yourself from Predatory Lenders Horror stories about victims of predatory lending are everywhere in the media these days. Abusive or “predatory” lenders target people who are “house rich, but cash poor,” that is, consumers who have built up a lot of value in their homes, but do not have much available cash. The types of loans offered usually have sky-high interest rates and fees. Predatory lending is a set of lending practices that takes unfair advantage of consumers. Consumers end up taking out loans that they cannot afford, have deceptive or unclear terms in them, or which cost more than necessary and may ultimately lead to the loss of one’s home. Most predatory loans occur in the sub-prime market, but not all sub-prime lending is predatory. Consumers need to be aware of predatory leading practices when searching for a loan. The Better Business Bureau urges consumer to be aware of the variety of predatory lending practices that are occurring with some lenders in the industry: Equity stripping occurs when a loan is made based on the equity in a property rather than on a borrower’s ability to repay the loan. These loans usually result in the lender acquiring the borrower’s home and any equity the borrower had in the home. Packing is the practice of adding credit insurance or other “extras” to increase the lender’s profit on a loan. Flipping occurs when a lender induces a borrower to repeatedly refinance a loan, often within a short time frame, charging high points and fees each time. Traps are terms within the loan that will likely force the borrower to refinance or enter into foreclosure. Traps include balloon payments, negative amortization, prepayment penalties and mandatory arbitration.
How can you tell if a lender is a scammer? The BBB offers the following “Dos” and “Don’ts” to help you protect yourself and your home: DON’T Do business with lenders that you haven’t checked out. Be rushed into signing a loan because it is a “Limited Time” offer. A lender in a hurry to get the loan should serve as a warning sign to take extra care to make sure that the loan is being properly structured. Sign documents with blank lines. Be sure that every space is filled in on the loan application before you sign it. Lie on your loan application. When you apply for a mortgage loan, every piece of information that you submit must be accurate and complete. Lying on a mortgage application is fraud and may result in criminal penalties Pay upfront fees without an explanation. Do not pay sizeable upfront fees. Reputable brokers and lenders do not charge high upfront fees.
DO
Check out the reliability of the company with the BBB (www.cinbbb.org). Shop around for the best loan for your situation. Borrow only the amount you need and can afford to pay back. Review all documents or have someone you trust review them for you. Know that you generally have three days to cancel loans signed on your home. File a complaint with the BBB (www.cinbbb.org), your state’s attorney general office or your local Department of Consumers Affairs, if you think you are the victim of a predatory loan. ###
Know the Facts about Reverse Mortgages For older homeowners who are looking for a way to tap into the equity they have built up in their homes over the years, a reverse mortgage can be a good solution. Reverse mortgages allow homeowners to turn their home equity into spendable cash without having to make monthly interest or principal payments. Under a reverse mortgage, the lender sends the borrower money via a lump-sum payment, a line-of-credit, monthly check or a combination of all three. The homeowner is not required to pay back any of the loan advances or interest until the loan term is over. Generally, no repayment is due until the borrower no longer occupies the house . Before venturing into a reverse mortgage the Better Business Bureau, along with the Federal Trade Commission suggest that homeowners consider the following facts: Reverse mortgages are rising-debt loans. The interest is added to the principal loan balance each month, because it is not paid on a current basis. The amount you owe increases over time as the interest compounds. Some reverse mortgages have fixed-rate interest; others have adjustable rates that can change over the lifetime of the loan. Reverse mortgages use up some or all the equity in your home, leaving fewer assets for you and your heirs. There are three types of reverse mortgages — Federal Housing Administration (FHA)-insured, lender-insured, and uninsured — and these vary according to their costs and terms. Check the features of each to select the type that is best-suited for your needs. Before considering any reverse mortgage, consult with family members, your attorney, or financial advisor. Reverse mortgages typically charge loan-origination fees and closing costs. Insured plans charge insurance premiums, while some plans have mortgage servicing fees. You may be able to finance these costs if you want to avoid paying them in cash. But, if you finance the costs, they will be added to your loan amount and you will pay interest on them. Your legal obligation to repay the loan is limited by the value of your home at the time the loan is repaid. This could include any appreciation in the value of your home after your loan begins. The federal Truth in Lending Act (TILA) is one of the best protections you have with a reverse mortgage. TILA requires lenders to disclose the costs and terms of reverse mortgages. This includes the Annual Percentage Rate (APR) and payment terms. If you choose a credit line as your loan advance, lenders also must tell you of charges related to opening and using your credit account.
Before signing any contracts for a reverse mortgage, be sure to check on the reliability of the company with the BBB at www.bbb.org. The BBB also provides complaint and dispute resolution assistance for consumers to seek recourse and achieve a fair settlement if they have been treated unfairly in the lending process. For more specific information about reverse mortgages contact the Home Equity Information Center of the American Association of Retired Persons (AARP) or go to http://www.aarp.org/money/revmort/. ###
Leasing Office Space If your business is starting to take up more room than your home office has to give, it’s time to think about moving your business out of your house. Taking the leap and leasing a commercial office space can be a daunting prospect. But if you ask the right questions and take the time to do your research, you’ll avoid the common pitfalls. What are your needs? Before you start your search, spend some time thinking about what you need in an office space. Don’t just consider how many employees you currently have; seriously consider your company’s growth and estimate how many employees you’ll gain over the course of a lease. The general rule for allotting space is 175 to 250 square feet of usable area per person. Also consider the common areas such as break rooms, reception area, and conference rooms you and your employees will need. Get professional help. Finding the right commercial office space isn’t as easy as finding residential property. Chances are you’ll need a realtor to navigate you through the process of finding that perfect office space. Before you select your realtor, check them out with the Better Business Bureau (www.bbb.org). The BBB offers free, unbiased reports you can trust to help you find a reliable commercial realtor. Location, Location, Location. The perfect location can often depend on what kind of business you run. If you regularly expect clients in your office you’ll need a convenient, safe, location. Consider safety and accessibility—parking, public transportation—as well as the condition of the building and the neighborhood. Will your employees be able to easily get to work? Go ahead, kick the tires. Take a long hard look at the office space and assess the condition of the building. Office space is typically broken down into three categories, Class A, B, and C, dependent on the location, age, condition, and amenities, with Class A being considered the highest quality. Ask the landlord about recent improvements and upgrades as well as the condition of the A/C and heating units. Also, discuss with your landlord how much remodeling needs to be done to the office space and determine who will foot the bill. You’ll need to consider the basics such as new carpet, fixtures, and fresh paint, as well as major interior renovations such as constructing new walls. Review the lease carefully. It’s time to get out the glasses because you need to make sure you read all of the fine print of your lease. If you need help deciphering the legalese of your lease, an attorney who specializes in commercial lease agreements can help negotiate the terms. Don’t be shy about negotiating; this is a major investment and a big step for your company and you don’t want to get locked into a bad deal. ###