Protect Your Home And Your Credit

Your home is probably your largest and most important asset. It is also one of the most attractive assets to criminals and con artists. Not surprisingly, many states report that mortgage fraud is one of the most commonly reported complaints. The effect of mortgage fraud can be devastating, not only as a way of removing equity or destroying credit, but in some cases homeowners also unwittingly sign deeds giving away actual ownership and legal title to the house.

Special thanks to Emil Izrailov, a Certified Mortgage Planner with Kaye Financial Corporation, for providing a recent article that highlights a new twist in mortgage fraud, an “equity disbursement program” purportedly sponsored by the “CRA” (that sounds official, doesn’t it?):

Through direct mail advertising, consumers are being offered special "cash grant or equity disbursement" programs which claim to be linked to the Community Reinvestment Act (CRA) and, in some cases, even endorsed by the Federal Reserve.

The Federal Reserve Board cautions homeowners that "no such federal programs exist". In fact, the Federal Reserve Board does not "endorse or sponsor" any mortgage programs, and the CRA does not "entitle individuals to any grants or loans". Enacted in 1977, the CRA is a federal law designed to address unfair "redlining" practices in low-income neighborhoods, encouraging financial institutions to address the financial needs of the community as a whole.

Click here to download the rest of the helpful article.

How do you keep from falling victim to this or any of the other in a frighteningly wide array of mortgage fraud schemes including equity stripping, loan flipping, bait and switch and deceptive loan servicing? (For a further description of these and other schemes to guard against here is a link to a recent article from Nancy Kreisler). The best way to protect your home and your credit is a twofold process:

First, only work with an experienced mortgage professional who can provide exemplary references. You can even send an email directly to Emil Izrailov if you have questions about how to protect yourself from mortgage fraud or you are looking to obtain financing.

Second, before entering into any agreements for the sale of your home or for financing which is secured by your home, contact me or your other trusted attorney who is experienced in real estate, civil and consumer protection law. That attorney can review the agreements before you sign them to make sure that your interests, your home and your credit are protected.

Residential Land Contracts 101

In Michigan, sellers of residential property are more interested than ever in finding ways of making their property attractive to prospective buyers. Many sellers are offering leases as an option. Another alternative is to offer a sale by land contract. As an attorney who handles real estate transactions, from time to time I am asked by clients or prospective clients to review the fundamentals of a land contract. That prompted me to post the following primer.

What is a land contract? A land contract is both a method of financing and an agreement for the sale of an interest in real property. Payments are usually made in installments, and the interest rate cannot exceed 11% unless it qualifies for an exemption. Keep in mind, though, that the land contract itself does not convey legal title to the buyer (legal title is transferred by use of a deed). There are various reasons a buyer and seller may choose to enter into a land contract.

Why would a seller want to use a land contract? One reason is that, unlike a traditional sale whereby legal title is transferred at closing to the buyer and the mortgage holder retains a security interest, when a sale of real estate is conducted by way of land contract the seller retains legal title to the property until the conclusion of the land contract, and thus the seller retains the right to use the property as collateral during the course of the land contract (although this right may be barred by the language of the land contract). Another potential advantage for the seller relates to the seller’s remedies in the event that the buyer defaults. Should the buyer default, the seller has the remedy of “forfeiture”, by which the seller can recover possession of the property, retain all the payments the buyer has made to date under the contract, and the seller can avoid the lengthy process of a foreclosure sale.

Why would a buyer want to use a land contract? The most common reason for a buyer to agree to purchase property by land contract is because the buyer, as a result of their credit history or inability to make the required down payment, cannot obtain a traditional mortgage.

Beware of the “standard” land contract. There are many optional provisions for a land contract, including sections relating to prepayment penalties, rights to encumber, duty to place a deed in escrow, disposition of insurance proceeds, payment of taxes and insurance, rights to assign and remedies in event of default. Also, if you have an estate plan, be sure that the way in which you buy or sell property is consistent with that plan, particularly if your plan involves use of one or more trust agreements. Before entering into a land contract, or any other significant real estate contract, be sure to consult with an attorney who can make sure that your rights are fully protected.

Ready To Write 600 Mortgage Payment Checks?

A new product is available from many lenders – a 50-year mortgage. Is it right for you? Probably not.

The primary attraction of the 50-year mortgage is that it allows for lower monthly payments. But these lower monthly payments come at a great cost, which for most homeowners would significantly outweigh the benefit.

Three characteristics of the 50-year mortgage that should give any borrower pause before entering into the loan are: (1) slow growth of equity; (2) the substantial amount of extra interest over the life of the loan; and (3) the risk of adjustable rates.

If you take a 50-year mortgage, then be prepared to build equity at a painfully slow rate. Consider a $200,000 50-year, 7.5% mortgage. After the first ten years of payments, you would have paid almost $150,000 in interest payments, and you would have accumulated less than $5,000 in equity. In contrast, consider if you had taken a $200,000 loan at 7.5% interest for 30 years, after the first ten years of the loan you would have paid almost $7,000 less in interest and you would have built over $26,000 in equity.

Clearly the equity builds at a much faster rate under the 30-year loan. This is an important advantage, as one of the main benefits of home ownership is to build equity over time. Also keep in mind that you would be paying an enormous amount of extra interest over the life of a 50-year mortgage. Using the example above, you would pay $264,845.87 extra in interest over the life of the loan!

Of course, the monthly payments on the 30-year mortgage would be $118 higher than the 50-year mortgage. But when taking into account the faster equity growth and the enormous saving in interest expense, it is plainly worth the slightly higher monthly payment.

Also keep in mind that most 50-year mortgages currently offered by lenders provide a fixed rate for the first 5 years, after which the rate becomes adjustable. That means that after 5 years your monthly payment could increase.

With all the potential hazards, who should consider a 50-year mortgage? An ideal borrower would be someone who plans to stay in a home for less than 5 years, and does not want to take an "Interest Only" or "Option ARM" loan. With a 50-year mortgage you do not run the risk of owing more than you borrowed, which is a real possibility with some Interest Only or Option ARM loans that allow a borrower to pay even less than the interest due each month.

While this new product may be a good alternative for a small percentage of homeowners or investors, for most people, entering into a half-century mortgage IS NOT PRACTICAL.

Save Thousands On The Sale Of Your Home By Working With An Attorney

The beginning of summer is also Home Buying Season. For most of us, our home is our biggest investment, so the process of selling or buying a home is not only exciting, it can also be stressful. One of the biggest decisions is whether to work with a real estate agent or represent yourself (for sellers, this means a "For Sale By Owner" or "FSBO" transaction). Another option you may not have considered, but that may be your best option, is to sell your home by owner, and to work with an attorney.

When deciding whether to work with an agent, sell by owner, or by owner with an attorney, there are many important considerations, including costs, savings, and the level of your comfort in handling the responsibilities and risks involved in the transaction.

In the United States, 6% is considered a "standard" residential real estate commission, and it is typically split 50/50 between the listing agent and the buyer's agent. To put that into numbers, on the sale of a $250,000 home, the standard commission would be $15,000 paid by the seller at closing. Clearly, there are significant savings to be had by avoiding the need to pay a 6% commission. There are also significant risks.

If you are willing to do the work required to represent yourself as a buyer or seller, you can save a lot of money. I know, because not only am I an attorney, I am also a licensed residential real estate salesperson in Michigan (although I have chosen to have my license held in escrow with a holding company while I am committed to the full time practice of law), and I recently represented myself in the sale of my condo and the purchase of a home for my family. In my experience, the money that I saved made the extra work well worth the effort.

But with all the legal work and other issues involved in the sale of a home, how do you make sure that you are saving money and protecting yourself in the transaction? THE PRACTICAL THING TO DO is to talk to an attorney before you sign any paperwork.

The cost for the legal services will be thousands, or tens of thousands, less than the cost of using an agent, and you will make sure that your interests are protected. The price for legal services can vary significantly, but it should be easy to find an attorney who can provide a significant level of expertise at an hourly rate of $125 - $225 per hour. At those rates, 10 hours of service would cost a seller between $1,250 and $2,250 per hour, a savings of more than $12,000 using the example provided above!

It may be tempting to use "forms" from friends or associates as a substitute for consulting with an attorney, but remember that this is the largest transaction that you will probably ever be involved in and it is not a matter of "fill in the blanks." An attorney will give you the documents you need, and advise you as to the many requirements that you may not have even considered. As an illustration, most preprinted purchase agreements will not help a seller in Michigan comply with the Sellers Disclosure Act, the Lead Based Paint Disclosure Act, or help the seller with questions relating to title insurance, financing or inspection contingencies.

The right attorney can answer your questions, prepare or review the required paperwork, and guide you through every step of the process. Just as importantly, with their knowledge of other professionals in the industry, they will be happy to refer you to the individuals or companies that you may need along the way, such as mortgage brokers, inspectors, and title agencies. So go ahead and take advantage of the chance to save tens of thousands by selling your house by owner – just make sure to do the practical thing and talk to an attorney first.