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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

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

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

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

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 LENDERS
CONTINUED FROM PAGE 1
include those who are most vul-
nerable and have financial trou-
bles, such as the poor and elder-
ly,” says Wright.“These lenders
understand their financial hard-
ships and will offer help, when
in reality he or she will include
higher interest rates, loans with
huge pre-payment penalties and
exorbitant closing costs.”
Why are predatory lenders
popping up more lately? Wright
says that the low interest rate
environment of the last few
years, coupled with the tremen-
dous growth in home values
(and home equity) has con-
tributed to the record growth of
the mortgage industry, for good
and bad.
“The ease with which lending
information is shared and
obtained on the Web is another
major factor for the increase in
predatory lending,”Wright says.
What’s more, there are no uni-
form standards, testing or certifi-
cation for mortgage loan officers
to follow, she says. Most states
don’t have the funds or man-
power to enforce existing regula-
tions that they have on the
books, let alone come up with
new, enforceable regulations.
“This ‘wild west’ environment
has created tremendous oppor-
tunities for unscrupulous people
to come into the mortgage
industry and make a ‘quick buck’
at the expense of unknowing
consumers,”Wright says.
CONTRACTORS
CONTINUED FROM PAGE 1
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
storm in September, even local
siding experts are using out-of-
town subcontractors to help
keep up with the work demand.
Lodging facilities off the high-
ways are filled with siders and
roofers who have migrated north
for the opportunity.
At the same time, contractors
in some cities are hard to find
because many moved south for
the winter to help homeowners
in Louisiana, Mississippi and
Florida size up their damage.
Out-of-town subcontractors
do not equate to an inferior
workmanship, as there are some
who truly are aces in their craft.
The NAHB is a good place to
turn for recommendations, as its
members often stay up to date
with the industry through trade
shows and seminars.
“Your local home builders
associations and the NAHB have
resources to help you make
smart decisions about hiring a
contractor and getting your
repairs underway, whether they
result from a natural disaster or
from a need for routine home
improvement,” Howard says.
Some of the questions you
should ask a contractor recom-
mended from licenses, insurance
and referrals are spelled out in a
free NAHB brochure,“How to
Find a Professional Remodeler,”
released in early February.
For starters, look for a con-
tractor with an established busi-
ness history in your community.
Some companies start up the day
after the storm hits and fold by
You can usually spot a preda-
tory lender by the “too-good-to-
be-true” offers they make, say
experts.
“Be cautious if anyone adver-
tises or says ‘poor credit? No
problem,’ calls on the phone or
comes to your door offering you
a ‘bargain loan’ that he or she
rushes you to sign that day,” says
Sally Hurme, issue coordinator
for the consumer protection
department of AARP,Washington,
D.C. Likewise, be suspicious if
they ask you to pay a fee up
front to cover a first payment or
other expenses, or offer you a
loan with a small monthly pay-
ment and a balloon payment that
will be difficult to pay when it
comes due.
For Charles Alexander, presi-
dent of Alexa Corp., Raleigh,
N.C., the biggest red flag is a
lender or loan officer that won’t
provide a good faith estimate, a
truth in lending statement or a
complete explanation for an
annual percentage rate that is
the same as the interest rate.
Other signs that you may be
dealing with a predatory lender,
says Nicholas, include:
• A lender who gives you a
pre-approval letter without
pulling your credit report and
looking at your income and asset
statements.
• A lender that encourages
you to refinance without any sig-
nificant benefit to you, such as a
lower interest rate, a new fixed
vs. a current adjustable rate mort-
gage or a cash-out for a legiti-
mate purpose.
Fishing for a reliable contractor isn’t always an easy task.
time the next one arrives.That
lifetime labor warranty doesn’t
sound so good if the company
isn’t around to fulfill it.
And as far as their clean bill of
health from the Better Business
Bureau is concerned, don’t just
check out their record, double-
check how long they have been
members. Some join just in the
weeks after the most recent
storm and haven’t had time for
customers to lodge feedback,
others simply change their
names every couple of years in
an attempt to wipe their unfavor-
able slate clean.
Find out if the company has
employees or hires independent
subcontractors.And does the
insurance they carry protect you
from claims arising from jobsite
injuries or property damage.
Make sure you receive a copy of
the remodeler’s insurance certifi-
cates so you can determine this
yourself.
And note, just because a com-
pany is insured and bonded, that
doesn’t mean the subcontractors
are. Everyone needs to be
insured, otherwise if something
unfortunate occurred, like a
worker falling off your roof, you
could be liable for footing the
bill for the personal injuries.
Have contractors supply you
with a list of references of like
projects, including names, tele-
phone numbers and addresses of
clients. Just because they said
they re-sided that gorgeous
• A lender that advertises sig-
nificantly below market interest
Ask Our Broker
rates. CONTINUED FROM PAGE 1
• A prepayment penalty that is
six months worth of interest
Alternatively, there are loan programs that provide
instead of 1 to 2 percent of the
loan amount. both for the purchase of the property and reserves for
The best way to avoid being repairs and updates.Think of the Department of
scammed is to always ask for a Housing and Urban Development’s 203(k) rehab
referral from a realtor, previous Program. Money above the purchase price is released
lender, family member, friend, the to buyers as improvements are made.
Better Business Bureau or the
By raising the selling price the buyers are suggesting
Mortgage Bankers Association,
says Wright. that you would net roughly $300,000 after credits to
Rather than shopping for the them.They expect the loan to be made on the basis of
elusive ‘lowest rate,’ borrowers a $323,000 sale price. But is the property really worth
should shop for a trustworthy $323,000? If an independent appraiser suggests that
lender with a competitive rate value then such a price is reasonable.
who can help them make smart
However, there are two cautions here: First, if the
financial choices, says Nicholas.
“Look for a lender with some property is appraised for $323,000 then why sell for
find of certification, and inter- $299,900? Maybe there are buyers who would pay the
view prospective lenders with higher price or close to it, giving you more cash at clos-
questions like,‘what are mort- ing. Second, if the property is not appraised for
gage interest rates based on, and $323,000 can the buyers close the sale?
how will your mortgage strategy
By any chance, is the offer written on a form supplied
help me to retire more efficient-
ly, provide for my children’s edu- by the purchaser? Why not demand a larger deposit so
cation or help me to achieve that if the deal fails you will get more compensation?
financial freedom?’” Please see a real estate attorney or legal clinic before
Additionally, Nicholas and signing anything. If I were required or encouraged to
Wright also recommend report- sign a complex agreement by tomorrow, before a
ing suspicious lending practices
review of all terms, I would have to say no. But that’s
to the Federal Trade
Commission, your State Attorney just me.
General’s office and your state
licensing agency. Q: What’s the best way to improve your credit?
© CTW Features A: There are no shortcuts.The best approach – and
this may seem dull – is to pay all bills on time and in
full.
The real trick is to live below your means.Whatever
you earn, other people earn less so there are always
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
Peter G. Miller is the author of The Common-Sense
Mortgage and a veteran real estate columnist. Have a ques-
tion? Please write to peter@contentthatworks.com.
house on Main Street doesn’t
mean they really did. Or even if
they did, a drive by won’t tell
you if they completed the work
on time or had other complica-
tions. Call those references or
knock on their door and ask
meaningful questions, such as
“Did they show up on time
every day?”
Seek out professional refer-
ences from suppliers or subcon-
tractors to verify if the company
has established a sound credit
history.A contractor that doesn’t
pay its bills on time just may not
do right by you, according to the
NAHB.
And finally, use your instinct.
Do you feel comfortable and
trust the person based on your
encounters so far from how
quickly they return calls to
prompt arrival times for meet-
ings or overall sales presenta-
tion?
© CTW Features