Beware of Predatory Lending!

Predatory lending is a term often associated with short-term consumer financing options such as payday loans, but it's prevalent in the home loan realm as well. In fact, mortgage fraud is rampant these days. At best, these practices are annoying to potential victims, but for the actual victims, the end result could be far worse: the loss of a home, financial catastrophe, the destruction of hard-earned credit scores.With that in mind, it's vitally important to choose the right lender and remain fiscally secure.

We've taken a look at some common predatory lending practices to alert prospective borrowers to the warning signs before they're victimized. It's vital that you know how to protect yourself, and know where to go if it's already too late for that.Current homeowners seeking refinance options are at greater risk of fraud than regular home loan seekers, but no one is immune by any means. At particular risk of mortgage scams are any buyers who, due to credit issues or self-employment status, must rely on subprime lending.Also at risk are those seeking to buy in neighborhoods that have been red-lined (read: greatly discriminated against) by conventional lenders.

Almost by default, a buyer in this kind of area, which is likely low-income and in need of some serious housing overhaul, is placed at the mercy of subprime lending providers.But it goes beyond that.There are many people involved in fraudulent, predatory practices, ranging from large and well-known banks, loan servicing companies, small-time con men who once hocked aluminum siding and water filtration systems door-to-door, corrupt loan originators working for otherwise legitimate firms, jaded real estate attorneys, builders, agents, and more.THE

BOTTOM LINE: Predatory lending is profitable, and more opportunists are always coming out of the woodwork. Here's a short list of predatory practices.

The Classic Bait & Switch. This commonly-used term comes from numerous retailing industries, where a great sale on a plasma TV or new car gets buyers to come down to a store, only to find out that the item is sold out or the sale no longer applies. However, the retailer has something “almost as good” that he'll give you a good deal on to make up it. The practice is common in the mortgage field as well. A borrower commits under a set of terms -- a certain interest rate, a fixed - or adjustable-rate mortgage with a specified time frame and adjustment index, loan duration, etc. Then, at closing, the borrower realizes the documents specify a higher rate, a different adjustment, a five-year note with a balloon, or other terms to which he had not agreed. The loan originator does not answer his phone. The sellers are beginning to look real unhappy. Under pressure and distraught, the borrower signs the documents and swears he will get the mess straightened out. But with the papers signed, it is now a legal issue that takes time, money and perhaps courts to resolve. If you think this could never happen to you, a California study of 125 people who used subprime lenders reported that 70 percent of borrowers said that at least one key of their loans changed negatively at closing.

Lending More Than a Borrower Can Afford. It happens more often than you might think -- a lot more often. You’ve seen the ads in your email box or on late night TV for sure.

· Borrow 125 percent of your home’s value!
· Use your house to buy a new [insert car, yacht, home entertainment system, dream vacation or other indulgent purchase here].

While these can be classified under aggressive solicitation, they are also part of a more devastating practice. Purposely granting and/or structuring a loan with monthly payments in excess of what a client can reasonably be expected to pay is probably as bad as it gets. An over-the-top loan-to-value ratio is all but guaranteed to get you in trouble, but there are other things to watch out for on top of that.

Disregarding Income and Debt, for one. Bad lenders ignore the conventional guidelines regarding the borrower’s ratio of debt to income, or the level of income itself. If a borrower is lined up to pay 55 percent of his income to PITI, for instance, default is all but guaranteed. Negative amortization is now illegal in many states, and should be in all of them, but lenders can usually get away with closing these deals with an uninformed borrower, and with little risk of prosecution. With a "neg am," the borrower is required to pay less than the amount due each month, with the balance being tacked on to the principal. At some point, that swollen principal will come due. Which means disaster in most cases.

Interest-Only Loans. Zero amortization is less dangerous than negative amortization, but both Florida home loans are a recipe for disaster. In both cases, the borrower makes a minimum payment for a period, covering interest but paying nothing toward principal. After 5-10 years, payments are accelerated to cover both interest and principal.A lender usually does this to virtually insure that the borrower will fall into default, and when that inevitably happens, the lender is the first to know and can approach a customer to offer refinancing to bail them out of the jam. How convenient. Under any of the above scenarios, a borrower might refinance 2-3 times before ultimately losing the house to foreclosure or being forced to sell, losing most or all his equity in the process and walking away virtually empty handed.

Prelisting Inspections: Head Off Trouble

Sandy Schoon, ABR®, GRI, a sales associate with Arizona Best Realty in Scottsdale, knows firsthand just how quickly a deal can be put in jeopardy — or slip away altogether. Schoon had a listing on an older house, built in the early ’70s. Two weeks before the sale was to close, the air conditioning system broke down. After some scrambling by the sellers and a $2,000 repair, the deal went through, but Schoon says the added stress could’ve easily been avoided.“If you do an inspection and make the necessary repairs before listing a home, the house basically has a clean bill of health,” says Schoon, who has regularly recommended prelisting inspections to her clients during the four years she’s worked as a real estate salesperson. “It’s an opportunity to take care of things that could go wrong so that they won’t come back and bite you.

”Prelisting inspections — examinations paid for by the seller before a house is put on the market —are becoming an increasingly popular way for practitioners to not only reduce the possibility of last-minute surprises but also give their cli­ents’ homes a Marketing Edge. Although some practitioners suggest prelisting inspections for older homes or those in obvious need of repair, Susan Spellman, ABR®, a salesperson with Long & Foster, REALTORS®, in Williamsburg, Va., recommends them to all her clients. Her average sales price is about $700,000, and her clients tend to live in gated communities. “Just because a home has granite countertops doesn’t mean it’s well built,” she says.

She feels so strongly about prelisting inspections that if her clients don’t agree to do one, she gives them two options: sign a letter acknowledging they’re not following her advice or work with another practitioner. “I tell my clients not to be penny-wise and dollar-dumb,” Spellman says. In the end, “my clients feel it’s been money well spent,” she says.Schoon and Spellman both mention the inspections in all of a home’s marketing materials, and make the inspection reports, as well as any repair receipts or cost estimates, available during showings.

“Sellers are realizing it’s not just their market anymore. Thanks to the Internet, potential buyers are walking into homes more knowledgeable than ever before, and sellers know they must do everything they can to sell their house,” Paterkiewicz says. “A prelisting inspection helps get buyers comfortable with the idea of making an unconditional offer. There’s also a greater sense of security because the seller and practitioner are being very forthright, demonstrating that there’s nothing to hide.”The need to make certain repairs—such as to mechanical systems (heating and air conditioning, plumbing, and electrical) and to address safety issues (broken locks, loose handrails)—almost goes without saying. But the prelisting inspection can help the owner and practitioner decide which, if any, of the remaining projects to address before putting the house on the market. Even if sellers decide not to make any of the suggested fixes, a prelisting inspection can still prove beneficial, Steward says. For example, it allows sellers to obtain cost estimates for needed work, so they can offer potential buyers an appropriate, not excessive, discount off the listing price.

Prelisting inspections can reduce parties’ stress level and eliminate many of the bumps that can throw a deal off track, says Long & Foster’s Spellman. “You want a smooth, successful transaction,” she says. “If the house doesn’t sell, it’s a lose-lose for everyone.”

How to Handle Water/Mold Damage

Water damage, if left unattended for any period of time, may lead to mold growth. People may experience health effects associated with exposure to mold in damp buildings, according to a two-year study by the Institute of Medicine. These health effects may include a runny nose, sneezing, coughing, congestion, aggravation of asthma, sore throat, or inflammation of the sinus. Concerns are more likely to arise when "at risk" individuals are exposed to mold growth. "At risk" people can include immune suppressed or compromised individuals, young children, and individuals with chronic inflammatory lung diseases such as asthma and severe allergies.
Dealing with Mold

Professionals handle water damages every day. Prompt action is required to prevent new mold growth. If your property has sustained a recent water damage, it is vital to have the water removed and the structure dried promptly.

When excessive mold contaminates a building, remediators follow five principles in dealing with the mold:

Principle 1: Provide for health and safety. Since moldy buildings are associated with health problems, remediators protect the health of workers and occupants. Some work practices prevent workers from exposure as they disturb the mold during cleanup. Other work practices prevent mold from spreading to occupied areas of the building.

Principle 2: Document conditions and processes.Remediators record conditions in the building such as the extent of the contamination and the amount of moisture saturation. Once remediation is completed, an independent indoor environmental professional may record that mold in the building is returned to normal conditions.

Principle 3: Control the mold contaminant at its source. Work practices aim at keeping mold contamination from becoming airborne and then spreading from the source to clean areas. This reduces the amount of airborne mold that workers are exposed to. It also makes the process of removing mold more efficient.

Principle 4: Remove contamination. Once mold has grown beyond normal levels, the most effective solution is to remove the excess mold contamination. This may be accomplished by physically removing materials damaged by growing mold, by vacuuming excessive mold spores into HEPA filters, and by damp wiping soiled surfaces with detergent cleaning products.

Priniciple 5: Correct the moisture problem. This is the key to dealing with mold. Stop the source of moisture that initially contributed to mold growth. Even the best cleanup efforts will not keep mold from returning if a building continues to have moisture problems.

How to Take Care of Your Home

No directions on maintenance, no guidance on repairs, no description of how all of the parts work. Home improvement expert Lynda Lyday, host of the DIY Network’s viewer call-in show “Talk2DIY,” sought to change that with her latest book. She explains how every component in the home works, from the hot water heater to the chimney cap, and provides practical maintenance tips.

Each of the generously illustrated chapters covers a different part or system of the home, such as flooring, ventilation, and plumbing. The focus isn’t on do-it-yourself repairs but on providing an overview of the terms, materials, and care needed for each part of the home. The book can help you and your clients better understand the inner workings of a home and would be especially helpful for buyer clients who just bought their first home.

Tips From the Book:
Make sure the lawn is properly graded. If it’s not graded correctly, rainwater will create puddles on the lawn and suffocate plants. In most cases, once the water has done damage to the yard, it will find ways to enter the home through cracks in the foundation. When enough water builds up against the foundation wall, it creates pressure that can crack the foundation and cause water to seep into the home.

Buy the right kind of dimmer switch. There’s nothing like being able to create an instant mood with the touch of a button, making light dimmers an excellent choice. But not all dimmers are created equal. An inexpensive switch can cause the light bulb’s filament to buzz. Spend a few more dollars on a more expensive switch, which has components to store the electrical charge that makes the filament buzz. If you’re buying a dimmer for a ceiling fan, you can’t use a regular dimmer. You must buy a switch especially for that purpose.

Burn dry hardwoods in the fireplace. Have the chimney cleaned and inspected every year to remove the risk of fire and ensure the fireplace works efficiently. Chimney sweeps clean out the soot and the creosote, which is produced by an incomplete combustion of wood. Creosote is caused by burning woods that are not seasoned or are wet, and softwoods produce more of it than hardwoods do. Season firewood under a cover for six months before burning it, or consider fire logs made of sawdust and petroleum wax, which burn much cleaner and minimize creosote buildup.

10 Things to Take the Trauma Out of Homebuying

1. Find a real estate agent that’s simpatico. Homebuying is not only a big financial commitment, but also an emotional one. It’s critical that the agent you chose is both skilled and a good fit with your personality.

2. Remember, there’s no “right” time to buy, any more than there’s a right time to sell. If you find a home now, don’t try to second-guess the interest rates or the housing market by waiting. Changes don’t usually occur fast enough to make that much difference in price, and a good home won’t stay on the market long.

3. Don’t ask for too many opinions. It’s natural to want reassurance for such a big decision, but too many ideas will make it much harder to make a decision.

4. Accept that no house is ever perfect. Focus in on the things that are most important to you and let the minor ones go.

5. Don’t try to be a killer negotiator. Negotiation is definitely a part of the real estate process, but trying to “win” by getting an extra-low price may lose you the home you love.

6. Remember your home doesn’t exist in a vacuum. Don’t get so caught up in the physical aspects of the house itself—room size, kitchen—that you forget such issues as amenities, noise level, etc., that have a big impact on what it’s like to live in your new home.

7. Don’t wait until you’ve found a home and made an offer to get approved for a mortgage, investigate insurance availability, and consider a schedule for moving. Presenting an offer contingent on a lot of unresolved issues will make your bid much less attractive to sellers.

8. Factor in maintenance and repair costs in your post-home buying budget. Even if you buy a new home, there will be some costs. Don’t leave yourself short and let your home deteriorate.

9. Accept that a little buyer’s remorse is inevitable and will probably pass. Buying a home, especially for the first time, is a big commitment, but it also yields big benefits.

10. Choose a home first because you love it; then think about appreciation. While U.S. homes have appreciated an average of 5.4 percent annually over from 1998 to 2002, a home’s most important role is as a comfortable, safe place to live.

Say Hello To The “Live-In Room,”

Take the room formerly known as a kitchen. The new concept room features a professional cooking area, a less formal dining and entertaining space, and a comfortable lounge area with sofas, a television, and a beverage center.

Electrolux, an international appliance company, debuted "Live-In Room" concepts at the 2006 Kitchen & Bath Industry Show. “We reviewed how the kitchen is used and developed a space that makes it a comfortable setting that encourages togetherness,” says John Swenson, director of brand marketing for the company.

Instead of walls, the room has "zones" that allow for residents to move around into different areas seamlessly and perform different tasks, from paying bills to watching movies on a comfy couch.

Then there’s the room formerly know as the laundry room. Cabinetry manufacturer Merillat Industries LLC showed off its ideas for multiuse layouts incorporating various types of cabinetry to bring together laundry, craft, office, and other spaces.

Design Services Director Paul Radoy says his team discovered that small kitchen spice drawers make great storage for sewing materials, fly-tying supplies, or model-building parts. Pull-out desk surfaces double as sewing stations, and an island on casters is ideal for a laundry-folding table or gift-wrapping surface.
Both Electrolux Electrolux and Merillat have tools and checklists on their Web sites that encourage multiuse-space thinking. “It's exciting to see what people will do with this mixed-use approach because the result will be different for everyone,” Radoy says.
Source: Remodeling Magazine