DEAR BENNY: I refinanced my house before the market tanked and now it is worth about $100,000 less than the loan. On top of that, my lender charges me $333 a month for mortgage insurance. Is there any way to get rid of or buy my own insurance? – Bob
DEAR BOB: Are you sure you are being charged for “mortgage insurance?” I suspect the charge is for hazard insurance – which is insurance to cover any damage, destruction, theft, etc. that happens in or to your house.
If, as I suspect, this is homeowners insurance, you certainly have the right to shop and compare coverage with several of the major insurance companies. And you should get a copy of your insurance policy. It may include coverage for the original value of the house, and since the house has depreciated, you may be able to get a significant savings with either a new or a modified policy. The first place I would go to is the current insurance company that covers your house. See what they can do, but then do a little shopping.
DEAR BENNY: We plan on remodeling our house with considerable upgrades. How do we go about finding the right contractor? – Tony
DEAR TONY: I could write a book about the many clients I have represented over the years that had problems with their contractor. Perhaps the biggest concern was that the homeowner paid the contractor 80-90 percent of the total contract price and the contractor decided to quit having done considerably less of the work. So before I respond to your specific question, I have to give this advice.
First, do not use what I call the “two-page special” contractors contract, since it usually only says: “I will do work, and you will pay me XX dollars.” It only protects the contractor; it has no start-up or termination date, no warranty provisions, no release of mechanic’s lien rights, etc.
I recommend – especially for jobs over $10,000 – that you consider using one of the American Institute of Architects (AIA) forms. They are available at nominal cost on the web. Additionally, you should use an attorney and she should have access to those forms.
Second, establish a reserve account. I prefer 15 percent; most contractors will agree to 10 percent. This means that you will pay the contractor the final 10-15 percent of the contract price when the job is complete and the contractor has provided you with a release of mechanic’s lien from itself as well as from any subcontractors that worked on the job.
Third, I recommend what I call a “buffer” – an independent architect who will monitor the project. The contractor will submit periodic invoices to the buffer, and he will either approve (in which case you make the payment) or he will disapprove (in which case the contractor will have to fix any concerns raised by the buffer).
Now, in response to your question, here are some things you should do:
*Request several references and actually talk and visit with them. Keep in mind, however, that you will only get good references.
*Get a copy of the contractor’s certificate of insurance for liability and workers comp.
*Make sure you verify that the contractor is legally and currently licensed as appropriate in your jurisdiction. Don’t take his word; go online to your local licensing authority to confirm.
*Have the contract state who will be the supervisor and how often will that person be at the site.
*There should be a daily clean-up of debris, and make arrangements for the workers about having a porta-potty instead of using your bathrooms.
DEAR BENNY: In your column on the difference between simple and compound interest, you calculate interest on the original amount of the loan. Your examples don’t reflect the fact that the loan is being paid down. Isn’t interest charged on the unpaid balance, not the original amount? – Lew
DEAR LEW: You are absolutely correct. Whether the interest is “simple” or “compound,” it is only charged on the unpaid balance. To keep it simple, however, the example in my column was based on an interest-only arrangement, whereby the borrower only paid interest for a number of years, and then the entire loan would come due at the termination date.
Benny Kass is a practicing attorney in Washington, D.C. and in Maryland. He is not providing specific legal or financial advice to any reader. He wants readers to e-mail him, but cannot guarantee a personal response. He can be reached at: firstname.lastname@example.org.