Posted by PattiM on
A number of firms looking to make easy money supposedly fixing your debt problem are vigorously soliciting Mortgage Brokers and Mortgage Agents looking for you as a referral client.
They offer the broker/agent as much as half of the fee they are going to charge you. That’s right they will charge you a hefty fee — see further for how it is calculated.
Their fee is based on 50% of the amount they intend to save you.
Here is an excerpt from their pitch to the brokers and agents:
“Debt arbitration is our primary product, though which we are able to significantly reduce our clients debt loads by leveraging their financial hardship with a lump sum payment.”
They go on to say:
“As financial hardship is often the reason our clients come to us, few have the resources available to make a lump sum payment on their own, thus mortgage financing – either refinancing a current mortgage or obtaining a second mortgage – is a crucial element to the service we provide.”
These so called “lump sum settlements” are supposed to improve your situation beyond that of a Consumer Proposal (see our information on Consumer Proposals good or bad). The fact is you may be much better off in bankruptcy considering, on average people, filing bankruptcy or a consumer proposal still keep their home. (you need to know how to keep your home in bankruptcy)
They also claim — “Our average reduction saves the client 60% of the original balance.”
So let’s run some numbers:
Suppose you owe $80,000 on lines of credit and credit card debt.
If they save you $60% — you will have to pay out $32,000 in lump sum settlements.
Theoretically you will save $48,000, but wait, remember their fee is 50% of the saved amount or in this example — $24,000.
HST is due on that amount $24,000 @ 13% — add another $3,120.
That means ($32,000 settlement amount + $24,000 fees + $3,120 tax) = $59,120.
Now you are paying at 74% of your $80,000 debt
Realistically you need a mortgage for this amount plus the cost of borrowing.
Since you have bad credit you will only qualify for a 2nd mortgage with a private lender — current rates average 15% plus 2% lender fee plus broker fee average another $1,500 plus legal costs to register the mortgage et cetera — average $1,500
Round off the mortgage to $60,000 plus lender fee $1,200 and we get (60,000 + 1,200 + 1500 +1500) or $64,200 @15% for 1 year or $9,600
Total needed $73,800 or 92% of what you owe.
You need to do the math before signing on these porous lines.
What will the broker get for this? Well, they get $12,000 plus the mortgage arrangement fee of $1500 = $13,500
The debt solution company is paying for your referral at 50% of the fee they charge you to the referring agent or $12,000 each.
This is a quote from their document “we offer up to 50% of our fee (25% of the savings negotiated for the client) to the referring partner.”
The fee fluctuates as some creditors don’t settle for the 40% offer.
Also these companies seldom care if all of your debt is not settled. Quite often creditors refuse to settle and continue their own collection action.
Read this quote on limited liability:
Signator understands that in certain cases negotiations will fail, in which case Signator hereby releases and indemnifies “the company” from any and all claims by the Signator for a failure to achieve such an understanding with creditors. In addition, Signator understands that although “the company” will act as Attorney-in-fact on behalf of Signator, no liability is assumed by “the company” for any claims or damages against Signator by creditors, past present or future. “the company” assumes no liability for any creditor action initiated as either direct or indirect result of ‘the companies’ efforts.
To establish themselves as a ‘Licenced’ entity and pretend they are not ‘Collection Agents’ they make statements like this:
“anyone charging a fee for such a service must be licensed by the Ministry of Consumer Services — Protection Branch. The license is offered as a Collection Agency license and governed as such, meaning all stipulations of the Collection Agencies Act and Regulations apply”
Contact the registrar for Collection Agents and Collection Companies and they will tell you there is no such ‘Licence’ in existence.
For a free consultation by an Accredited Insolvency Counsellor and fully LICENCED Mortgage Agent please contact us at here or call 613-475-6480