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March 5, 2020

Secrets to the Timeshare Presentation

Time share presentation

Timeshare presentations include free cheap vacations, free gifts or free meals, including champagne breakfast, but not so fast. They are not really free. Because of the high pressure sales it is essential that you do your homework before attending a timeshare presentation, and don’t buy on a whim.

The most important aspect of a time share presentation is to understand what you are NOT buying.

Understand the true meaning of a timeshare and read the contract before you sign under pressure. Most timeshare buyers buy under pressure while on vacation or walking through a mall, to get an invite to a high pressure sales presentation. I have spoken to many who have done this very thing and regretted it later. 

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The most common question I  am asked is, “should I buy a timeshare to save money on taxes and own a wonderful place to vacation”?

I talked to a friend who did tax audits and was assigned to an 8 inch thick stack of timeshare tax foreclosures. This prompted me decided to look further into the timeshare craze. Later, even going as far as to spend a week in a timeshare condo owned by a friend, I and attended a high pressure sales presentation myself.

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The Definition of a Timeshare

The first thing you need to know is that when you purchase a time share you are purchasing the right to use a vacation room or condo typically for 1 week a year. This is if you purchase 1 unit. The quality of available condos go from type A to type D. A, of course being the nicest and best equipped.

You do not own a share of the building, you do not own a room, and you definitely don’t own the land that the condo is built on. What you buy is one unit of time or one week of time. Some people buy two weeks of time. 

Typical Timeshare Cost

Understand what it means to sign a timeshare contract; you are promising to pay in full the contract price of the time share, the interest payment, and the yearly maintenance fee.

The payment is usually from 8-12 years. The yearly tax and maintenance cost is for life. A lady ask me at a conference, “why did my timeshare company send me to collections”?

I said did you understand that you were purchasing the timeshare with a loan and lifetime maintenance cost when you signed the documents? Of course, she said no.

For some strange reason most timeshare presentations don’t make it clear that the buyers have to pay maintenance for life and the maintenance goes up over time. They assume you know you are signing for a loan. 

the timehare presentation vacations and lifelong timeshare obligation is not Home ownership dream for women

When You Don’t Pay The Time Share Loan Principle And Interest Payments

If you don’t pay the time share principle and interest payments you will be sent to collections. When the balance is not paid from collections, you will be foreclosed on. If your time share is paid off and you do not make the yearly tax and maintenance cost your time share will be sold for back taxes.

How Most Buyers Find Out About Timeshares

They go on vacation, on a honeymoon, or just stay at a resort hotel. The company who owns the hotel may also own timeshare unit building.

They will offer a free $100 bill,  lunch, or dinner to coerce you into listening to a timeshare presentation, which is usually a high pressure sales presentation.

The company gets back the “free stuff” many times over when you make payments on the timeshare loan and the lifetime tax and maintenance cost. So, once again, you learn, there are “no free lunches”.

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A Motivating Factor For Buying a Timeshare

High sales tactics make some buyers think they are actually purchasing ownership in a condo unit. Some people are motivated by the false tax savings.

Because of the ease at which you can purchase a timeshare many people who buy them  do not itemize for tax savings. Also, they are in too low a tax bracket to actually receive a savings from the timeshare.

For those in higher tax brackets the tax savings on a timeshare is too small to make a difference. Another reason people buy timeshares is because they enjoy the vacation swaps. This is when you can swap timeshares with others, to vacation in different locations. Some timeshare presentation vacations sales are simply fake.

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When Buyers Falter On Their Time Share Payments

Judging from conversations I have had with timeshare owners many don’t understand their obligations because:
1. They signed up under pressure – did not read the contract.
2. The sign up was quick and didn’t understand what they are buying.
3. Some are young and gullible, so they sign up without the knowledge of contracts.
4. Many people don’t understand that they have to pay taxes and maintenance cost every year for life. This is necessary to use the timeshare “time” alloted to them for the year.

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The best way to get out of your timeshare contract during or after your vacation is to realize you usually have a 3 day right of rescission on contracts. That must be in writing, preferably notarized, and sent next day mail, certified. Rarely, does anyone realize this, or use this tactic.

Typical charges of a Timeshare

I have friends who bought a time share 16 years ago, they said they purchased theirs for $17,000.  Most of the 16 years their yearly tax and maintenance costs were $500 per year, a year ago it changed to $1000 per year. The timeshares are much more expensive now. 

That is a class A Timeshare, the highest value. Let me remind you again that you are “only buying” time to use a space, “not” any real estate.

Currently, a typical Class A time share is in the area of $25,000 principle or more, plus interest, and $1000 per year (lifetime) payments for tax and maintenance. There are different packages available.

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Selling A Timeshare Condo

Selling a timeshare is difficult because you don’t have the same high pressure sales tactic abilities that enabled you to sign. The market for used timeshare contracts is tiny almost non-existant. You are competing against current new timeshare sales.

There are companies who promise to “exit your  timeshare contracts”, and they may be helpful. Do your homework, and make sure the company is legitimate. In recent news reports many who have used these companies say were ripped off, and their contract was still in tact after they paid the company.

The organizations representing these people say it is best to negotiate directly with the timeshare company to get released from your contract.

You do not have the expertise to do a timeshare presentation on timeshare vacations – to sell it on your own. Don’t make an unwanted timeshare a lifetime timeshare obligation. 

Stay away from timeshare presentations, buy a home, you deserve homeownership

Lois Center-Shabazz | Course Delta Agency

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Creating a Sustainable Budget in a Time of Financial Crises

creating a sustainable budget when times are hard

Creating a Sustainable budget is defined as a budget that works to meet all of your short-term and long-term needs. It keeps you feed, clothed, gas in your car, your mortgage or rent current, whether you have a lot of money or times become lean.

To create the lasting sustainable budget you must plan, and do it early. You don’t start when you lose your job, get into a car accident or have any other time of financial crises.  Creating a sustainable budget will take care of those issues.

The money you have in good times is budgeted heavily so it will last during bad times. I see too many people who though “caution to the wind”, when it comes to spending. They think they are so special that they will never hit hard times with a job loss, contract loss, or medical emergency.

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Don’t be fooled, it happens to folks of all income levels. So, it does not matter if you are low income or uber high income you have budget your money.  You never know when the, “well will run dry” or the money will seem to evaporate due to lose of income.

So, let’s get started and create a sustainable budget now.  You will create the short-term, the long-term and the budgets for the specific things you need. 

The common sense approach to avoiding a time of financial crises during an economic downturn is to guerrilla budget when times are good as well as when times are bad.

Unfortunately, many people don’t think about budgets until finances are in trouble. Start to create your sustainable budget and continue improving it as time goes on.

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I saw a new story about a young girl, who became a high-income singer, with a contract from a major media company, then came a terrible time of financial crises with an illness. Now  her 1.2 million dollar home is being auctioned off. Where did she go wrong? Is she any different than most Americans in her position?

The answer is 1. Apparently she did not understand how to budget the money she earned, 2. She didn’t  understand the limits of the money she earned. 3. She didn’t understand that, no matter what your income emergencies happen. 4. She did not create a sustainable home buying budget based on worse case scenarios.

The answer to the second question above is, NO, she is not any different than most Americans, and did not anticipate a financial crises.

Budgeting is not taught in most high schools and colleges or graduate school. Because of that we even have PHD’s and MD’s (doctor of philosophy and medical doctors), going broke due of mismanagement of money or the lack of budgeting skills.

They don’t understand that a financial crises can happen to anyone, so creating a sustainable budget early will prevent problems. 

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In this article I will give you a few quick tips to creating a sustainable budget using my guerrilla budget method:

1. Live below your means no matter what your financial status to create a sustainable budget.

This sounds like common sense, but many who have common sense and a good income don’t,  because you feel money will make up for it.

It does not. Ask all of the broke entertainers who once made millions. The 8 cars, and the 8000 square foot house is only a distant dream.

They think about how they could have purchased 3 nice cars, and a 3000 square foot house, put money in savings, invested aggressively, and they would have been set when the entertainment contracts dried up.

Many get caught in something as simple as not paying required yearly taxes. Pay your taxes first, then pay yourself in savings and investing, then pay your other affordable bills. 

2. When you make a lot or are awarded a lot of money

When you enter into a high income or windfall pretend like it has to last you 100 years.

The is a good trick for those who don’t have a lot of self-discipline, it works because you trick your mind into believing the money does not exist, so you are forced to guerrilla budget it.

When you are distracted one day you open your savings and investment account and you realize you did something really smart. You created a sum of money you can actually live off as your business or income falls on hard times.

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3. Be conservative with your purchases

There is no law that says when times are good you should waste money. The problems come when you have not grown up with financial discipline; too many income earners do.

Don’t fall in the trap of, “I have to spend big to have quality products”. You don’t. You can get nice clothes, shoes, cars, homes, and education at a very affordable cost and high quality.

Some things that are very expensive, you will later find that you simply spent too much money and could have gotten the item for a fraction of the cost.

Do your homework, do lots of research and get the best item for the best price. This is a major step to creating a sustainable budget.

4. Buy a home and car with a monthly note you can afford

You do not have to max out your monthly income in “monthly bill payments”. That is that your entire paycheck goes to “monthly bill payments”.

Here are examples; Why not buy the certified pre-owned car with a monthly note of one-third of the new car? Put the remaining two-thirds in a couple of different savings and/or investment accounts.

If you lose your job, you can pull from one of those accounts to continue your payments until you get another job.

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5. Decide what you can afford based on your income and future

Start with a written budget. Your budget should include cost to run your home (maintenance-rent or mortgage), food – clothes – medicine. Also include things such as getting to work and maintaining a car, going on vacation, and to save, save, save for now and the future.

Everyone has different needs. It is imperative to identify all of your needs you have now or may have in the future. This is an analysis that will take time to figure out.

6. If you have an addiction to expensive “things” work on that problem

That is the number two problem that causes poverty with people who make a lot of money. The number one problem,  is “budgeting ignorance”.

If you have an entertainment contract that last three years, spend  like it will last three years.When you are an independent contractor on a job that will last two years, live like it is only two years.

When you are self-employed don’t fail to get proper liability insurance, health insurance and all insurance that is required by your industry. For those who are self-employed with an office space lease make sure you understand your lease by talking to a business attorney, before you sign.

The general idea here is to get cosst under control, understand that you don’t need expensive things.

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7. If you work on a contract like the singer above probably did

You have to be especially careful with spending because you will have a big tax bill at the end of every year based on your big income (quarterly after the first year).

When you are an independent contractor of any type – self-employed, contracted worker or any other; you will need to pay taxes by quarter and then year-end.

The worse thing to do is to file too many exemptions so you can have extra money in your paycheck. You promise yourself that you will pay it back, and of course that doesn’t happen. Eventually, you get into a nightmare loop of owing taxes, making payments and getting future behind.

8. Remember that it takes a long time to create a  sustainable budget

-Because you have to consider cost that you normally don’t think about.
-You have to consider all timelines for payments.
-Then don’t forget things you may need in the future.
-You can get a simple short-term budget, but a long term budget is ultimately the most important.
-When you do all of the above you creat a guerrilla budget

Go here to understand creating a sustainable budget  of your dreams.

Lois Center-Shabazz | Course Delta Agency

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Home Inspections for Home Buyers

Home inspections for home buyers

Are home inspections for home buyers necessary? In light of the endless possibilities of home defects it is in your best interest to use a home inspector before you purchase a home.

Large defects are very costly but small defects can become costly, if not repaired in a timely manner. Once you have closed escrow, the home belongs to you, and the burden of the repairs is on you, so it is wise to minimize the possibility of home defects before you buy.

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Steps to hiring a home inspector for new or used home:

  1. HIRE YOUR OWN HOME INSPECTOR
  2. HIRE INDIVIDUAL TRADESMEN FOR INSPECTION
  3. CRUCIAL AREAS TO INSPECT
  4. DON’T IGNORE THE ADVICE OF EXPERTS
  5. BUYING A NEW HOME FOR INSPECTIONS
  6. BUYING A USED HOME AND GET INSPECTIONS
  7. NEW HOME OR REMODEL CONTRACTOR WARRANTY

1. HIRE YOUR OWN YOUR OWN HOME INSPECTOR

Hire your own quality home inspection service, not one recommended by your realtor. The inspectors recommended by the realtor will want repeat business from the realtor, so they will have a strong tendency to rush the inspection and overlook crucial defects.

Find your own quality inspector by asking others in the area or go to the American Society of Home Inspectors website.

2. HIRE INDIVIDUAL TRADESMEN FOR INSPECTION

I prefer to hire individual tradesman, electricians, plumbers, carpenters and roofers to inspect within their trade. Most will inspect for free or a very small fee.

3. CRUCIAL AREAS TO INSPECT

The most expensive repairs occur with structural damage, buckling of uneven walls and uneven floors, inside or outside the home. You may seriously rethink your decision to buy a house with major structural defects, for this is a strong sign the house may need to be rebuilt.

Other major structural defects include major plumbing problems, electrical, air conditioning (new air conditioners can run an average of $2500), and roofs ( to go from a leaky roof to a good roof on a small house can cost $10,000 or more).

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4. DON’T IGNORE THE ADVICE OF EXPERTS

Now that you’ve had an inspection, take it seriously; get three contractors to estimate the repair job. Ask the homeowner to pay for the repairs before you close escrow or leave money in escrow to cover the repairs.

If the repairs are in excess of the value of the home, or horribly unreasonable compared to the value of the home, ask the homeowner to reduce the price of the home or you should strongly consider buying a different home.

5. BUYING A NEW HOME FOR INSPECTIONS

Some folks think new means perfect, good, great, or in the best shape. This is not necessarily the case. Many new homes have problems, because despite the required inspections, subcontractors and contractors make minor and even major mistakes that sometimes go unnoticed.

Don’t close escrow until the home has been inspected AND the needed repairs are made.

6. BUYING A USED HOME AND GET INSPECTIONS

Used homes present unique problems, they must be inspected by tradesmen who are very honest and experienced in their field. There are many hidden problems with older homes that are fixable but must be addressed before closing escrow.

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I have purchased both new homes and used homes that I had inspected before purchase. One beautiful new home I purchased was built by a quality builder and had more defects than the used homes I have had inspected in the past.

The contractor blamed all of the defects on his subcontractors work when he wasn’t looking.

In any event, I had the contractor fix every single problem pointed out to me before closing escrow. For a few years after closing escrow, I found a few other problems, which the contractor fixed.

7. NEW HOME OR REMODEL CONTRACTOR WARRANTY

Contractors usually warranty most homes for at least five years. Be sure to contact your builder as soon as you find a problem. Don’t let minor problems become major problems by putting off the repairs for a later date. This is why it is crucial to have home inspections for home buyers.

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Tax Scam Victims Avoidance

Tax scam victims have become a targeted work for tax fraud.  Paying taxes is a fact of life, it always has been, and it always will be. For years the IRS has warned taxpayers about tax fraud, tax schemes, and plain old individual dishonesty. In many cases the dishonesty can result in stiff financial penalties and the fraud can result in jail. But still, this warning continues to evade some taxpayers. So be for warned.

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This evening on our nightly news one of the potential tax victim was rescued by a tax cab driver. An elderly lady told the tax cab driver she needed to go to her bank. She was not aware that she owed the IRS 25 thousand dollars. He ask her several questions and found out someone called her on the phone and told her to wire money to pay off her taxes.

He convinced her that he did not think it was the IRS, there are several tax fraud calls and he would take her to the police station. They informed her that it was not the IRS who called her. Creating tax scam victims continues in the year 2020, but thanks to an aware taxi cab driver she was rescued.

The IRS wants you to know many tax scams and schemes still exist and is heavily promoted as legal by con artist, and individual taxpayer dishonesty is not an option.

1. Tax Scam Victims

As per the IRS, they look shady. They lurk in the shadows. They try to entice you with promises of bigger refunds, audit-proof tax breaks or sure ways to beat the IRS. But the only sure thing about them is that they can cause you trouble … a lot of trouble. If you are aware of this you can avoid becoming a tax scam victim.

Defend yourself by reviewing the IRS update of the Dirty Dozen – 12 schemes and tax scams prowling for victims during tax season.

Check out what IRS agents are finding in their criminal investigations of crooked tax preparers – and their tips for avoiding these characters.

 The IRS urges people to avoid these common schemes targeted to making you a tax scam victim:

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2. Offshore Transactions

Some people use offshore transactions to avoid paying United States income tax. Use of an offshore credit card, trust or other arrangement to hide or underreport income or to claim false deductions on a federal tax return is illegal.

Through April 15, the IRS is offering people with improper offshore financial arrangements a chance to make things right. Eligible taxpayers who step forward will not face civil fraud and information return penalties. A taxpayer involved in these schemes who does not come forward now, however, will be subject to payment of taxes, interest, penalties and potential criminal prosecution.

People interested in participating in the program, called the Offshore Voluntary Compliance Initiative, can contact the IRS by calling 215-516-3537 (not toll-free).

3. Identity Theft

Identity thieves use someone’s personal data to steal his or her financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name and even file fraudulent tax returns.

The IRS is aware of at least two recent identity theft scams involving taxes or the IRS. In one, tax preparers allegedly used information, such as Social Security numbers and financial information, from their clients’ tax returns to commit identity theft. In another, fraudsters sent bank customers fictitious bank correspondence and IRS forms in an attempt to trick them into disclosing their personal and banking data.

For taxpayers, it pays to be choosy about disclosing personal and financial information. And the IRS encourages taxpayers to carefully select a reputable tax professional.

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4. Phony Tax Payment Checks

In this scheme, con artists sell fictitious financial instruments that look like checks to pay a tax liability, mortgage and other debts. The con artists may also counsel their clients to use a phony check to overpay their taxes so they can receive a refund from the IRS for the overpayment. The false checks, called sight drafts, are worthless and have no financial value. It is illegal to use these sight drafts to pay a tax liability or other debts.

5. African-Americans Get a Special Tax Refund

Thousands of African-Americans have become tax scam victims and misled by people offering to file for tax credits or refunds related to reparations for slavery. There is no such provision in the tax law. Some unscrupulous promoters have encouraged clients to pay them to prepare a claim for this refund. But the claims are a waste of money.

Promoters of reparations tax schemes have been convicted and imprisoned. And taxpayers could face a $500 penalty for filing such claims if they do not withdraw the claim.

In early 2002, the slavery reparations scam ranked as the No. 1 scheme on the Dirty Dozen list. Following a sweeping public outreach campaign and assistance from members of the Congressional Black Caucus and other organizations, the number of reparation scam claims fell sharply. Tens of thousands of claims were received in 2001, but the claims fell to less than 50 per week in 2002.

6. No Taxes Withheld From Wages

Illegal schemes are being promoted that instruct employers not to withhold federal income tax or employment taxes from wages paid to their employees. These schemes are based on an incorrect interpretation of tax law and have been refuted in court. A recent flurry of court actions has been taken against promoters of these schemes. Taxpayers who have concerns about their employer and employment taxes can get help by calling the IRS at 1-800-829-1040.

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7. Improper Home-Based Business

This scheme purports to offer tax “relief” but in reality is illegal tax avoidance. The promoters of this scheme claim that individual taxpayers can deduct most, or all, of their personal expenses as business expenses by setting up a bogus home-based business. But the tax code firmly establishes that a clear business purpose and profit motive must exist in order to generate and claim allowable business expenses.

8. Pay the Tax, Then Get the Prize

The caller says you’ve won a prize, and all you have to do to get it is to pay the income tax due. Don’t believe it. Someone who really wins a prize may need to make an estimated tax payment to cover the taxes that will be due at the end of the year. But the payment goes to the IRS – not the caller.

Whether the prize is cash, a car or a trip, a legitimate prize giver generally sends both the winner and the IRS a Form 1099 showing the total prize value that should be reported on the winner’s tax return.

Since tax scam victims appear to not be doing their research and reading news reports they are particularly vulnerable, so please pass these tax scams on to the elderly and underinformed.

9. Frivolous Arguments

Frivolous arguments are false arguments that are unsupported by law. When a scheme promoter says “I don’t pay taxes – why should you” or urges you to “untax yourself for $49.95,” beware. These scams are as old as snake oil, but people continue to be taken in, and many have become tax scam victims. And now they’re on the Internet. The ads may say that paying taxes is “voluntary,” but that’s just plain wrong.

The U.S. courts have continuously rejected this and other frivolous arguments. Unfortunately, hundreds of people across the country have paid for the “secret” of not paying taxes or have bought “untax packages.”

Then they find out that following the advice contained in them can result in civil and/or criminal penalties. Numerous sellers of the bogus schemes have been convicted on criminal tax charges.

10. Social Security Tax Scheme

Taxpayers shouldn’t fall victim to a scam offering refunds of the Social Security taxes they have paid during their lifetimes. The scam works by the victim paying a “paperwork” fee of $100, plus a percentage of any refund received, to file a refund claim with the IRS.

This hoax fleeces the victims for the up-front fee. The law does not allow such a refund of Social Security taxes paid. The IRS processing centers are alert to this hoax and have been stopping the false claims.

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11. “I Can Get You a Big Refund …for a Fee!

Refund scheme operators may approach someone wanting to “borrow” their Social Security number or give him or her a phony W-2 so it appears that the person qualifies for a big refund. They may promise to split the refund with that person, but the IRS catches most of these false refund claims before they go out.

When one does go out, the participant usually ends up paying back the refund along with stiff penalties and interest. Two lessons to remember: 1) Anyone who promises someone a bigger refund without knowing their tax situation could be misleading them, and 2) Never sign a tax return without looking it over to make sure it’s honest and correct.

12. Share/Borrow EITC Dependents

Unscrupulous tax preparers “share” one client’s qualifying children with another client in order to allow both clients to claim the Earned Income Tax Credit. For example, one client may have four children but only needs to list two to get the maximum EITC.

The preparer will list two children on the first client’s return and the other two on another client’s tax return. The preparer and the client “selling” the dependents split a fee. The IRS prosecutes the preparers of such fraudulent claims, and participating taxpayers could be subject to civil penalties.

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13. IRS “Agent” Comes To Your House To Collect

First, do not let anyone into your home unless they identify themselves to your satisfaction. IRS special agents, field auditors and collection officers carry picture IDs and will normally try to contact you before they visit.

If you think the person on your doorstep is an impostor, lock your door and call the local police. To report IRS impostors, call the Treasury Inspector General’s Hotline at 1-800-366-4484.

Beyond the “Dirty Dozen,” the IRS sees many more tax schemes. Some examples include home-based business scams, disabled access credit for pay phones and a variety of improper abusive trusts.

“The best advice for taxpayers is to remember the concept of ‘buyer beware,’” Wenzel said. “Think carefully before paying for services or signing important documents.

And don’t be fooled by outrageous promises. If something sounds too good to be true, it probably is.” Don’t help a con person make you one of many tax scam victims.

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Reverse Mortgage Pitfalls Require Senior Homework

Reverse mortgage pitfalls

Understand the reverse mortgage pitfalls so you know the limitations for your heirs and yourself as homeowner:

I have spoken to a few senior citizens who obtained Reverse Mortgages, but felt nothing but regrets afterwards. Perhaps they did not read the fine print in a brochure that is required by FHA to read before they purchase the loan. After getting constant complaints about Reverse Mortgages, the government has changed the program, but there are still many dangers you need to be aware of.

The pitfalls of reverse mortgages, first learn to buy a home the right way
This article will cover the following pitfalls of reverse mortgages:
What is a reverse mortgage?
How does a reverse mortgage differ from a traditional home loan?
The limitations of a reverse mortgage
Homeowners insurance and taxes
When a reverse mortgage must be paid or you are forclosed
Problems heirs have associated with reverse mortgages
Can heirs take over the reverse mortgage or does it have to be paid off?
When are reverse mortgage repaid?

What is a reverse mortgage?

A Reverse Mortgage is a type of loan open to seniors that are at least 62 years who have a home that is paid off or has a low balance, and they live in the house, and follow the terms of the loan.

The problem that many seniors seem to complain about is that they did not understand the very strict terms of the loan before they signed on the dotted line. Some told me the terms were so strict, it made their lives unbearable trying to live under the guidelines and stay in their home.

How does a reverse mortgage differ from a traditional home loan?

The Reverse Mortgage is different than regular home loans in that it pays you from your loan proceeds, and is available regardless of your current income. The up front fees and cost of the loan, usually taken from loan proceeds are very high–much higher than a regular home loan. You are not required to make payments on the loan while all signers on the loan are alive and live in the home. When the last signer of the loan dies or is out of the home for one year, the loan has to be paid off. A amount of time given to pay off the loan is short, so heirs must act quickly.

Home ownership the right way-is pure joy, what is a reverse mortgage

The limitations of a reverse mortgage

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home, sales price or FHA’s mortgage limits, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you may borrow.

Bare in mind that borrowing costs are far greater than a conventional second mortgage, and once you get a reverse mortgage, you can’t get another loan on your home.

Homeowners Insurance and Taxes Must be Paid While You Are in The Home

With a Reverse Mortgage, you don’t pay monthly principal and interest payments and the lender pays you according to the payment plan you select. The payments will accumulate and add a balance to your home as a reverse mortgage loan that will be responsible for your heirs if they wish to keep the home.

Like all homeowners, you are still required to pay your real estate taxes, insurance and other conventional payments like utilities. If you get behind in real estate taxes or other required payments, you could be forced out of your home by foreclosure.

With an FHA Reverse Mortgage you cannot be foreclosed or forced to vacate your house because you “missed your mortgage payment.” But, you could be forced out for many other reasons, some of them subjective like allowing the home to fall into unacceptable disrepair. Your local property tax holder can foreclose if your property taxes are not paid, so can the reverse mortgage company.

what is a reverse mortgage

A Reverse Mortgage must be repaid in full if you meet the following criteria:

1. When you die or sell the home.
2. When you do not pay property taxes or hazard insurance or violate other obligations.
3. You permanently move to a new principal residence.
4. You, or the last borrower, fail to live in the home for 12 months in a row.
5. An example of this situation would be if you (or the last borrower) were to have a 12-month or longer stay in a nursing home.
6. You allow the property to deteriorate and do not make necessary repairs.

A subjective evaluation listed above is, “violating other obligations” that are normally listed in fine print. It is important to read all the information you can get from a non-sales person before considering this loan. Another subjective evaluation is if you “allow the property to deteriorate and do not make necessary repairs”. This gives way too much power to the lender to take your home if they feel repairs are not
adequate.

You can receive the money in a few different ways: In payments, in lump sum, or the combination of payments and lump sum. It’s better to receive the money in payments to guard against premature spending.

reverse mortgages repaid

Typical Senior Complaints of Reverse Mortgage Borrowers

Complaints I heard from seniors I consulted with were 1. They felt uneasy with the amount of monitoring. 2. If the money is taken in lump sum, there was a tendency to spend it quickly on unnecessary things. Remember, once the loan is taken, there can’t be another loan taken on the house. 3. Seniors have complained that after taking out a Reverse Mortgage the loan officer strong arms them into taking out expensive insurance they don’t need and can’t afford, such as Long Term Care Insurance.

After doing your research and reading all of the fine print about this loan, call a HUD counselor to be sure you get all of the facts before you decide this loan is for you.

An alternative to a Reverse Mortgage is to sell your house outright, place the money in the bank, and have the bank send you a monthly check to live off, in an inexpensive senior apartment. Another option is a traditional second mortgage IF, you can get a low interest loan AND easily afford the payments, and can  keep up the payments if you are sick or incapacited. You should have a responsible person to help you.

limitations about reverse mortgages

Complaints Heirs Have of Reverse Mortgages

The complaint some heirs have, is they were not successful in getting the remaining equity out of the home when their elderly relative dies. Currently, some heirs have told me, 1. They did not know their parents had a reverse mortgage and therefore did not act quickly to get a mortgage to replace the loan or sell the home. 2. another common complaint heirs have told me is they weren’t given enough time to get a new loan to pay off the reverse mortgage or sell the home and were therefore foreclosed on.

3. One women I talked to who actually worked at a Reverse Mortgage Company says that a common problem was that no one in the family could qualify for a loan to pay off the reverse mortgage before their time expired – the reverse mortgage company only gives them a set number of months.

Some stay in the homes for a few years, but with some it is only six months – it depends on many factors. At least one heir is supposed to take classes with the homeowner so they can get all the facts or the mortgage broker is supposed to give them all of the necessary information. This does not always happen.

HUD on Reverse Mortgages

Can heirs take over the reverse mortgage or does it have to be paid off?

When a homeowner over 62 takes out a reverse mortgage the mortgage payments or principle and interest add up in an account overtime. It does not have to be paid back as long as the person or persons who took out the mortgage are still alive and living in the home. The younger a person is when they take out a reverse mortgage, the higher the balance will be when they pass away if they live long.

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Consumer Finance on Reverse Mortgages

But, what happens to that balance that has accumulated in an account over time? Can the heirs inherit the balance and keep living in the home rent free as the balance continues to accumulate. No! The heirs are required to make contact with the company on a regular basis and let them know that they are working hard to get a new loan to pay off the reverse mortgage balance left by their parents or they are working hard to sell the home.

If there is a balance left after the home is sold and the reverse mortgage is paid off, the heirs will get the balance. If the reverse mortgage is large or has built up for a long time, even if it was small, the balance could be large and leave nothing to the heirs.

Avoiding Reverse Mortgage Pitfalls Work Best When:

The homeowner has read the FHA bulletin on reverse mortgages and taken the reverse mortgages class to understand the loan.

The homeowner has a responsible child with excellent credit who can qualify for a new loan or sell the home as soon as the last homeowner on the loan passes.

Sometimes it is best to take the money in payments, but if there are no responsible heirs it may be best to take all the equity, put it away, live off a small draw from the bank and leave the rest to heirs.

The responsible heir must communicate with the lender and stay in contact after the last homeowner dies to understand how reverse mortgages are repaid.

The homeowner ALWAYS pays required taxes and insurance while in the home. Also, the homeowner must maintain the home.

Because the interest and principle accumulates while the homeowner is alive there is always a possibility that all of the equity may be exhausted and the heirs could get nothing, especially if the homeowner takes the loan early, for example at 62 and dies at 92.

What is a reverse mortgage