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Beware of construction loan in form of credit card
DEAR BENNY: I purchased land about one year ago with plans to build a duplex. I am finding it difficult to obtain a loan. I recently found a company that provides loans to other companies in the form of a credit card. This would entail me opening a limited liability company (LLC) and applying for a company loan. Should I open the LLC myself or pay an attorney? Also, do you see any drawbacks to opening a line of credit under a company name? --Adrienne
DEAR ADRIENNE: I always ask myself, "What's the catch?" Yes, you can create a limited liability company, and then get the credit card offered by this company. But if you are currently unable to get a loan to build your duplex, why would this company be so willing to hand over a credit card to you?
Check out the company very carefully. What is the maximum dollar amount you can tap from the card? What is the interest rate? Is there a deadline when the card has to be paid in full?
Bottom line: I am very skeptical of this. You should get a lawyer to advise you before you jump into this arrangement.
DEAR BENNY: We receive three phone calls per week from people wanting to buy our time share in Florida. However, we do not own a time share in Florida. We do own some property in Florida. How do I get these people to stop pestering us about a time share we don't own? I tell each one to take my name off their list but it doesn't help. --Elaine
DEAR ELAINE: Unfortunately, if you own property anywhere in the United States, that information is recorded on local land records and is public. Prior to the Internet, to find out who owned property, you would physically have to go to the local recorder of deeds office, and search a bunch of musty, old records.
Nowadays, most (if not all) recorded information is available "just one click away on your computer."
Here's my suggestion: When a person calls you again, play his game. Ask his name and business contact, stating that you really would like to sell your timeshare but have to discuss it with your husband.
If he gives you his name, then tell him that should he call again, you will report him to the state attorney general for harassment and invasion of privacy.
Of course, if he refuses to provide information, then my suggestion won't work. You could, of course, tell those callers you have their phone contact info and are reporting them to the FBI.
Good luck. We know that the callers are scammers anyway, so don't deal with them. And if you have a time share, under no circumstances should you give anyone any money upfront if he or she promises to sell (or buy) that time share from you.
DEAR BENNY: My wife read to me your comment on the options of the reverse mortgage. You seem to portray the reverse mortgage generally in a good light. I would just like to point out that the standard FHA-backed reverse mortgage has a "no recourse" clause in its description. As you are most likely aware, that means you will never owe more than the value of the home. So if the home was appraised at $93,000, that's it. End of story.
Regarding your statement that "a reverse mortgage is not for everyone," air and water are the only things I can think of that could be for everyone, maybe. However I've been in the reverse mortgage business for only eight years, and I haven't met a soul who couldn't improve his financial welfare by using the reverse mortgage. It's a tool, and the way you use it will depend on what the circumstances are.
The government has put a sort of taboo around the reverse mortgage and insurance products, mainly because of unscrupulous agents and planners, but actually, if used correctly, the products together can multiply the living and death estate. --John
DEAR JOHN: I am not opposed to reverse mortgages; I just feel that they should be considered as a last resort. Are there other alternatives? Can your children help out by buying your home and letting you live there for life? Do you really need the money?
Yes, I have represented many clients who are "house rich and cash poor." Their house is free and clear but they cannot afford to pay the real estate tax or the insurance premium. If they are over 62 years old, they may be candidates for a reverse mortgage.
But anyone considering such a loan must do his homework first. As John correctly points out, there were (and still are) too many unscrupulous agents out there trying to hustle a buck from seniors.
In my opinion, AARP has some very helpful information about reverse mortgages on its website, www.AARP.org.
COMMENT FROM READER: A reverse mortgage is not a "last resort" when used properly by older retirees. My wife and I recently had our house appraised at $660,000. We owed $190,000 on the mortgage and were paying $1,211 a month. That's $470,000 in equity just sitting there doing nothing.
Our new reverse mortgage not only paid off the $190,000, but is paying us an extra $1,495 a month tax-free that is guaranteed by FHA for the rest of our lives. Add $1,495 to the $1,211 a month no longer paid out, and we are plus $2,706 cash flow. With a little luck, and God willing, we may have another 25 good years, which puts us $811,800 ahead of the game without lifting a finger, and we still own our home. If we owe more on the house at the time of death than the house is worth, that's our good luck. We have beaten the odds and FHA has been paying us all that money monthly, over and above the value of our house.
On the other hand, if we die early, our estate sells the house, pays off the reverse mortgage, and distributes the remaining $300,000 or $400,000 in cash.
Your articles rightly warn against the misuse of reverse mortgages. How about equal time for the proper use? --Kelly (age 86, wife much younger)
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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