DEAR BENNY: I have a hybrid mortgage that is fixed for the first five years at 4.25 percent, and is tied to U.S. Treasury securities. The loan document notes that the index value is 2.1 and the margin is 2.75. The first "change date" on the loan is Nov. 1, 2009. My loan documents say on the first change date, my interest rate could be as high as 9.25 percent or as low as 2.75 percent, with no more than a 2 percent increase in any given year thereafter. Given the current fixed interest rates, is it advisable for me to refinance the loan now or continue to take advantage of the low rate I am paying for another year? What is the likelihood that the "index" could reach 6.5 percent in a year, raising my interest rate to 9.25 percent at the end of 2009? I would appreciate your response. –Belmont
DEAR BELMONT: My crystal ball (actually two of them) broke about a year ago. Your guess as to where the market will go tomorrow — let alone a year from now — is probably as good as mine.
First, I urge you to confirm what the maximum rate can be at the first adjustment period in November of 2009. Talk to your lender or to an attorney to make sure that your first anniversary rate can go as high as 9.25. From my experience, most adjustable rates provide a cap — usually 2 percent per year — on any adjustments. Of course, different lenders have different programs, and yours may actually allow the rate to jump that high.
Second, you have to determine what index is being used? Is it LIBOR (London Interbank Offered Rate)? Is it based on a U.S. Treasury security? Or is it based on the 11th District COFI (cost of funds index)? There are significant differences. For example, at the end of August 2008, the one-year Treasury index was 2.18 percent while the 10-year Treasury index was almost 3.9 percent.
You have a good rate now, and mortgage interest rates are still quite low. I would do some homework, making sure you fully understand the terms and conditions of your ARM. Then I would discuss your situation with your current lender. They may be happy to get rid of a low mortgage on their books and may be willing to negotiate a deal for you now — i.e. something that is above what you are currently paying but clearly below 9.25.
And here’s another suggestion: If you have the money, I would start making extra payments on a monthly basis to bring your outstanding balance down. If you can make one additional month’s payment each year, you can reduce a 30-year amortized loan down to about 22 years. It makes sense to reduce your loan balance now, especially since you have such a low interest rate.
DEAR BENNY: I recently purchased a house in which my agent misled me concerning the type of deck material used. He insisted it was a well-known and leading composite material. After some diligence and outside intervention, I proved to him that the deck material was actually a cheap, inferior composite product that was already showing severe age after only a few years. Unfortunately, by the time I convinced my agent, we were well into the purchase process and the seller refused any renegotiation. To replace the deck using the superior composite material will cost $10,000! Do I have any recourse with my buyer’s agent? –T.L.
DEAR T.L.: Did you have a home inspection contingency? If so, what did the inspector say about the deck material, if anything? I am also curious as to why the seller was unwilling to negotiate, unless you were buying the house in its "as is" condition.
Proving misrepresentation in a court of law is not easy. You need proof that (1) the agent specifically made the statement, (2) that the statement was material and false and (3) that you relied on that false statement.
Litigation is time consuming, expensive and, more importantly, always uncertain. Unless your sales contract provides that if you sue and win, the loser will have to pay your legal fees, you will have to pay your own attorney even if you prevail.
It sounds like you have a potential case, so I would talk with a local attorney for a more definitive opinion. However, have you discussed your concerns with the agent and the agent’s manager? That’s the first thing I would do; perhaps they will make a contribution so as to avoid litigation.
DEAR BENNY: In the mid 1960s my then-husband built a house for me. Shortly after, he tried to murder me. I fled the state and obtained a divorce; he was admitted to a psychiatric hospital. His personal financial issues were then handled by his brother. I have wondered what happened to the property, but I was afraid to dig into this as I did not want to put myself at risk. Now I believe my ex-husband is deceased, and I want to know if I was defrauded in the sale of this property, since I never signed any sale agreement. How do I figure this out? –Nikki
DEAR NIKKI: While I understand and appreciate your concerns about not wanting to investigate earlier, the fact remains that more than 40 years have passed. I would have the title to the property searched by a title (escrow) company. That will provide you with the current status of the property as well as its history.
Although your ex may have built a house for you, it is possible that he did not convey title into your name. Have you talked with the brother? He may be able to shed some light on the situation.
I seriously doubt that you will ever get the property back, but by doing your homework and your investigation, at least you may get some peace of mind.
DEAR BENNY: I own a rental condo with my mother. The seasonal rentals here in Florida were satisfactory in the past, but lately (since 2007) there has not been much business. We have engaged a rental agency to help us place the condo on the rental market, but not much luck, so far.
Why does an owner have to stay under contract with just ONE rental agency? Is it possible to have a second rental agency assist in the marketing of a rental property? The agency that found a rental client could then get the commission agreed on in the contract and motivate the other agency to be a little more aggressive on our behalf. I have not been able to find out if there would be a legal barrier against this idea. –Brigitte
DEAR BRIGITTE: I don’t practice law in Florida, so I can give you only a general response. When you hire a real estate agent, you are asked to sign what is known as a "listing agreement." There are many kinds of listings, such as "exclusive right to sell (or lease)" — which is the most common. Here, the seller (or the landlord) gives the broker the exclusive right to sell or lease and earn a commission. Even if the owner sells or leases on his/her own, the broker is entitled to a commission.
Another type is "exclusive agency" — here the owner has the right to sell or rent, and no commission would be earned
A third listing is an "open listing." This is non-exclusive. The seller/landlord can enter into as many open listings as possible, and the agent who finds a seller/tenant will get the commission. And if the seller finds a buyer on his/her own, no commission is earned.
You are referring to an "open listing." It’s probably legal in your state, but as a practical matter, many real estate agents and brokers do not like this arrangement. Why? Because they may spend a lot of time and money marketing the property, only to find that another broker (or the seller/landlord) has found someone and no commission will be earned.
You certainly can try to get agents and brokers to accept the open listing; it never hurts to ask.
DEAR BENNY: Can a mother and son living together title the house "joint tenants with right of survivorship" or is that just for married couples. Titled in this way, would it protect each one’s half in case of a lawsuit and subsequent judgment on half the home? –Rita
DEAR RITA: I don’t know where your property is located, and if in a community property state, you should consult a local attorney for more specific information and advice.
In general, however, the concept of "joint tenancy with right of survivorship" is not limited to husband-wife. In fact, in most states, husbands and wife should hold title as "tenants by the entirety," which is reserved exclusively for married couples.
You should note, however, that even if you and your son hold title as joint tenants, that will not protect you should there be a judgment against one of you. If, for example, there is a judgment against your son, the property can be sold by the creditor. You will keep half of the sales proceeds, but your son’s portion will be used to satisfy that judgment.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to firstname.lastname@example.org.
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