Credit portal




Toxic Mortgages

what are toxic mortgages

Residential real estate closings may appear to be simple. Nevertheless, there are traps to be aware of.

It is important to consult an attorney before signing legal documents. One example: Connecticut now requires most real estate sellers to disclose known problems to prospective buyers. Also, sellers and lessors must often disclose known lead paint problems, and provide an information booklet to buyers or tenants. Yet, very few stationery store forms mention these new requirements. Sellers or lessors could be penalized for innocently relying on outdated forms.

A second example: A new trap has surfaced, called "toxic mortgages." These come from unscrupulous mortgage lenders who take advantage of unwary borrowers who need cash quickly and don't want lawyers to read the "fine print." However, in a toxic mortgage, the fine print can take away all or nearly all of the value of your home! People are devastated, a few years later, to find out that they may lose their homes because they can't afford outrageous interest payments! Please, just as you would have a qualified doctor review your x-rays, have a qualified lawyer review your mortgage and other documents before signing.

SUGGESTION: See a lawyer before you talk to the bank or broker, and certainly before you sign anything. Just because it's a "standard form," and "legal," doesn't necessarily mean it's in your best interests.

SPECIAL NOTE: A "home equity loan" is a mortgage. The banking industry loves the term "home equity", because it misleads some people into thinking that they cannot lose their home if they don't pay. Further, the lobbying clout of the banking industry prevents laws that would

require banks to tell you, clearly and prominently, that a home equity loan is indeed a mortgage. Do not be fooled into thinking that you don't need a lawyer "because it's just a home equity."

And please don't be swayed by the fact that bankers look so respectable. That is less likely today in our Great Recession/Mild Depression, but bankers still have a way of intimidating people with their notions of super-respectability.

I once had a downtown banking lawyer in my office. This guy reeked of money; I think his shirt and tie cost more than my computer. We agreed on mortgage terms. He took out his trusty laptop, punched in a few numbers, and confidently announced in a patrician manner what the monthly payments would be.

Not to be difficult, but I went to my battered "green book" (Financial Comprehensive Mortgage Payment Tables), and looked it up in a plebeian manner. The answer was less money, by ten cents a month, which is gigantic in this business (you never expect a variance of more than 1-2 cents a month, whatever mortgage program you use). He smiled, tried his laptop again, and got the same answer. I checked again, and still got my answer.

I offered to call a local banker and ask what their answer was. No, that's OK, he said; and he accepted my figure.

It's amusing to wonder what the lawyer said to his software vendor when he got back to the office. I wonder if he corrected all the errors he must have made over the years.

Money breeds over-confidence. Watch out for it.

Category: Credit

Similar articles: