Riverside Realtor Blog - Alma Dizon

Alma shares her experiences and observations as a Realtor in Riverside California.

Wednesday, July 25, 2007

Don't forget to read your trust deed

I'd been telling my parents over the last few months some of the fraud I've seen and the terrible loans that people I know have unwittingly signed up for. Then my parents finally told me that some months ago, their monthly payment on their condo had suddenly gone up from about $875 to over $1400 a month, and they had no idea why. This was odd as they've owned a total of 4 homes over some 60 years and have refinanced numerous times. They're hardly beginners. On the other hand, they're elderly now, and they weren't familiar with some of the obscenely intricate loans that have come into existence in recent times.

They told me that they'd called their lender several times, and each time, they talked to someone different who told them to pay a different amount. I finally convinced them to go to Kinko's and scan the entire trust deed and have it emailed to me. These are some of the phrases I found on p. 19:

"The interest rate I will pay may change."
"The interest rate may change monthly..."
"My interest will never be greater than 9.950%."

On p. 20, I found the following statement:
"If the Minimum Payment is not sufficient to cover the amount of the interest due then negative amortization will occur."

Then on p. 21:
"Since my monthly payment amount changes less frequently than the interest rate, and since the monthly payment is subject to the payment limitations described in Section 3(D), my Minimum Payment could be less than or greater than the amount of the interest portion of the monthly payment that would be sufficient to repay the unpaid Principal..."
"For each month that my monthly payment is less than the interest portion, the Note Holder will subtract the amount of my monthly payment from the amount of the interest portion and will add the difference to my unpaid Principal, and interest will accrue on the amount of this difference..."

Then I found the following:
"My unpaid Principal can never exceed the Maximum Limit equal to ONE HUNDRED FIFTEEN percent (115%) of the Principal amount I originally borrowed. My unpaid Principal could exceed that Maximum Limit due to Minimum Payments and interest rate increases. In that event, on the date that my paying my monthly payment would cause me to exceed that limit, I will instead pay a new monthly payment. This means that my monthly payment may change more frequently than annually and such payment changes will not be limited by the 7.5% Payment Cap. The New Minimum Payment will be in an amount that would be sufficient to repay my then unpaid Principal in full on Maturity Date in substantially equal payments at the current interest rate."

I called my parents and told them that they needed to refi ASAP. They had been told about negative amortization or reverse mortgage as an option, and they had chosen not to do it because they believe that it's unethical. Yet that's exactly what they had gotten themselves into. As the interest rate can only go up (and it's now at about 8% for them!), they fail to pay principal and even fail to pay all the interest. They end up owing more, and the debt simply escalates.

In addition, when I first got into real estate, a lender told me that "pick your payment" was a good loan for agents, such as myself, because the borrower can pay more or less each month according to his or her varying income. Now, since when did people in their 80's have a lot of variation in their income? Guess what, my parents' loan also has a "pick your payment" paragraph as it states toward the bottom of p. 21:
"After the first Interest Rate Change Date, Lender may provide me with up to three (3) additional payment options that are *greater* than the Minimum Payment, which are called "Payment Options."
Ooh, boy, that explains why every time they called, they were given a different amount to pay. I told them to get the amounts in writing with an explanation of what each amount represented. They had no idea if a new amount covered any principal at all anymore.

Basically, a loan officer who didn't care that my father is retired and 81 had played bait and switch with him. He lured my parents with an incredibly low introductory interest rate without explaining to them that it was very short-lived and would change dramatically, probably putting them further into debt unless they refinanced quickly. The loan officer didn't plan on being around when my parents found out what had been done to them or perhaps he just figured that they were too elderly to notice or even do anything about it.

This should be criminal. At the very least, it's predatory lending. But my parents probably don't have enough time left to them on this earth to pursue a lengthy lawsuit. At any rate, they signed off on everything. But that's what they do, isn't it? "Sign here, here, and here." People don't get enough time to read it, and they get intimidated, wondering if someone thinks they're idiots for not understanding more quickly. So they sign, and then they're in debt forever.

I have asked my parents not to sign anything again until I've had a chance to read through it first. The borrower is supposed to get enough time to read through the papers and also have some time to change his or her mind after signing. Don't let your parents give up these rights.

Oh, and by the way, the lender was Countrywide...

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