DEAR BOB: We recently refinanced our home mortgage to lower the interest rate and take out cash to pay off all our credit-card debt. But, at the last minute before we were expected to sign the loan papers, the mortgage broker’s documents she gave us showed large fees we had never heard of before. Because we were refinancing, we told the broker we didn’t want to pay any loan fee points, which, as you explained many times, can only be deducted over the life of the refinanced mortgage. In addition to the appraisal fee and lender’s title insurance fee, which we expected, there were extras that weren’t listed on the “good faith estimate,” which the mortgage broker gave us after we applied for the refinance. We were charged an administration fee, underwriting fee, documentation fee, inspection fee, preparation fee, wire fee, courier fee and even a miscellaneous fee. The total was about $3,800. When we protested, our mortgage broker said it was the lender, not the broker, who imposed these fees. However, I saw there was also a notation about a “yield spread premium,” which wasn’t charged to us. Were we ripped off by mortgage lender junk fees? – Gregg W.
DEAR GREGG: Yes. A mortgage junk or garbage fee is a borrower charge that is not paid to a third party for a legitimate service. Your appraisal fee and lender’s title insurance fee were legitimate fees paid to third parties for services. The wire and courier fees may also have been legitimate.
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Because you wisely told the mortgage broker you didn’t want to pay any loan fee on your refinance, the broker probably arranged a loan at an interest rate slightly above the market rate. To illustrate, if 6 percent is the “market rate” for home loans, your mortgage might be at 6 and one-eighth percent with no loan fee.
The result is the actual lender gave your mortgage broker a “kickback” fee for producing a higher-than-market-rate mortgage. It is called a “yield spread premium.” But it’s perfectly legal so don’t argue about it.
However, those other fees are 100 percent pure profit junk or garbage fees. Whether they went to the actual lender or the mortgage broker is difficult to determine.
Unfortunately, there is no penalty when a mortgage broker provides borrowers with a “good faith estimate” of closing costs, which is more fiction than truth.
If you feel strongly about the issue, you could demand a refund from your mortgage broker of the junk fees not paid for legitimate third-party services. You probably won’t receive a reply. But then you can decide if you want to take the mortgage broker to local Small Claims Court to let the judge decide if you are entitled to a refund.
DIVORCE WON’T STOP FORECLOSURE
DEAR BOB: My husband and I are in the midst of a bitter divorce. He was chasing women so I told him to get out. I’ve been a faithful stay-at-home-mom for our three wonderful children, married to him for 18 years. But after he moved out, he stopped paying the mortgage, which is now four months behind. The mortgage company started foreclosure. He earns over $200,000 per year and can well afford the mortgage payments. What can I do to stop the foreclosure? – Agnes C.
DEAR AGNES: Please consult your divorce attorney. Just because there is a pending divorce won’t stop the mortgage lender from foreclosing on your home for nonpayment.
For the sake of the children, you and your husband should try to reach an accommodation to save the house from foreclosure loss. As a very last resort, you could file bankruptcy so the bankruptcy “automatic stay” will temporarily delay a foreclosure sale.
WHY HOME BUYER SHOULDN’T RELY ON SELLER’S INSPECTOR
DEAR BOB: We recently bought an “as is” home in a “hot” market where there are more buyers than good homes for sale. Our buyer’s agent told us we had to make our purchase offer with no contingencies if we wanted a chance of acceptance by the seller. So we waived a customary professional inspection contingency. The seller supplied an inspection report from the seller’s inspector, which showed nothing seriously wrong with the house. But shortly after moving in, we hired our own inspector who said the furnace has a cracked “fire box,” a serious hazard needing replacement; the roof has been leaking into the attic, which had absorbent felt laid on the rafters to prevent leaking into the living areas; and the fireplace chimney is badly cracked, needing replacement. The seller’s disclosure statement said, “See attached inspector’s report.” Is the seller liable to us for repair costs? – Kitty H.
DEAR KITTY: You asked an extremely tough question. Because the seller’s so-called professional inspector was hired by the home seller, he or she has no liability to you.
However, if you can prove the seller knew of the defects you discovered after moving in, the seller might be liable to you for fraud. But proving what the seller knew can be very difficult.
Just between us, your best sources are nosy neighbors. If they knew about the defects, and are willing to testify, you just won your case against the seller. For full details, please consult a local real estate attorney.
INTERVIEWING THREE REALTY AGENTS PAID OFF
DEAR BOB: Thank you for your great advice, especially about interviewing three agents before listing a home for sale with the best one. I inherited my late father’s house but had no desire to keep it. Following your suggestion, I interviewed three agents in the small town where it is located about selling it. The first agent was high pressure, but estimated what I later found out was a low sales price (probably to get a quick easy sale). The second agent estimated a higher sales price based on similar sales within the last few months. But the third agent picked a “pie in the sky” estimated sales price without any justification. After checking references, I listed for 90 days with the second agent. I’m glad I did. She did a superb job, even advising me not to accept the first offer because the buyer was not pre-approved for a mortgage. The second buyer offered about $4,000 more (just $1,500 under the asking price) and the sale closed successfully. Thanks for the great advice to interview three agents – Herbert H.
DEAR HERBERT: A few realty agents get mad and mean for suggesting home sellers interview at least three agents before listing with the best one. Your situation shows why interviewing three (sometimes more) agents is best.
WHERE TO GET INFORMATION ABOUT TOXIC MOLD
DEAR BOB: I own a property that I rent to college students. They seem to have heard about “black mold.” I need to educate myself on this issue to see if my rental has it. Where can I get information? – Harriet G.
DEAR HARRIET: Mold requires moisture, such as a leaking pipe or rainwater leaking into a house. Virtually every property has a little bit of mold.
For example, recently I stayed in a luxury hotel charging almost $400 per night where I observed a bit of mold around the bathtub.
However, toxic mold often develops in walls or underneath a house in a crawl space. Some individuals become extremely ill due to toxic mold whereas others aren’t affected.
A great book to read is “What Every Home Owner Needs to Know About Mold” by Vicki Lankarge. It is available in stock or by special order at local bookstores, public libraries and www.amazon.com.
CAN HOUSE, RENTED FOR TWO YEARS, QUALIFY FOR $500,000 TAX BREAK?
DEAR BOB: About two years ago, my wife and I moved to Florida where we rent a condo. We love Florida, especially the low taxes. Meanwhile, we rented our house to tenants. Now our tenants are pressuring us to either buy the house or they will move out. We hate to lose them as they pay on time, take care of minor repairs, and don’t complain. As we own the house free and clear, they offered us a modest $15,000 down payment if we will carry back the mortgage. It would provide greater monthly income to us than we now receive in rent. But our big problem is, if we sell, our capital gain will be about $325,000. Although we rented the house for almost two years, can we still qualify for that $500,000 tax break you often discuss? – Morgan Y.
DEAR MORGAN: Yes. If you and your wife occupied your principal residence an “aggregate” two of the five years before its sale, you qualify for the Internal Revenue Code 121 tax exemption of $250,000 each.
Carrying back the mortgage for your buyers, who have proven themselves to be reliable, is a great way to create retirement investment income at an interest rate you probably can’t earn elsewhere with safety. Although the capital gain will be tax-free, your interest income may be taxable, depending on your tax situation. For more details, please consult your tax adviser.
The new Robert Bruss special report, “Secrets of Buying Your Home or Investment Property for Virtually No Cash,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbbruss.com.
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