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The Devil in the Details: Tapping The Reverse Mortgage Piggy Bank

Actors Henry Winkler, Tom Selleck and Fred Thompson have all appeared on my television or computer screen at some point touting the benefits of a “government insured”,  safe, reverse mortgage. They want you to, “Get the money you deserve to live the good life”  by tapping the equity you have in your home.  .

I’ve seen the aftermath of that sales pitch play out for numerous clients, and it’s not “the good life” they promised that I’m watching unfold. In fact, all too often, the foreclosure sale on the home looms just weeks down the road.

Intentions thwarted

The borrower, often a retiree who took out the reverse mortgage and drew down on the loan in an effort to remain independent or take that trip of a lifetime, passes away and leaves the house to a loved one or to their estate. You often find that a house may have thousands of dollars in equity over and above the reverse mortgage amount, but once the house is gone, its equity gone too. Often times, when the borrower has passed away, the lender won’t take payments from anyone else.  The loan is considered due and payable only in full, says the lien holder, and that’s that.

There are times where you can refinance the house, or if you have tons of cash, you can pay off the loan, but… if you don’t, the house, and all that equity, may go, not to the relative chosen by the deceased, but to the “friendly”, reverse mortgage lender.

You MIGHT can use bankruptcy

A bankruptcy filing may solve this particular problem but not in all situations.

Bankruptcy is an option only if the heir to the house is an individual.  Individuals can file bankruptcy. If the home is left to a trust or estate, you’re toast. Trusts and estates cannot file bankruptcy.  

If you get a reverse mortgage on a house, you should always leave it to an individual.  If that individual files bankruptcy, the automatic stay that comes with a bankruptcy filing, would be available to the individual whereas it would not be available to the estate.  

Your House as a piggy bank

The risks associated with reverse mortgages are becoming more apparent to more people and have been summarized in this Consumer Financial Protection Bureau report to Congress.  Despite the economic crisis of the late 2000s and early 2010s, reverse mortgages are making a comeback

Another problem with reverse mortgages is that surviving spouses who are not on the loan may have no right to stay in the home on the borrower’s death.   These loans are complex and may encourage premature tapping of home equity for non essential things.  In the grand scheme, the pressure to tap home equity to support retirement becoming more and more irresistible.  This is a direct result of people regarding their  home as a piggy bank or your as a retirement nest egg. You should NEVER view your home this way.  You should instead take steps to build a retirement nest egg outside of your home’s equity. Homes are a long term investment, not a source of funding for your next vacation. If you have to use your home equity as a source of retirement funding, there are other ways to tap this equity than reverse mortgages.  Reverse Mortgages are almost ALWAYS a bad idea and I warn my clients against them 99% of the time.  

If you find yourself in a bad financial situation, call the attorneys at Harmon and Gorove to set up a free no obligation consultation to see what your options are.  You may be surprised to learn how Bankruptcy can help you secure your financial future. 

Never Trust Your Mortgage Servicer

If you’re one of the millions of Americans who have a mortgage I’m going to say something pointed and perhaps, upsetting. Don’t trust the loan servicer on your mortgage for one second. The mortgage industry has, for lack of a better term, created a swamp around your home.  The lender’s representative (or snake as I call them) lives in that swamp.

Don’t ever turn your back on a snake.

By stating this, I don’t mean to foster distrust between people and their mortgage lender, but in all honesty, that’s the best legal advice I can give.  Ronald Reagan once use the term, “Trust but verify.” I just advise you to verify, verify, keep records and don’t believe a word they say unless you have it in writing. 

Never ever, ever rely on anything your loan servicer tells you on the phone.  Nothing.

You may use the information you gather on the phone as clues, but don’t ever draw conclusions from what you’re told by the person on the other end of the line because chances are, they don’t know anymore about your mortgage than you do.

Why these agents just can’t be trusted….

Loan servicing in this country is a huge industry with narrow profit margins. The difference between your mortgage lender and your mortgage servicer can be found here.   One of the biggest expenses for loan servicers is customer service. Good customer service is expensive. As I stated, the companies who are contracted to collect the payments on your home loan operate on very tight margins in an extremely competitive business. The cheaper the better (at least in their eyes).

People:  The most obvious place any business can reduce costs and make more money is to hire the least expensive employees you can find.  Cut their training to the bare minimum, and give them absolutely zero flexibility in how they do their jobs. In short, the person on the other end of the line probably just isn’t up for the job and chances are, it isn’t even their fault.

Procedures:  When you get a copy of how your payments are posted to your loan balance, you often see a payment posted, then reversed, then reapplied differently. A friend of mine received a loan history where the servicer made more than sixty entries on the loan ledger in a single day. I don’t know about you, but sixty entries in a single day is a bit excessive.

Selloffs:  It’s extremely rare that a servicer handles a loan for the life of that loan.  Instead, the right to service the loan is handed off or sold. One servicer to another, presumably to a company who will charge the owner of the loan even less to do the job. Usually, what the new servicer doesn’t even get a reasonable history of the loan, just a bunch of numbers that are supposed to add up to something, but what that something is, who knows.

Phone calls are not evidence so don’t even try…

The root problem with relying on what your loan service agent says on the phone is this:  How do you prove it?  You may have taken meticulous notes but unless you recorded the call (which could be illegal) you don’t have anything.

Words are fleeting and it is extremely easy to misunderstand what someone said, especially if there is a language barrier.  If there’s trouble, and there usually will be, there’s no paper record. An oral agreement isn’t worth the paper it’s written on.

You won’t work it out…

A client recently was dealing with “customer service” trying to determine how much money was required to bring the loan current before the foreclosure sale which was ten days away. Four days from the actual date of foreclosure, the servicer admitted that the loan has been sold and they had no authority to do anything, but it gets worse. The new servicer said the loan isn’t in our system yet, so we can’t tell you.  Truly, this client was almost out of options because they waited until the last minute.

When you’re in default on your loan…

Number 1, don’t wait until the last second to try to stop your foreclosure.  Foreclosure is very serious and deserves your full attention the minute you see the problem.  You will only make a bad situation worse. You should always utilize the tools you have under federal law to get the accounting and answers you are entitled to. Also, I know I’ve said it before but I can’t state it enough, don’t trust anything you’re told on the phone.  If it’s important (and if you’re behind, everything’s important), GET IT IN WRITING.

Finally, If you’re out of options and need legal protection, start interviewing bankruptcy attorneys before you get a foreclosure notice.  If you show up at the last second and many lawyers assume you’ll be a rotten client.

 

The Side Effect of Debt

Debt is something that is a fact of life in the modern world.  Everywhere we turn, we are forced to borrow money in order to get ahead in life.  We have to borrow money for our education, our homes, our cars, even our phones and healthcare. In an ever more expensive world, debt is a burden that we must all bear.  One thing you should keep in mind though as you take on debt is that there is a side effect and debt should be used sparingly and in ways that will IMPROVE your life.

The Consequences of Debt

Debt has several side effects.  The first side effect is that you WILL pay more for an item bought using debt.  This is called interest and virtually every lender expects to be paid some amount of interest.  The second side effect is that you can face difficulty repaying that debt. When you take out loans, lenders generally look at your income vs liabilities.  That’s called debt to income ratio. If you lose your job or face a pay cut, you could find yourself stuck owing more than you can physically pay back. The third side effect of debt is that you can end  up being a slave to that debt. You’ll always feel like you have a yoke around your neck constantly pulling against you and keeping you from achieving your financial goals. Finally, the last side effect of debt is the added pressure that debt can put on you and your relationships.  Poor financial decisions is one of the leading causes of divorces and breakups. It even causes some people to rethink whether or not they wish to marry to someone.

Some Debts can be Good, but understand reality

Like I said earlier, some debt is necessary and in fact, some debts can even be beneficial.  Having a home loan can help you buy a house and build equity. Homes are often times the biggest asset the average american can own.  Home ownership is vastly higher in the U.S. than it is in most of the developed world. Student loans, when used responsibly, can help people meet educational goals that improve their lives and help them earn more money.  The biggest thing about these debts are that they need to be used sparingly and only taken out in small doses. Just because a lender says they’ll loan you $400,000 on your home doesn’t mean you should do it. Many people who took out student loans took out more than they needed or didn’t look at ways to cut costs like attending in state public schools, utilizing community colleges and technical schools or getting degrees that won’t help them achieve their financial goals.  Having $150,000 in student loan debt for a bachelor’s degree from your dream college doesn’t feel so good when the payments come due and you’re only making $20,000 a year working as a barista.

Interest is a real drain on household resources each year as well.  A typical family in America pays an average of $10,000 per year in interest and the average person could pay hundreds of thousands of dollars in interest over the course of the life of a loan, especially mortgage loans.  Imagine what you could do with that money. Pay cash for you education, save for retirement, go on a vacation, the list goes on and on. The bottom line is, when you take out debt, make sure you always ask yourself if its worth it.  Is that $5 latte worth $8 by the time you factor in interest on your credit card? Is that fancy new $50,000 car worth the $70,000 you’ll ultimately pay after you account for interest? Asking yourself these questions while looking at the big picture can help you have a brighter financial future.

Don’t put off seeking professional help

A side effect is an unwanted outcome that often places a significant burden on the person experiencing it. If you’re already experiencing the burden of debt, you should consider contacting us for a free consultation .  We meet with clients all the time who don’t want to file bankruptcy because it would hurt their credit.  What they don’t realize is that having a credit score of 800 is useless if you are already maxed out on debt.  While repaying your debt is an admirable goal, it’s not always possible or even advisable. Starting fresh is exactly what bankruptcy is all about and why we do what we do.  Filing bankruptcy is better than spending the remainder of your life in debt, never getting ahead, and never saving for retirement. At the very least, you should speak with a qualified bankruptcy attorney about how they can help you recover your financial well being using the bankruptcy code to your advantage. Consultations with a qualified, award winning attorney, are always free at Harmon and Gorove.  We’ll be honest with you about your options and never pressure you to do something that isn’t in your best interest.

 

Tackling Credit Card Debt

With credit card debt in the United States nearing 1 TRILLION dollars, it’s easy to say that a great deal of people are feeling overwhelmed by the debts carried on their revolving accounts. Many people who carry balances on their credit cards pay just the monthly minimums and ignore the problem.  This is NOT a good plan. Pretending your debts don’t exist just makes the problem that much worse. This strategy will backfire on you every time in the long run. It will make you miserable, it will cause you to be unable to save for the future and it could eventually drive you into bankruptcy.

If you are interested in trying to get started on paying down your long term credit card debts we have some advice for you.  The best strategy starts with the first step and that step is often to modify your spending habits by creating a budget and sticking to it. Just small modifications to your daily routine can mean big savings that you can then start using to pay down your balances one at a time, always starting with the payment with the highest interest rates.  

Step one is to decide on a repayment strategy.  Don’t allow yourself to continue to drown under the weight of multiple credit card payments each month.  If you start working your way down from the top (meaning you pay off your biggest balance or highest interest rate) you can begin to reduce your debts quickly, freeing up more and more disposable income that you can then use to continue to pay off other debts.

Another step you can take is to communicate with the people you owe money to. If you’re struggling with the exorbitantly high interest rates that are routinely charged by credit card companies, sometimes just giving them a call and asking for an interest rate reduction will allow you to free up more money to pay down the principal on the card each month.  Sometimes credit card companies will work with you on rates if you’ll commit to repaying the debt at that lower interest rate.

There are lots of options available to you if you feel like your drowning in credit card debt.  The attorneys at Harmon and Gorove can help you find a way out of debt for good. Contact us for a free, no obligation consultation to find out how we can get you started down a path to financial freedom.

 

Savings Rate in America is Scary

The average American family is struggling with savings.  While as much as 70% of people agree that the economy is humming along at a record pace, many people often do not see the real benefit that Wall Street is reaping in their own bank accounts.  Here in the United States, the economy may be doing well but the savings rate reaches has reached a new low.

 

A recent study by the Federal Reserve says that the average American consumer is unable to cover a $400 emergency expense without tapping credit or having to sell some possessions. Many attribute this to the rising cost of living and the recent uptick in consumer debt and student loan debt which are both having a negative effect on the savings rate.  Student loan debt in America now tops 1.4 Trillion dollars and is causing many people to not be able to purchase homes and cars and is even blamed for delaying marriages and keeping people from starting families.

 

Another disturbing trend in the savings rate in America is the fact that more than 50% of people have less than 1,000 dollars in savings.  Despite the fact that more Americans are feeling confident in the economy, a full 57% of Americans don’t even have 1,000 dollars saved. This is disturbing because many people still expect to retire at or around 65.  The average social security check people receive in retirement is approximately 1,400 per month.  While that will continue to increase as time goes on, it is a sobering thought that many people who are late to get into the savings game may have to finance their retirement on just under 17,000 dollars per year.  


As we stated earlier, most people are feeling more financially secure but they are failing to save.  You can make that savings easier if you contribute to employer funded or matched retirement plans which save your money for you, keeping you from ever getting your hands on it.  If you work for an employer that does this, we highly recommend you using this. If you are having to save on your own and you keep finding it harder and harder to put money away you may be a good candidate for bankruptcy.  Bankruptcy can be a positive thing for your finances and it can help you eliminate may of the unnecessary debts that are holding you back from creating a savings plan. If you are struggling with creating a savings plan, give us a call.  The attorneys at Harmon and Gorove have decades of experience helping people out of debt and making meaningful financial changes in their lives.  

Calculating Your Credit Score: Why does it matter?

Any business that relies on consumer lending (ie. banks, car dealers, mortgage brokers, etc.) need credit scores. Using them allows them to quickly decide if you are worthy of credit and if so, what your interest rate will be. Using credit scores is a quick and easy way for lenders to keep up their volume of lending. A credit score allows lenders to decide immediately whether they can sell you a car or give you a credit card right away.

Consumers can improve their credit scores by planning their credit use to bolster their standing in the eyes of the credit agencies. To do this, knowing how the scores are calculated is extremely important. Here is what you need to know.

How a credit score is calculated

A company called Fair Isaac created the credit scoring system that is in widespread use today.  They keep the exact formula private but due to pressure from consumer groups and the government, they have given us a general framework of how their system works.  This information gives people who want to improve their credit score a leg up. By knowing what goes into the formula, consumers are able to make decisions with their money in ways that can improve their credit scores.

Credit Scores are composed of someone’s history of payments, current debt outstanding, how long your credit has been established, the number of new credit accounts, and types of credit accounts. Each of these different factors comprise a percentage in the formula used to calculate your credit score. Your credit history makes up 35 percent of the score’s calculation.

35% of you score depends on your payment history and whether your bills are paid on time. The formula takes off points for late payments, accounts you have had sent to collection agencies, and any bankruptcies you had in the past 10 years. When accounts you have that are in collections are satisfied, some of the point deduction falls off. This is also the case with accounts that are late. The longer a bankruptcy occurred in the past, the less it affects the score.

Outstanding debt makes up 30% of the score. It is almost as important as your payment history. While it may appear that payment history is vastly more important than your outstanding debt, in terms of credit risk, the two are very close in significance. Even if a person has a good payment history, a significant amount of outstanding debt indicates that person has fallen into a debt situation that has the potential to become unmanageable.

Length of credit history also plays an important role in your credit score. In this category, people who are older or established credit at a younger age have a major advantage. The formula uses length of credit history as the basis for 15% of the score. The formula estimates that people with longer credit histories are better to lend to than those who have just opened a line of credit. Also, it favors longevity with a lender versus those who have closed old accounts in favor of new lines of credit.

10% of your credit score is determined by how many new accounts you have opened. Any time you open a new line of credit it can temporarily lower your credit score.  While this may seem like a bad thing, opening new accounts for people with a limited credit history still improves their score because you must establish credit with a good payment history and ever increasing credit limits.

The kinds of credit accounts you open effects 10% of your score. Mortgages and car loans are better than credit cards. Credit cards are better than payday loans or title pawns. Having a mortgage makes you look more stable to lenders while having a payday loan and high credit card balances may indicate poor financial wellbeing.

Credit scores are convenient and they allow lenders to make decisions on credit quickly and conveniently for you and them. By building a credit profile that raises your credit score, consumers can make better decisions about credit and have more options to get credit at a lower cost.

Are you having trouble with your credit? Are lenders or collections agencies harassing you?  If they are there’s a good chance they have already had a negative impact on your credit score.  Come see the attorneys at Harmon and Gorove today for a free consultation about how we can change your financial situation through the bankruptcy process and start your on the road to rebuilding your good credit.