Tuesday, September 25, 2007

Property Taxes: Are you paying the right amount?

The majority of homeowners in this country have their property taxes paid by their mortgage company. The remaining homeowners pay their taxes biannually on October 30 and April 30. If the mortgage company has been paying the property taxes over the years, there is a very good chance that when the property assessment is sent in the mail, we pay little or no attention to it other than noticing the appreciation and value of our investment. It is more likely that the people who pay their property taxes every year will notice an unusual increase in the assessment on their home or land. No matter which way you pay your property taxes, it is important to periodically make sure that you are being assessed in line with other similar properties or homes in your neighborhood. In most major cities, this information is readily available online. If it isn't available online, it can be found at the office of the tax assessor. If you uncover a situation in which you believe that you are paying too much in property taxes, you are entitled to go before a committee generally comprised of volunteers, to have your case heard. Hearings that result in a successful reduction of property taxes may be for the following reasons:
1) Severe internal damage to the home that cannot be noticed by a property tax appraiser from the outside. This generally requires written bids estimating the cost of repairs to be submitted when the case is heard.
2) Similar properties and homes in the surrounding neighborhood are assessed significantly lower than your home.
3) For insurance purposes you had an appraisal done on your home, and the appraisal is significantly lower than the property tax appraisal.
One other area we tend to overlook in regards to our mortgage is private mortgage insurance (PMI). PMI is generally required on mortgages that have little or no down payment. When the equity in the home rises above 20% of the mortgage, we are entitled to cancel our private mortgage insurance as it is no longer required. This will result in significant savings to us over the term of our mortgage.
Until later,

Sunday, September 23, 2007

Pre-Holiday Financial Check-Up

The fall is always a good time to take inventory of our financial affairs. Once the holiday season is in full swing, many people find themselves short of time to address financial matters. Here are some steps to take so that you can go into the holiday season with the peace of mind that you know your financial standing.
1) First look at your credit cards and and audit the following:
a) Make sure the current interest rate being charged is the same interest rate which came with the card when you applied for it. If it has gone up, contact the credit card company to ask why.
b) Make sure the due dates on your cards are the same as when the cards were obtained. Once again, if any were changed, make sure that you get clarification as to why.
c) Check for any unusual late fees or finance charges and if anything seems out of
the ordinary, immediately contact the credit card company.
d) Check your credit limit on all your cards and make sure to write down the limits so you are aware of them going into the holiday season. Exceeding your credit limit will cost anywhere between $35.00 - $50.00 per card plus the risk of increased interest rates.
e) Find out what extras each of your cards offer in the form of frequent flyer miles, service protection, life insurance etc., All cards are different and knowing which card benefits your situation might help you decide which card you want to use.
2) Audit your bank statements:
a) Make sure service charges haven't arbitrarily risen without your knowledge and that any interest on savings and checking accounts has been paid as agreed.
b) Look out for extraordinary items such as direct withdrawals that have been cancelled continuing to be debited.
Many banks are notorious for increasing fees for services without our knowledge. In some instances, notices are sent masquerading as junk mail, so as not to alert the customer of proposed charges.
3) Personal loans and car loans: It's a good idea to request a printout of all activity on any outstanding personal loans. It is important to check to make sure that all payments have been applied in an appropriate manner and that the financial institution has not added unwarranted late fees or other finance charges. By auditing personal loans, it will ensure that the interest rates have not increased and that your credit score is not being affected by any errors committed by the financial institution.
4) Cell phones and other telephone bills: Cell phone bills should be monitored on a monthly basis but in most cases, are not examined carefully each month. This allows cell phone companies to include unauthorized charges and third party billings on the bill of the consumer. If these charges are never questioned, they will never be corrected. Therefore it is imperative to catch them as soon as possible. Some examples unauthorized billings are ring tones, games, jokes of the week etc., If your cell phone bill includes a high number of calls, it is essential to make sure you are paying for calls you made and not mistaken charges. Last but not least, if you have had any new services added to your bill, you need to make sure all charges appear on your bill as agreed.
5) If you struggled with high utility bills last winter, take steps to avoid that problem this year. These steps could include contacting your local utility company to become enrolled in a monthly averaging program. This will allow you to budget the same amount for utilities every month of the year.
6) Get a printout of your past twelve month transaction history from your mortgage company. Make sure all payments have been applied correctly and that no extraordinary finance charges or late fees have been added. Check to see that all other mortgage terms are documented as agreed. If you have any questions, contact your mortgage company as soon as possible for clarification.
Until later,

Tuesday, September 4, 2007

Deficiency Balance Setttlement Offer

For various reasons, many people find themselves faced with a sizable deficiency balance from a car, camper, trailer home etc., loan. In most instances, deficiency balances could be settled for far less than the amount represented by the creditors, or, in many cases, third party collection agencies. The keys to negotiating a successful settlement on a deficiency balance are:
1) The length of time the deficiency balance has been owed. If the deficiency balance has been accruing interest for many years, the creditor will take substantially less money to settle.
2) The payment history on the loan prior to the deficiency balance being created factors into the willingness of the creditor to negotiate a settlement on the balance.
If only one or two payments have been made on the loan prior to repossession, it is unlikely that the creditor will be willing to offer much of a settlement.
3) When a creditor receives a settlement offer, one of the first things the creditor does is analyze what he or she believes to be a reasonable settlement offer and the ability of the debtor to repay the deficiency balance in full. It is necessary to give all the pertinent details as to why the settlement offer is legitimate and is the best that can be done by the debtor.
4)If the deficiency balance that is owed is being handled by a third party, and the third party refuses the settlement offer, be sure to contact the original creditor and offer the same settlement to the creditor. In most cases, the creditor will accept a reasonable settlement.
5) If it is not possible to come up with a lump sum settlement, offer a payment schedule that can be kept. Once again, if the third party refuses the payment schedule, contact the original creditor and explain why that is the only available solution to handling the deficiency balance.
When negotiating any deficiency balance, keep in mind that the creditor is entitled to 100% of the balance and will only accept a settlement if it is financially justified. As soon as a deficiency balance is created, be sure to get in touch with the creditor, as communication is the key. A Performance Bond guarantees the faithful performance of the contract and payment of materials and labor by the contractor to all subcontractors and material suppliers.
Until later,

Monday, August 13, 2007

Deficiency Balances: Auto Loans

One of the most unexpected major debt problems that occur today for consumers is when a deficiency balance is created on their auto loan. A deficiency balance is usually created when a car has to be repossessed by the lender. The lender is then required to sell the car for what is defined as "fair market value", deducting the expenses of repossession and any other liquidation fees, then applying the remaining proceeds from the sale of the car to the balance of the loan. In many instances consumers are unaware of the fact that they are responsible for the full payment on the loan, and that their vehicle is only collateral on the loan. If a consumer gets into a situation in which it becomes apparent that he or she is not going to be able to continue making vehicle payments, and that the lender can no longer extend any more time without payment, there are a few actions a consumer can take prior to repossession:
1) Make an agreement with the lender that the consumer will sell the vehicle for the lender. The reason is that because of the vested interest in the sale price for the vehicle, the consumer will get a higher sales price than the lender. Typically lenders are not particularly good at selling vehicles and don't care if a vehicle is sold for top dollar.
2) If repossession is imminent, take pictures of the inside and outside of the vehicle and get the Kelly Blue Book value of your vehicle. This information will assure you that the lender is getting "fair market value" for your vehicle in order to apply the proceeds against your loan. In some instances, to save time lenders will briefly advertise vehicles and then auction the vehicles at wholesale to dealers. If you feel that you have been a victim of this practice, you need to approach your lender with the figures you got from the Kelly Blue Book and ask the lender to explain why it was not sold for fair market value. In many cases, this will allow you the upper hand in negotiating a reasonable settlement of your deficiency balance. If the lender refuses, inform the lender that you will be sending pictures of your vehicle, plus the Kelly Blue Book value of your car to the office of the Attorney General to ask them to look into the matter.
3) When negotiating your deficiency balance, your lender is going to consider the following:
a) The age of the debt.
b) The amount of the debt.
c) The type of the debt: ie, was it a new or used vehicle.
d) Your ability to repay based upon your credit history.
e) How straightforward you have been in handling your loan from the outset.
In most cases, a lender will settle a deficiency balance if the settlement offer is reasonable. As in dealing with any other creditor, success or failure of negotiating a settlement might hinge upon how well you have communicated with the creditor throughout your history.
Until later,

Thursday, July 26, 2007

Credit Counseling, Debt Consultants, Debt Negotiators: Do Debtors Need Their Services?

Credit counseling services are quite good at giving people an organized look at their financial situation. After that, their usefulness is limited due to the fact that they have absolutely no legal right to enforce their suggested remedies to any of the creditors. In general, the offers credit counseling agencies make to creditors are unrealistic and many times rejected outright by the creditors. Exploratory conversation is usually an effective way to initiate the process of finding solutions to problems. However, in most instances, credit counselors will only deal with creditors in writing. Therefore any successful re-negotiations of initial proposals are highly unlikely to happen. Additionally, in many cases, debtors are not informed by credit counseling agencies that they have no binding authority to get a creditor to accept a repayment proposal. Debtors may mistakenly assume that credit counseling agencies have more leverage and standing than they actually do when contacting creditors on their behalf. The information that debtors need is available from debt consultants and debt negotiators. These professionals charge either an hourly fee or a contingency fee based upon the money saved to the debtor. From the standpoint of a creditor, a long drawn-out repayment proposal is not a sensible solution to resolving the account of a debtor. Debt professionals have the ability to analyze various situations and offer solutions acceptable to creditors. Credit counseling services and debt negotiation companies tend to strike long-term relationships with debtors that are of little or no value to the people in debt. Most people who find themselves mired in debt have achieved this situation over a long period of time. A helpful solution for the debtor is a quick one. Not one in which the debtor is required to continue down the same road, repaying the debt over a long period of time, sometimes with the added cost of several thousands of dollars. Credit counselors have their place in the credit world, but are sometimes asked to do things they lack the experience or knowledge to accomplish, which can be a detrimental situation for the debtor.
Until later,

Thursday, July 19, 2007

Bad Credit! No Credit!, Bankruptcy OK! Car Loans

A relatively new gimmick seems to have taken the credit world by storm: No credit, bad credit, bankruptcies all OK. We guarantee that you will get a car loan, credit card, new furniture etc., Let's look at the scenario that unfolds when a person buys a car under these terms. All "normal" avenues of exploring the best car, the best price, the most favorable interest rates and the most suitable loan term are non-existent. When the borrower approaches the car dealer, he or she is forced to choose among a small inventory of cars, and are at the mercy of the car lots financial department. One of the common ways these car lots hide their excessive interest rates and finance charges is to offer terms 24-48 months longer than conventional car loans. The borrower might believe that the car payment quoted by the dealer isn't all that bad without stopping to realize that he or she is paying an extra $300.00 a month for an additional 36-48 months longer than if he or she had a conventional loan. Another thing missing from financial departments on car lots is the ability of banks and credit unions to work with the customer in the case of problems. In general, these types of car lots have a very short fuse when it comes to repossessing a car, and will do so immediately at the first sign of a problem. Unlike established financial institutions that handle auto loans, car lots will not be concerned at realizing maximum dollars for the sale of the borrower's vehicle, leaving an excessive deficiency balance. In many instances, especially for young people, getting involved in these types of high risk car loans will result in the borrower digging such a deep hole with his or her credit scores, that he or she may not be able to recover for many, many years to come, if at all. The reason these loans are available is that even though there will be a high delinquency rate, the excessive terms on the loans, higher interest rates, finance charges and close monitoring of the loans allows the car lot to still make a nice profit. The other factor in the dealer's profit is that the used cars being sold usually have an extremely high profit margin built into the price.
Until later,

Tuesday, July 17, 2007

Merchant Cards Masquerading as Credit Cards

I ran across a mailer today, addressed to a 19 yr old, that I would like to share. First, let me describe the mailer as best I can. Attached on the top right hand corner is a card designed to look like a credit card. The only difference between a credit card and the attached card is that there is no magnetic strip. The mailer insert then goes on to describe the following:

Congratulations, your card has arrived. Call immediately to activate this card. Credit purchase limit: $6,500.00. Cash on demand approved: yes. Interest rate: none. No cash deposit required for security. By calling to activate your card today we'll offset our standard member card activation fee of $200.00 by giving you $200.00 in credit.

The above is what is described on the front page of the insert. On the back of the mailer is quite a bit of interesting small print such as:

The activation fee for the card is $199.00, the annual membership fee is $198.00, and the user is encouraged to purchase the "security guard feature" for $99.00. The customer is encouraged to sign up for rush processing which prioritizes the order for $29.99. This card may only be used for merchandise contained in the card issuer's catalogs. A more detailed description is given about the "cash on demand" advertised on the front of the mailer. Without getting into too much detail, the best way to describe the program for cash on demand is that the card issuer is allied with a payday loan company.

Let's examine some of the reasons a company would issue large amounts of credit by mail forgoing normal credit qualifying procedures:

The bulk of the merchandise in the catalog is clothing and/or shoes. The mark-up in these areas is usually a minimum of 500% and may go as high as 1200%. Let's look at a sample mailing of 10,000 cards. As the target audience is young people who would be attracted by the mailing, for discussion's sake, let's take a conservative estimate that out of 10,000 cards, 1,000 cards are activated.
Immediate cash flow to the card issuer:
Let's assume that 1,000 cards utilize their $6,500. credit limit.
$6,500,000. (6.5mil per 1,000!)
Due to the high risk of the borrowers, let's assume 25% of the card holders go delinquent on their cards for a total of $1,625,000. Let's assume the remaining card holders pay off their balances which would total $4,875,000. Now to calculate the profit of the card holder using this scenario, we need to make a conservative assumption that the merchandise is marked up 500%. That would put the cost of goods sold at $1,300,000. To calculate the card issuer's profit, let's take the $4,875,00 of the card holders who pay off their balance, subtract the cost of goods of $1,300,000 which equals $3,575,000 plus the instant cash flow of $496,000 from the various fees, for a total of $4,710,000 plus a very conservative estimate of a minimum of $400,000. from the collection effort on the 25% of accounts that were delinquent. This leaves the profit on issuing these so called credit cards in the neighborhood of $4,470,000. The ramifications of these merchant cards being sent to young people today are as follows:

1) They will ruin their credit before they even get a chance to establish credit.
2) In order to use their cards, they will only buy from the catalogs. They will not learn the frugal habits of comparison shopping for price and quality.
3) Due to the excessive credit limit, they will buy far more than they could afford to purchase on a cash basis.
4) A large percentage of card holders will enter the world of payday loans through the "cash on demand" feature of these merchant cards. There is neither time or space on this blog to list all the reasons why that is not a good idea.

It is important for young people to be aware that these types of cards exist and to be warned to steer clear from them.

Until later,