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Ask Our Broker Spot Predatory Lenders Before They Strike


QandA WITH PETER G. MILLER
BY CHARLES SCUTT
CTW Features

In the jungle, there are two


and those that are hunted by one
of the most cunning and elusive
of all modern savage beasts – the
predatory lender.
says Jennifer Wright, branch man-
ager for Real Living, Inc.,
Columbus, Ohio.
Gibran Nicholas, chairman
“A predatory lender is one
that recommends a mortgage
product that is not ‘suitable’ to a
particular client circumstance or
kinds of animals: those that hunt, A predatory lender is typically and founder of the CMPS that would not put a client in a
My Townhouse Association and those that are hunted.The defined as someone who pushes Institute, a national training and better financial situation than
same axiom can apply to the their services on people, espe- certifying organization for mort- before the loan was issued,” he
Is Banning Rentals, So What wild world of mortgage shop- cially those in need of money for gage professionals in Ann Arbor, says.
Do I Do with My Properties? ping.There are borrowers who medical bills, debt consolidation, Mich., prefers to broaden that “The victims targeted usually
hunt for the right mortgage loan, tax payments or home repairs, definition. See Lenders Page 2
Q: Six years ago I bought a town-

Photo courtesy of James Hardie Building Products, Inc


house to use as a rental property. It
was a successful venture that was
allowed under the homeowners
association covenants, so I pur-
chased a second unit that came on
the market a year and a half ago.
Now the homeowners association
has banned rentals starting in 2010. In effect, I
will be forced to sell my properties. There are
more than 50 units in this complex and I’m the
only absentee owner. Can they do this to me?

A: Essentially you have a four-year grace period to


change minds. Is it possible for the association to
amend the rule so that units now rented can be “grand-
fathered” in under the old standard? This is a reason-
able accommodation that might be a lot cheaper than
litigating the matter.
While courts have often supported tenant associa-
tions in such disputes, there is no way to guarantee
such a result – something the association may want to
consider. From your perspective, the best approach is
to ask nicely, threaten nothing and see if reason can
take its course. Speak with a real estate attorney for
specific options in your jurisdiction.

Q: I’m selling my home for $309,900 and have


received a $299,900 offer. The buyer wants to use
a capital improvement credit to borrow money
to get the house plus get closing and down pay- Fly-by-night contractors can roll through town as quickly as storms do. Researching past jobs and checking for proper insurance documents and licenses can
ment funds. They have put in $1,000 in earnest keep your project from becoming a horror story.
money. The lender says the “price” of the house
needs to be changed to reflect a selling price of
$323,000 so they can get an appraisal for that
amount. I feel I’m subsidizing $10,000 of the pur- Project Disaster
chase price and wondering if they can possibly
be serious. They want me to sign by tomorrow.

A: An appraisal is an independent estimate of value. Don’t Trust Any Old Contractor


Lenders will make loans on the appraised value or the
BY SHEREE R. CURRY of Home Builders survey bits of home siding away, choos- are knee-high in debris, wading
sale price – whichever is less. CTW Features released in 2005 said 27 percent ing a contractor to fix the dam- through a slew of free estimates
There are situations where lenders allow “seller con- of their business was re-siding age is like a complex fairy tale that vary more wildly than the
tributions” to offset buyer costs. Such credits must

T
urbulent weather from hur- jobs, up from 19 percent the pre- with an antagonist that must be product samples protruding
plainly be reflected in the sale agreement. Some pro- ricanes to blizzards takes its vious year. Due in part to severe conquered. Even the NAHB from the suitcase of each siding
grams allow a seller contribution equal to 3 percent of toll on the disposition of inclement weather, siding warns on its Web site:“Beware of contractor that knocks on their
the selling price, 6 percent or even 9 percent. For Americans, as well as their homes replacement projects amounted fly-by-night contractors.” door.Weeding out the reputable
– literally.As a result, home to just more than 10 percent of Frequently, after hail, wind or contractors from others seems
instance, with a $299,900 sale a 6 percent seller contri- improvement projects, particularly the $210 billion that Americans another act of God thrashes like an impossible task.
bution would mean the buyer gets a $17,994 credit at siding jobs, are spurring remodel- spent on home remodeling proj- through town, a multitude of “Unfortunately, there are
closing -- and you would get $17,994 less. ing activity. ects in 2005. storm-chasing contractors await unscrupulous contractors out
Professional remodelers Given that these torrential in the clearing. Homeowners, there, but that is not representa-
See ASK OUR BROKER, Page 2 answering a National Association storms huff and puff and blow with insurance checks in hand, See CONTRACTOR Page 2

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LENDERS You can usually spot a preda-
tory lender by the “too-good-to-
• A lender that advertises sig-
nificantly below market interest
Ask Our Broker
be-true” offers they make, say rates. CONTINUED FROM PAGE 1
CONTINUED FROM PAGE 1
experts. • A prepayment penalty that is
include those who are most vul- “Be cautious if anyone adver- six months worth of interest
Alternatively, there are loan programs that provide
nerable and have financial trou- tises or says ‘poor credit? No instead of 1 to 2 percent of the
bles, such as the poor and elder- problem,’ calls on the phone or loan amount. both for the purchase of the property and reserves for
ly,” says Wright.“These lenders comes to your door offering you The best way to avoid being repairs and updates.Think of the Department of
understand their financial hard- a ‘bargain loan’ that he or she scammed is to always ask for a Housing and Urban Development’s 203(k) rehab
ships and will offer help, when rushes you to sign that day,” says referral from a realtor, previous Program. Money above the purchase price is released
in reality he or she will include Sally Hurme, issue coordinator lender, family member, friend, the to buyers as improvements are made.
higher interest rates, loans with for the consumer protection Better Business Bureau or the
By raising the selling price the buyers are suggesting
huge pre-payment penalties and department of AARP,Washington, Mortgage Bankers Association,
exorbitant closing costs.” D.C. Likewise, be suspicious if says Wright. that you would net roughly $300,000 after credits to
Why are predatory lenders they ask you to pay a fee up Rather than shopping for the them.They expect the loan to be made on the basis of
popping up more lately? Wright front to cover a first payment or elusive ‘lowest rate,’ borrowers a $323,000 sale price. But is the property really worth
says that the low interest rate other expenses, or offer you a should shop for a trustworthy $323,000? If an independent appraiser suggests that
environment of the last few loan with a small monthly pay- lender with a competitive rate value then such a price is reasonable.
years, coupled with the tremen- ment and a balloon payment that who can help them make smart
However, there are two cautions here: First, if the
dous growth in home values will be difficult to pay when it financial choices, says Nicholas.
(and home equity) has con- comes due. “Look for a lender with some property is appraised for $323,000 then why sell for
tributed to the record growth of For Charles Alexander, presi- find of certification, and inter- $299,900? Maybe there are buyers who would pay the
the mortgage industry, for good dent of Alexa Corp., Raleigh, view prospective lenders with higher price or close to it, giving you more cash at clos-
and bad. N.C., the biggest red flag is a questions like,‘what are mort- ing. Second, if the property is not appraised for
“The ease with which lending lender or loan officer that won’t gage interest rates based on, and $323,000 can the buyers close the sale?
information is shared and provide a good faith estimate, a how will your mortgage strategy
By any chance, is the offer written on a form supplied
obtained on the Web is another truth in lending statement or a help me to retire more efficient-
major factor for the increase in complete explanation for an ly, provide for my children’s edu- by the purchaser? Why not demand a larger deposit so
predatory lending,”Wright says. annual percentage rate that is cation or help me to achieve that if the deal fails you will get more compensation?
What’s more, there are no uni- the same as the interest rate. financial freedom?’” Please see a real estate attorney or legal clinic before
form standards, testing or certifi- Other signs that you may be Additionally, Nicholas and signing anything. If I were required or encouraged to
cation for mortgage loan officers dealing with a predatory lender, Wright also recommend report- sign a complex agreement by tomorrow, before a
to follow, she says. Most states says Nicholas, include: ing suspicious lending practices
review of all terms, I would have to say no. But that’s
don’t have the funds or man- • A lender who gives you a to the Federal Trade
power to enforce existing regula- pre-approval letter without Commission, your State Attorney just me.
tions that they have on the pulling your credit report and General’s office and your state
books, let alone come up with looking at your income and asset licensing agency. Q: What’s the best way to improve your credit?
new, enforceable regulations. statements.
“This ‘wild west’ environment • A lender that encourages © CTW Features A: There are no shortcuts.The best approach – and
has created tremendous oppor- you to refinance without any sig-
this may seem dull – is to pay all bills on time and in
tunities for unscrupulous people nificant benefit to you, such as a
to come into the mortgage lower interest rate, a new fixed full.
industry and make a ‘quick buck’ vs. a current adjustable rate mort- The real trick is to live below your means.Whatever
at the expense of unknowing gage or a cash-out for a legiti- you earn, other people earn less so there are always
consumers,”Wright says. mate purpose. opportunities to cut costs. If you must get a less expen-
sive car or eat out less often, that’s a fair price to pay
for better credit that can save you thousands of dollars
a year in excess interest costs.
If you start a budget today, within a year you should
see a substantial improvement in your credit standing.
Remember that creditors are most interested in your
bill paying for the last year or two, so a lot of past credit
sins can be overcome in a short time with good budget-
ing.

© CTW Features
Photo courtesy of James Hardie Building Products, Inc

CONTRACTORS Peter G. Miller is the author of The Common-Sense


Mortgage and a veteran real estate columnist. Have a ques-
CONTINUED FROM PAGE 1 tion? Please write to peter@contentthatworks.com.

tive of our members and the way


they do business,” says Jerry
Howard, executive vice presi-
dent and CEO of the National
Association of Home Builders.
This can be a high-profit mar-
gin business, and workers will
float into town from far away
states to take advantage of the
jobs to be had in storm-damaged
regions. But you’re not protected
from scams or shoddy workman-
ship just because you opted to
hire a local contractor. In affect-
ed areas, such as the northwest
Minneapolis suburbs, which
were rocked with a major hail Fishing for a reliable contractor isn’t always an easy task.
storm in September, even local
siding experts are using out-of-
town subcontractors to help time the next one arrives.That house on Main Street doesn’t
keep up with the work demand. lifetime labor warranty doesn’t mean they really did. Or even if
Lodging facilities off the high- sound so good if the company they did, a drive by won’t tell
ways are filled with siders and isn’t around to fulfill it. you if they completed the work
roofers who have migrated north And as far as their clean bill of on time or had other complica-
for the opportunity. health from the Better Business tions. Call those references or
At the same time, contractors Bureau is concerned, don’t just knock on their door and ask
in some cities are hard to find check out their record, double- meaningful questions, such as
because many moved south for check how long they have been “Did they show up on time
the winter to help homeowners members. Some join just in the every day?”
in Louisiana, Mississippi and weeks after the most recent Seek out professional refer-
Florida size up their damage. storm and haven’t had time for ences from suppliers or subcon-
Out-of-town subcontractors customers to lodge feedback, tractors to verify if the company
do not equate to an inferior others simply change their has established a sound credit
workmanship, as there are some names every couple of years in history.A contractor that doesn’t
who truly are aces in their craft. an attempt to wipe their unfavor- pay its bills on time just may not
The NAHB is a good place to able slate clean. do right by you, according to the
turn for recommendations, as its Find out if the company has NAHB.
members often stay up to date employees or hires independent And finally, use your instinct.
with the industry through trade subcontractors.And does the Do you feel comfortable and
shows and seminars. insurance they carry protect you trust the person based on your
“Your local home builders from claims arising from jobsite encounters so far from how
associations and the NAHB have injuries or property damage. quickly they return calls to
resources to help you make Make sure you receive a copy of prompt arrival times for meet-
smart decisions about hiring a the remodeler’s insurance certifi- ings or overall sales presenta-
contractor and getting your cates so you can determine this tion?
repairs underway, whether they yourself.
result from a natural disaster or And note, just because a com- © CTW Features
from a need for routine home pany is insured and bonded, that
improvement,” Howard says. doesn’t mean the subcontractors
Some of the questions you are. Everyone needs to be
should ask a contractor recom- insured, otherwise if something
mended from licenses, insurance unfortunate occurred, like a
and referrals are spelled out in a worker falling off your roof, you
free NAHB brochure,“How to could be liable for footing the
Find a Professional Remodeler,” bill for the personal injuries.
released in early February. Have contractors supply you
For starters, look for a con- with a list of references of like
tractor with an established busi- projects, including names, tele-
ness history in your community. phone numbers and addresses of
Some companies start up the day clients. Just because they said
after the storm hits and fold by they re-sided that gorgeous