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Monday, October 23, 2017

Debt Consolidation Referral Fees

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:
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

The Home Ownership Dream

Posted by PattiM on

Many of you will have seen in the news this week that Finance Minister Flaherty is changing some of the home financing rules effective April 19th. It has been widely reported this action was taken to slow the possibility of a housing bubble forming in Canada which could have the effect of deepening the recession which the government believes we are starting to rise out of.

Almost all the clients I meet with, who don’t yet have a home, have a dream of owning a home. So, the question most on their minds right now would be do the new rules impact their dream? My considered answer would be … maybe. Helpful, eh?

Actually there is a reason for my middle of the road response. There is more than one way to pursue the dream of owning a home. There is the prudent, planning and saving towards realization of the dream and then there is the almost scatter gun effort. For those who are prudent, planning and saving — it is unlikely the changes will have an impact on them. For those with the scatter gun effect — yes the changes likely will have an impact and they should.

I’ve been amazed at times by the number of clients who meet with me for counseling who are focused on wanting an answer to when they can buy their home to the exclusion of any discussion of planning or saving. These clients are people who have recently done a filing under the Bankruptcy and Insolvency Act. This is an opportunity for them to make a fresh start and with some fiscal discipline finally realize their dream of home ownership. WAIT! There is more to read… read on »

Documents and Proof Required to Close a Home Purchase

Posted by Bill on

Proof that you are who you say you are:
♦ Two pieces of picture I.D.: Birth Certificate, Citizenship, Passport, et cetera
♦ Lawyer name address and contact info including Fax & E-mail.

Proof of income:
♦ Proof of income can be Pay Stubs, Tax Assessments, Tax Returns, Letter from employer with employer’s contact information.

Self-employed proof of Income:
♦ 3 past years Tax & Assessments.
♦ Self-declared income by way of a letter stating your gross income.

Closing costs:
♦ Ensure you have added all closing costs.
♦ Appraisal will need to be paid before funding is advanced and it is the responsibility of the buyer, average cost $300.00. Appraisal will not be released until the fee is paid. Appraisal may be waived if mortgage is CMHC insured.
♦ Home Inspection – average $300.00 to $500.00. Usually paid up front by the buyer.
♦ Lawyer fees for Independent Legal Advice (ILA) average cost $150.00. This lawyer represents you. This may  be taken from the mortgage if it was pre-calculated. Don’t leave yourself short if you have not requested it in the mortgage.
♦ Lawyer fees for closing. Can be $1000.00 to $1500.00 if there are no complications. Remember the lender chooses the lawyer and although you pay for it the lawyer represents the LENDER.
♦ Lender fee. There is often a lender fee especially with Trust Companies.
♦ Broker fee. The Broker will disclose in writing both the lender’s and the broker’s fee. Often these two fees are added to the mortgage, not a good idea especially if you can afford to pay them separately.
♦ Land transfer Tax. WAIT! There is more to read… read on »

The “Claim Jumpers” want your home – here’s what to watch out for!!!

Posted by Bill on

There are companies and individual lenders who specialize in second mortgages that are doomed to fail so that the lender can take your home for much less than the market value. I am going to show you how it works so you will know what to watch out for.

This is the true story, unfortunately, I hear it from lots of people who come to see me after getting into a mortgage they cannot manage.

Each time my client explains, something unusual has happened; a sickness, death, lay off et cetera, and the credit cards get maxed out. They struggle for a while and fall behind on payments to creditors. Sometimes collection agents convince them not to pay their mortgage so that a payment can be sent to the collection agent. Collectors tell them that it’s better to pay the credit cards to keep their good credit and let the mortgage fall behind. (Take note … that is a false statement).

The desperate homeowner diverts mortgage money to pay the collection agents.

Soon the collection agent demands they get a 2nd mortgage to pay off the balances on the credit card debt and often demand that the struggling homeowner goes directly to the lender that the collector recommends. They paint a very nice picture that this particular lender will give them money even though the banks have turned them down. (That is correct – that is why these lenders are in bed with some collection agents).

Soon the homeowner gets the 2nd mortgage which is high interest and repayable monthly at “Interest Only”. The mortgage always has a one (1) year term, but they are told not to worry – it can be renewed again at the end of the year for an additional 1 year term. (Of course that little statement is not written into the mortgage document). They are also told this mortgage will give them an opportunity to rebuild their credit over the coming year. (Only problem is – that will definitely not happen – see further down for reasons). WAIT! There is more to read… read on »