Sunday, December 29, 2013

Can't Pay Your Medical Bills? Re-posting My Most Viewed Post

This is my most viewed post for a reason: Americans can't pay their medical bills. 

President Obama's Affordable Care Act, which took several years to implement, has already helped many people get access to health care and to affordable insurance. It will help more people in the future. That's great, because it means that you get medical care and you don't get skinned on the price of care. You just present your insurance card and you are guaranteed to not be held up in a big way for cash on the spot. But wait, yes, you still might be expected to fork over a co-pay. Oh. That's why this post is still relevant. Because many of us do not have the cash to pay our medical bills. Or, if we pay the up-front charge, we can't pay some other bill waiting at home, and we certainly can't pay the remainder of the provider's charges, often multiple bills that show up in the mail later.

Sure, Medicaid is an option. But what if you have medical bills from doctors who don't take Medicaid, or from times when you weren't on Medicaid, or from bills that Medicaid won't pay? And what about people whose income technically indicates that they can afford to pay for health insurance, but whose personal financial situation of being deeply in credit card or other debt means they actually don't have any money to pay their bills? Aha. There's the catch. 

Despite medical insurance of various stripes finally being available to us all, plenty of us still cannot pay the actual medical bills that eventually trickle or pour into our mailboxes. If we can't pay promptly, the phone calls start. Each provider or bill collector wants us to pay in full, and forget about paying anyone else or even having enough money to eat that month. Your immediate goal is to stop the provider from putting you into collection or initiating a lawsuit against you. Your financial goal is to pay the very minimum amount you can wrestle out of the provider, and to only agree to a payment schedule you have a chance of meeting.

Here’s the basic scenario: 

1. Ask the provider to write off your portion of the bill after your insurance company has paid its share. Sometimes they will, if they’ve gotten enough from your insurer. Sometimes they will even if they’ve gotten nothing.

2. Negotiate the bill lower. Whether you have insurance or not, your goal is to pay between 5 and 50 percent of what you owe, max. Start your offer at 5 percent and let them negotiate you up. The main argument if you have insurance is they’ve already been paid a reasonable amount. The main argument if you don't have insurance that covered the procedure is they have billed you the utter maximum, and you want the bill to be cut to the remaining portion an insured person would be billed. Ideally, far lower.

3. Ask for a payment plan. By now they know you seriously care about the bill you owe, since you've talked to them repeatedly and maybe even called them on your own, trying to do something about paying it. They also know you can't pay it now. If they haven’t offered already, ask to make interest-free payments, stretched over a very long time. A year or more. These payments should give you space to recover first. Perhaps you can arrange to pay them a token fee now, or perhaps not. Then in six months, when you have regained your health, you’ll start making small monthly payments. Don't agree to a schedule that starts right now if you have no hope of meeting it. Try for delayed payments. Six months or a year later, if you still don’t have the money, try the scenario from the top, asking them to forgo payment entirely. Some dentists have payment plans that involve credit card companies and steep interest if you don't pay on time. Try to avoid this formal payment system, as it could drive you deeper in debt if you are short on cash.

4. Ask to be granted charity status. If you know you can never pay a medical bill---for instance, a hospital stay in the tens of thousands of dollars---present a written request on your own or ask to fill out their paperwork for being granted charity status. This is better than having a bill written off, which might produce tax consequences as supposedly "earned" income. When you know you can never pay, charity status is the way to go. You'll have to document why you are a plausible charity case, but most people who are in this situation have plenty of paperwork proving it already, and little shame or embarrassment about admitting that they're out of money. If one medical supplier grants you charity status, include a copy of that supplier's grant letter in your application for charity status to the next supplier. There are zero tax consequences to being granted charity status.

5. Speak to the doctor directly. Or write the doctor directly. If you like writing letters or aren’t afraid to ask your doctor in person, that’s a very effective method of asking for your bill to be drastically reduced or even entirely forgiven. The boss can do what the workers can’t.

6. Asking the doctor to cut the fee applies even to the co-pay. You'll probably never get a refund, so call in advance and ask in advance not to be charged the co-pay or the usual price of a procedure or visit about which you have advance notice. You can also write in advance, or have a negotiator (it could be a family member) call or write on your behalf. If you feel too ill to be up to these tasks, ask someone you know to help you. Usually an office manager will ask the doctor and get back to you with an answer. If it isn't the answer you like, and you have other options such as a different medical provider, pursue them.

7. If bill collectors do start calling, you have rights. The Federal Trade Commission has a great Consumer Information page that details the major rules under the Fair Debt Collection Practices Act. Best of all, you have the right to tell bill collectors to stop calling you. Check out the FTC page so you'll be aware of what debt collection practices are not allowed. Your state may have specific collection laws as well. Hopefully, they'll be in your favor. Most important, don't yield to the pressure that bill collectors exert. You know your financial and medical situation best, so don't agree to what they demand just to try to get them to stop calling. Use the method the law provides.

8. If you do get a notice that you're being sued over a medical bill, don't ignore it. Then you'll lose your chance to fight. You likely don't have the money to hire a lawyer, but you can call your local bar association to get the name of an attorney who will work for you pro bono---free. They do exist and it's not a big deal to find one. You qualify based on your lack of income or other circumstances. The important thing is to get legal representation, so a judge doesn't just take the medical provider's word for what you owe. After all, many medical bills are inflated, or duplications, or just plain wrong. If you miss your date in court, you automatically lose your case. And by the way, even at this stage you can try to get charity status from the very same company that is suing you. You can ask your lawyer to send the medical provider a letter.

9. What if you've tried everything, and you still owe some monstrous bill from a hospital that insists you are rich and should pay? Ask for the surgical report on your procedure, which you have a right to by law, and/or whatever records or notes there are for anything, such as a hospital stay, an in-office procedure, anything. Have an unbiased medical professional review it for errors. Medical providers make mistakes all the time. If your records show that a mistake was made, or that something, perhaps an unexpected stay in ICU or some behavior that your medical consultant flags as not according to usual standards, suggests that you were not given correct care, then, with that proof in hand, it's time to call or write and suggest that you should not be liable for the bill because they made a mistake.

The mere whiff of a suggestion that there's a possibility that you might have a malpractice case (is that vague enough? because you are not going to call up and say "I'll sue you") will make the medical provider sit up and start thinking. You will get action. It is quite likely that the response will be a letter saying, no, no mistakes were made, but according to their records, you don't owe them any money.

Yes, this really happens. Medical providers are so afraid of being sued that the mere hint that you might possibly have a case against them may be enough to get them to "lose" your bill permanently.

Or, depending on what the records have revealed, you might be better off finding a contingency lawyer and suing. A mistake that worsens your health or puts your life at risk is an actionable event.

10. Sometimes the issue may be that a medical bill is incorrect, either for a large amount of money or for a smaller sum. As Jay Lake has discovered, some medical billing issues go around and around because the low-level employees of the medical providers and the low-level employees of the health insurance companies keep denying that they have any responsibility to resolve an error. They simply keep passing the buck. They'd rather you just paid what you do NOT owe than fix the error. Bill collectors often say the same thing: "Why don't you just pay it?" When that happens, it's time to tell your story to the local action line, time to file a complaint at the state level, and definitely time to contact your local legislative representatives and get some help. Nobody should pressure you to pay a bill you don't even owe. A pro bono lawyer should be able to cut through the nonsense in this situation, as well. 

The reality is that with or without insurance, any health blip can become a financial disaster. Although the new health care law will change many of these situations, here are some tools you can and should stockpile before the catastrophe:

1. Supplemental insurance. If you know you won’t have money to pay the remaining owed portion if you get seriously ill, buy insurance to pay that part. You’ve seen those TV ads for supplemental insurance; this is what they’re all about. When 80 percent coverage isn’t enough, there is a way to be insured to cover the other 20 percent. If you’ve got serious ongoing health problems such as heart disease or cancer, that additional coverage could be crucial. Those cheapie “we’ll pay you cash every day you’re in the hospital” policies may also help you out a little, but they’re unlikely to cover the enormous multiple expenses that can be incurred in just a one-day visit to the Emergency Room or the ICU.
2. Catastrophic health coverage. This is one of the cheap options of the ACA. Do not imagine that paying the federal fine for not having health insurance is cheaper than having insurance. The entire point of insurance is to cover you for catastrophes. Catastrophes happen to us all. You’ll have to pony up the first $5,000 or $10,000 before its benefits kick in, and, yes, you have to pay monthly premiums. It's insurance. It'll save you from having to pay $100,000 for a surprise stint in ICU.
3. State-funded health insurance plan based on your income or diagnosis. Some states have completely free coverage for certain diseases, such as HIV/AIDS, or breast cancer. Some states have coverage for people below a certain income. These vary by state, and some states aren’t generous. (A good reason to consider where you live based on state politics and resources.) Some states have expanded Medicaid under the ACA. Make sure you apply through the ACA portal, or you might get the runaround from old line Medicaid employees who are still existing on a parallel plane and apparently know nothing about ACA.
4. Social Security, either Disability or Supplemental. Either one will qualify you for a health insurance program (Medicare or Medicaid), but they aren’t easy to get. Disability is almost always an automatic rejection. There are companies and lawyers who will help you. Use them, as it takes years otherwise. The Social Security Administration posted a goal a while back of giving a first reply within 270 days. That’s a goal, not a track record.
5. Medical Billing Advocate. There aren’t a lot of these people around, but they’re pros at making sure you aren’t being overbilled by hospitals, labs, and doctors. They can bargain with your medical creditors to settle your medical bills for far lower than the invoiced amount.
6. Social Worker. There is a persistent myth that social workers actually exist who can help you and who want to help. Maybe when you’re trying to get public assistance, there actually will be a sympathetic social worker who wants to keep you from becoming homeless. Maybe not. Maybe there will be a hospital social worker who makes an effort to help you. Maybe not. At least while you’re waiting to see this probably overworked and burnt-out professional, you’re not at home stewing over bills you can’t pay, and you’re in a heated or air conditioned building, too, something that you might not have at home anymore.
7. Statute of Limitations. Perhaps you haven’t been able to access any of the prior listed methods of paying your medical bills. Each state has a statute of limitations on past due bills, and sometimes that’s only three years. Collectors are supposed to stop calling once you speak to them and ask them in writing to stop, but examples abound of collectors not acting in a legal manner. Put a stop to it. Three years of being called by bill collectors is probably enough purgatory for anyone. Tell any bill collector you no longer are legally liable to pay, and they must drop the case and stop calling. If they overstep their legal authority—which is a constant problem with bill collectors—report them promptly to the state agency that regulates them.

Of course the real answer to the problem of medical bills you can’t pay is to change our health care system at the core. We're on our way, but we aren't there yet.

Saturday, August 24, 2013

The Ugly Truth about Medicaid

Do you own a home? Are you unable to pay all your future medical bills and need to go on Medicaid and have Medicaid pay them? Please do not allow the people who staff the social services agencies of your state to treat you like dirt. Medicaid is not a gift. It is a loan--if you own anything of value.

A federal law passed in 1993 requires the states to recover any money paid to people on Medicaid. This happens after they dieIf you die utterly broke and without family, no problem. But if you are a fairly typical elderly person who owns a home and then has to go into a nursing home, and then runs out of cash and has to go on Medicaid to keep paying the nursing home, the state will come after your home after you die. This could seriously affect your family's future, even forcing the sale of your home. And it should seriously alter your own view of whether to apply for Medicaid at all, or instead possibly sell your house to pay for a better level of care, or mortgage your house and stay in it with home help, or purchase long-term care insurance, or some other scenario. It should also give you more backbone when dealing with the officious and uncooperative state employees of Medicaid, who routinely lose your paperwork, treat you like a deadbeat, and worse.

Highlights of the 1993 Estate Recovery Mandate: 

States must pursue recovering costs for medical assistance consisting of:
  • Nursing home or other long-term institutional services;
  • Home- and community-based services;
  • Hospital and prescription drug services provided while the recipient was receiving nursing facility or home- and community-based services; and
  • At State option, any other items covered by the Medicaid State Plan.
At a minimum, states must recover from assets that pass through probate (which is governed by state law). At a maximum, states may recover any assets of the deceased recipient.

The key element is in the last bullet point: "any other items." This law applies to anyone 55 years of age or older, whether they needed nursing home care or not.  

Medicaid is a loan? Yes, a loan, not a gift. I was stunned to learn this. A friend told me how his state came after him once his mother died, wanting her house. He did not have to give the state the house only because he had been on the title for decades, long before her final years. But the state still did get the value of her possessions. Every chair, every table, every glass and dish and piece of junk jewelry went to the state. Not to mention any antiques or valuable possessions such as furniture, silver, china, crystal, or big-screen TVs. Losing the physical possessions of a dead relative, usually a parent, might not matter to some people, but it could be a bitter pill to others. Imagine having to barter with the state to buy back that antique table in the hall that Mom always said you could have. And you might not be able to pick and choose. You might have to pay the entire debt yourself or let the state take everything. It varies from state to state.

Avoiding the Estate Recovery law that gives Medicaid the legal right to your home is not easy, and it involves serious risk. Medicaid has stern penalties for "fraud of conveyance," that is, an attempt to claim the asset is jointly owned or owned by someone else when actually the title has been changed in anticipation of needing to access Medicaid benefits. There is a time period that the state can go back and basically negate a newly joint or transferred ownership. It used to be five years, but in some states it's now eight years. It could go even higher as people tend to live longer. It also has a specific monetary component. 

This law has teeth. If Medicaid determines that you have tried to hide or shield assets to qualify, it penalizes you. Medicaid disqualifies a person from obtaining Medicaid benefits for a penalty period that can be as much as five years. If you transferred title to a home worth $200,000 within the look-back period (five years, or whatever applies in your state), Medicaid won't pay your medical bills until you have paid that $200,000 to medical providers yourself. The penalty provision will force many families to sell the family home immediately to provide funds for care needed right now. They can't wait out the Medicaid penalty period. That's why the penalty was designed as it is.

There are exceptions, but they're very limited. The spouse of the person on Medicaid is excepted, as would be minor children, although the likelihood of a person 55 or older having minor children is not high. A disabled adult child of the person on Medicaid can be excepted. Certain siblings, based on their period of residence in the home, can be excepted. But not a nephew, niece, or grandchild. Or parent.

The current national average cost for nursing home care is $57,000 per year--and CNN claims the median is $84,000. Depending on where you live, you could be paying well over $100,000 a year for nursing home care. And then, once every dime of yours has been extracted by the nursing home, you get put on Medicaid. Your care or your loved one's care could cost much more. The average nursing home stay is 835 days, or two years and four months, or about $130,000 taking the low figure, or $192,000 taking the higher one. The median home value in the U.S. currently is between $170,000 and $270,000. The value of a home is just barely enough to cover the cost of an extended nursing home stay. Meanwhile, some people report outrageous nursing home charges of over $600,000 for less than a three-year stay. Very few people can pay this out of pocket. In some areas of the country, that would be more than the full value of a home and any estate. In others, it might be a quarter of the home's value. But what family member can come up with $130,000 in cash to repay Medicaid and keep the house? Usually, this means the house must be sold to satisfy Medicaid's claim on it.

How much is a family home worth? How much good quality home care can one of those dicey and expensive reverse mortgages give you? Is retaining the dignity of independent living worth the time of some family member having to oversee the quality of care on a near daily basis? Would selling the house and going into a fancy assisted living place be a better option? But there's no way of knowing how long you will live, is there? Or how intensive the medical care you'll need might be. Assisted living is only for people in good health. Get sick and you get bounced into a nursing home.

What can you do right now? First, have that long-postponed end-of-life talk. If it's absolutely too late to buy long-term care insurance, then at least make a plan. If your plan is to sell the big marital home with all those empty bedrooms and move into an apartment by yourself, think ahead. The plan has to assume that you will lose functionality and will need help. Are there steps? An elevator? Do you want nurses to visit you? A home health companion to take care of you? Is there a family member you might invite to be a companion, to share expenses so you can afford to pay for nursing care in your home? What about that college graduate grandchild who can't find a job?

If you're trying to figure this out for someone else, find out if your loved one is set on staying in the family home until she or he dies and then openly discuss what money there is to pay for home care. In theory there are state and county social services available, but in reality your elderly relative could be on such a list for many years and never make it to the top of the list and actually receive free care. There may be cash benefits available in your state to help people age in place, but they must be applied for, and someone has to take on that responsibility. Decide if the family wants or needs to keep the family home, and how that will be accomplished. There are trusts. There are non-arm's-length sales for $1 to relatives. It's possible to mortgage a house no matter how old you are as long as you qualify by income. Reverse mortgages can be a solution, but they cost around 20% (yes, that's correct) of the value of the home. Although there is more than one type of reverse mortgage, most people seem to get stuck with the kind that pays only a set one-time fee. This is not a great idea for today's homeowner since home values are still low after the recession, and the homeowner will not be able to get more cash out as the house inevitably grows in value. Perhaps changing the house title or transferring any assets so they can continue to benefit the family is worth the risk that someone might need Medicaid and be unable to qualify for it. Perhaps not. Assets might be very small compared to the skyrocketing cost of a nursing home. Most families do not have $130,000 and up to cover that.

And what happens if you are on Medicaid not because you are old, but because you have cancer and no health insurance, and then you don't die? Well, eventually, you will die. Maybe in five years or in thirty-five years. Medicaid is required by law to tell you it can come get your assets once you die. If you are fighting the big C, you're probably not worrying too much about what Medicaid can collect after you die. Until you recover, and realize that Medicaid has a lien on your future.

A lien on your future? What does this mean? You could be trapped in your house, unable to sell it for a profit because Medicaid will take its money first, leaving you without enough cash from the sale to establish yourself somewhere else. When you're young and healthy, not making a profit from selling your largest asset might not be important, but if you are older or your health is in doubt, it becomes a serious issue. The ACA law has allowed many more people to access Medicaid today, but as far as I have heard, Medicaid still has the mandate to reclaim any money advanced. 

The states have implemented the Estate Recovery law in a wacky, inconsistent manner. Your state might not routinely seize assets. Or it might seize a high percentage. You should find out which. This is end-of-life planning, too. Most of all, keep in mind that Medicaid is not a gift. It is a loan.

[Updated December 14, 2015.]

Wednesday, July 31, 2013

Why You Should Not Put Your Bills on Autopay

Companies are constantly pressuring us to stop receiving mailed bills and to stop mailing our payments. They tout the convenience of bank or credit card autopay arrangements. Of course they do, since it is very convenient for these companies to not have the expense of mailing bills and to get your payments as quickly as possible. But autopay is not convenient for me, and here's why:

1. Sometimes, I lose a credit card. It happened to me last year. Because I have no automatic bill paying arrangements on that account, it was a simple matter to call the company and get a replacement card and number. I didn't have to remember what bills might be on autopay, and I didn't and don't run the risk that a request for payment will be denied. If you have five or ten autopays on a credit card, imagine the fuss and bother that a new number could create.

2. Sometimes a credit card company has a major data leak, and sends all its cardholders new cards with new numbers. Surprise. The same problem: it's up to you to notify every one of your autopays of the changed account number or else risk damaging your credit by a refused payment.

3. Sometimes a creditor screws up and double bills me. If the company does not have access to my bank account or credit card, all it can do is send me a second bill. At that point I can call and tell them they've made a mistake. If the company has access to my bank or credit card, it can take my money twice, and then I have to go to a lot more trouble to get my money back. The potential is always there with an autopay arrangement. It's wise to take the measure of a company before considering allowing autopay. I have an account currently with an especially inept company and no way would I ever allow that company access to my money via autopay.

4. Sometimes I decide to cancel a service. If I do so as of a certain date, but the autopay is for a different date, someone at the company has to put in an order to cancel the autopay. An entire billing cycle might go by before the cancellation is sustained. Why put up with that?

5. Sometimes a company decides it wants my money really, really fast. If I allow it to have an autopay arrangement, the company will charge me as early in the billing cycle as possible. That may be convenient for the company, but why should I pay a bill early? It might not be convenient for me for the funds to leave my bank account so quickly. Most people live paycheck to paycheck. We don't want to pay our bills on someone else's schedule.

6. Sometimes I might have a dispute with a company, and wish to withhold payment. That's not going to happen with autopay, is it? Not without effort on my part in addition to whatever effort the dispute itself takes up.  

Autopay arrangements have some advantages, such as when you live in a place where your mail routinely gets stolen, or you can't buy postage stamps, or the mail is never picked up. I am not sure you should live in such a place. Except in rare instances, the U.S. Postal Service works just fine to deliver your bills to you and your payments to your creditors.

If you are concerned that you have a relationship with an untrustworthy company that pretends your mailed check was delayed, and thus unfairly and illegally charges you interest on your purchases, find a better company immediately. Or you can always make an online payment without creating an autopay situation. It only takes a few days to set up online payments. You choose the amount and the date you pay. You are not obligated to continue to make your payments online. You can make some payments by mail and others online, thus remaining fully in charge of your financial life.

If you see autopay as an easy way to deal with regular bills such as health coverage, car loans, or insurance, then at least keep an easily accessible list of exactly what bills are paid via autopay, the day of the month the withdrawal occurs, and the contact information. Otherwise, you could find yourself in a pickle. When I lost that credit card, I was 800 miles from home and I wasn't going to be home for several more days. It was very convenient not to worry about messed up autopays.

Friday, July 26, 2013

Why You Should Not Commit Mortgage Fraud

Committing mortgage fraud is breaking the law. Don't break the law. That seems like a no-brainer, but here's why you should not do it. If you start an important legal transaction by cheating, you run the very real risk of a) getting caught, and b) getting involved with people who will cheat you. Con artists work their cons by first getting their marks to engage in something they know to be illegal or unethical. Then, the con artist goes in for the kill. The shamefaced mark, left with empty pockets, is unlikely to report being taken. Why not? Because the mark did something wrong to begin with. Do you want to be the victim of a con artist mortgage broker? No? Then don't start your effort to obtain a mortgage by lying on your mortgage application.

A lot of people think, "I intend to pay this mortgage on time, so what's the harm in pretending I have more cash than I do?" The harm is they can't afford the mortgage. Making the payments will negatively skew their manner of living. They'll be house rich and cash poor. They'll suffer the whole time they live in that house, because too much of their income goes to the mortgage and not enough is left over for an occasional pizza. Improved quality of life is usually why people seek to own a house. You have not improved the quality of your life if you have no cash left over each month after you pay your mortgage.

Some people think, "My parents are lending me the down payment, but I need them to sign a letter saying it's a gift. I intend to pay them back, of course." Those people should not try to buy a house, because they will sour their family relationships over asking other people to commit fraud. Then the high cost of home ownership will surprise the naive new owners, who will be unable to pay the parents back. Instant family trouble. Don't do this to yourself. 

Lenders do not make up qualifying ratios and required down payment amounts out of thin air. Whom do you think has the most expertise about home buying? Not the buyers. The lenders do. Lenders see people buy houses all the time, whereas during an entire lifetime, most people only buy one or two or maybe a couple more houses. Lenders have the experience to know that putting every dollar you have into a loan, and not leaving enough for day-to-day living, is a mistake. People who want to assign a huge percent of their income just to their mortgage soon find it difficult to make their monthly payments. That's the origin of the ratios. And lenders also know that unless people have a substantial stake in the success of a venture they are likely to walk away from it in tough times. That's the origin of the down payment. If you can't come up with 20% of what a house costs, you probably should not be trying to own a house. If your parents give you the money, that's okay, although you still could be at risk. But if you try to pull some secret loan deal and pretend the down payment was a gift, that's the first step to losing the house. Or losing your family.

People ought not try to subvert rules that exist fundamentally to protect them--not the bank--from getting in over their heads. But they do it all the time. They think they know better. They think they're smarter than the banks. Mortgage fraud, from little white lies to outright subterfuge about the origin of money in your bank or for your down payment, will come back to bite you. Don't commit mortgage fraud.

Monday, June 24, 2013

Never Assume Anybody Knows What They're Doing

This should be the happy coda to my long mortgage refinance story, but it's not. Why? As they say, denying all responsibility, "Mistakes were made."

Mistake #1. Despite receiving the hazard insurance on our home when funds were disbursed after the closing, our insurance company went ahead and billed our new mortgage servicer all over again.

Mistake #2. Despite it being uncommon not to prepay out of already accrued escrow such things as home insurance during a refi closing, and despite having its own copy of the closing papers, our new mortgage servicer paid the double bill without questioning it, thus completely depleting our escrow.

Mistake #3. I sent a large check, separately from the regularly monthly mortgage payment, specifically designating it to be applied to principal only. Instead, the new mortgage servicer decided to apply it to our next month's regular mortgage payment.

Mistake #4? We gave up waiting for the invoice for the mortgage payment due July 1, so we sent the payment anyway. What are the chances that the mortgage company decides to credit it to the wrong month's payment? Or the now negative escrow? Or who knows what?

Mistake #5. When our insurance company received the excess payment, instead of questioning it, they applied it to our car insurance bill, which wasn't due for another month, and was for a different amount. Then they sent us a refund check for the difference, without any explanation.

Mistake #6. Well, that's still to come.

A lot of people are working for companies so large that they can't even begin to challenge an incorrect communication such as the double billing from the insurer. Despite demanding that I recite my name, address, telephone number, and e-mail address over and over during every phone call, these companies never bother to pick up the phone or shoot me an e-mail and ask, "Hey, what's up with this? Seems a little odd." I'll say it's odd.

These employees are not being paid to get things right. They're paid to get the money, or pay the money out, but never to think about what the transaction means. It would be sad if it weren't so frustrating for all concerned. The only redress the insurance company offered was to send us the car payment as a refund, which of course we would then have to turn around and pay anyway next week. The jury's out on whether the mortgage company will credit our extra payment to principal, or try to weasel out of doing that based on stupidly paying the double insurance bill. And eventually, we'll have to cough up roughly the amount of our car payment to rebalance the escrow. What a mess. 

This is yet another reason that some people are willing to stay with their old, overpriced mortgage, rather than fall into the hands of an incompetent company. Or in this case, two incompetent companies.

What can we learn from this experience? Not much. Keep on top of your bills. Pay attention when they don't show up on time. When random checks arrive, find out why. And be ready to spend a lot of time on the phone straightening things out. You are the only one who can. You're also the only one who cares.

Tuesday, May 21, 2013

The Refi That Will Not Die

Do I understand the home mortgage refinance that we finally (finally!) completed? No, I do not. The HUD-1 statement, so beloved as a truth-in-lending document, is gibberish to me. I have run the numbers many different ways and many different times, and I still don't know what we paid for this loan.

Why is a home loan so complicated? Some people tell me it's because the banks deliberately have made this system obtuse. Not just opaque, which means not see-through, but obtuse, which means difficult to comprehend. I agree. I can't understand the pluses and minuses sprinkled throughout this document, and I have tried.

For instance, line 103 is "Settlement charges to borrower," from line 1400. Is that what we're paying for the loan? No. Why not? The total includes amounts that would be in escrow already with our old lender, plus new escrow amounts to be paid to our new lender. The dollar figure also includes an adjusted loan origination charge that is a negative number. Clear as mud? I thought so.

Okay, subtract all the escrow, and is that what we're paying for the loan? Maybe. But then again, maybe not, because our new loan amount is thousands more than the line 103 amount even when all the escrow is subtracted. So we go to line 104, "Payoff of first mortgage." That dollar figure is thousands more than what was owed on that date. But the refi document is paying that amount to the original lender anyway, plus adding a couple thousand dollars to the new loan amount. Okaaay...

We waited to get the refund from the original lender, sure it would clear up everything. It didn't. The original lender refunded our entire escrow balance with them (what would be paid for us in yearly real estate taxes and home insurance). That's great. The old lender also refunded the excess the new lender paid to close out the loan, minus the interest we owed for the number of days that month during which interest had already accrued. That seems straightforward enough, but there was no accompanying statement that broke out those figures, so it took some thought to figure out why the numbers didn't match at all. I got within eight dollars and called it done.

You would think that at this point I would know what we paid for the loan. Subtract the escrow refund, then subtract the remaining refund from the new loan amount, and the difference between the old loan amount and the new loan amount should be what we paid for the loan. But when I do that, the cost of the loan is double what the settlement costs are as listed on the HUD-1. And yet our loan origination charges are listed as a negative number, remember, so where did these other thousands of dollars come from? I do not know. It's pitiful. What am I missing here?

Our first loan statement from our new lender is incomplete. It does not break down the loan payment into principal, interest, and escrow. It also does not list the amount paid at closing to start the escrow account. So I have to either call the new lender again (since I've already called to make sure we have been credited for the escrow amount) and ask for the details, or wait until we receive our second loan payment invoice. Then I should know what the starting figure is on retiring principal and paying interest on this new loan. The purpose of finding this figure is to compare the old loan to the new loan. 

Why do I even want to know the details? Because if I plug in these exact dollar figures in an amortization table available online, I believe I can learn exactly when the remaining balance of the new loan will be equal to the remaining balance of the old loan if it had continued. That could be many months from now, or only a few. Here's the hypothesis as a visual:

The loan in red is the new loan. The loan in blue is the old loan, which started after the last full payment to reduce the old loan, and started at a higher dollar amount. Eventually, the loans will meet, and at that point, the cost of the refi will be amortized and we will start to regain payoff momentum.

But I think I have to wait yet another month for the rest of the information, since the payments made this month have not been credited yet.

Yep. This is the refi that will not die.

Wednesday, April 24, 2013

Tax Time Promises to Keep

Do you end up filing your income taxes on the last possible day, sometimes even at the last possible hour each year? If so, it's time to clean up your act. Why put yourself through the stress of last-minute filing when you can make a plan now, follow through with it, and be happily spending or saving your refund next year when April 15th rolls around?

Start by asking yourself what goes wrong or delays you. Are your tax papers scattered around your home? Have you moved? Have you held several jobs and found it hard to obtain all your W-2s? Do your living circumstances change frequently? Has your marital status changed? Does a family member refuse or forget to give you important information or documents? Is a daycare provider or religious institution lax in giving you a written yearly accounting? All these can affect getting organized in advance.

Or is your problem finding the time in January, February, or March to go to a tax preparer? Although there are long waiting times in certain volunteer tax preparation spots, others take appointments. A little digging can put you in contact with whatever agency runs each site and you can learn where your most efficient tax prep venue will be.

Accountants of course will take appointments. Get recommendations and look for an accountant in the summer, once they've filed their on-time returns and taken a vacation, and aren't yet working heavily on the automatically extended returns due in October. Then agree on an appointment date for next year and mutually generate a list of items you will bring with you when you do meet with the accountant.

If you do your taxes yourself, get into the habit of paying attention to announcements of new tax rules, so you'll be prepared for them come next January. Download any new forms and instructions and read up on changes. File change of address forms if need be. Get disability letters and divorce decree information about dependency and the Earned Income Credit organized. Determine if your projected income for the year qualifies you for free filing by a commercial tax preparer, and if the complexity of your return next year will require a professional.

If the reason you edge up to the tax deadline each year is that you're very busy, make an appointment with yourself. Block out the time in advance. In fact, make two appointments. The first is for locating all your documents, buying tax software, or downloading tax forms and instructions from and from your state tax department website. You also should determine how much time you need to do the basic work of filling in the blanks, calculating the dollar figures, and checking your accuracy and completeness. The second appointment with yourself is to do the actual tax returns.

What about all those papers that must be organized before you can even start your tax return? Start organizing them now, when they haven't yet grown to be a huge stack. As I've described in a prior post, Record-Keeping Tips, any organization method that works for you is the right method, as long as you use it consistently.

Although many of the tax documents you'll need for your tax return will be received next January or February, you can prepare for them now. You can create a folder or large envelope in advance for all employment documents such as W-2s and 1099s, or for retirement documents such as 1009-Rs or 1099-SAs. Then, when the annual statements arrive, you'll know exactly where to put them.

Do the same thing for any other kinds of receipts you'll need, such as real estate bills and proof of payment, personal property and local fire and ambulance taxes, medical bill copays, and more. Remember that if you plan to claim mileage for medical, charitable, or self-employment travel, you need to keep a notebook in your car and enter the details of each trip on the day the trip happens.

Of course, you might just hate taxes and always want to put them off until the last minute. Even though taxes don't take any less time to do in April than they do in March, some people procrastinate out of sheer cussedness. It's our way of shaking our fists at the governments that tax us. But if that attitude leads to a pressured April next year, ask yourself if a little advance planning and organizing will make your next tax day more pleasant.

Wednesday, April 17, 2013

Mortgage Loan Doubletalk

As you may know from reading this blog for the past year, because mortgage rates are significantly lower today than they were when we bought this house, we've been trying to get a mortgage refinance loan. "Trying" is the operative word, because when a home has lost value, what started as 20% equity becomes far less. We put a 20% down payment on this house when we bought it, and we've been reducing the principal for nine years. Of course in the first years our mortgage payments mostly went to interest, not principal, but the loan amount did edge down by thousands of dollars. Not enough. In the recent catastrophic freefall of real estate, the value of our home declined by about 20%. Whoops.

Our original lender turned us down for a conventional refi that was advertised as a "no closing costs" loan, citing the loan-to-value issue after generously paying for a new professional appraisal. We proceeded to a HARP 2.0 loan, but found it very difficult to locate anyone in our area willing to do such a loan. Then we tried online, but looking for a loan online is like jumping into a shark tank without armor. We took the plunge anyway, and found a plausible enough credit union to broker the loan. Then we encountered massive delays from Fannie Mae, a nongovernmental agency that acts in a red-tape style that would make any federal bureaucrat proud. Delay, delay, delay. Some of the delay was caused by an incompetent loan processor, but most was caused by Fannie Mae over a paperwork issue that I've previously detailed. Finally, we cleared that hurdle, but then had to redo all our paperwork. This is not fun if you don't own a bulk scanner. Living out in the country as we do, we calculated that the gas cost of going to the nearest copy shop was far more than the aggravation cost of scanning and uploading forty-plus pages ourselves. Even though we had to do it several times.

But still there were delays. The lender wanted explanations in writing. The lender wanted new documents. The lender wanted documents redone. And the cost of the loan was so wrapped in obfuscatory language that we did not know the actual cost. Yes, the Good Faith Estimate is required by law, but is it required to be confusing? Why was the origination charge listed as $8,387, but a credit shown for $9,155? Why was the adjusted origination charge then a negative number? How was this company getting paid? Numbers like this created great uncertainty for us. And don't get me started on the Itemized Fee Worksheet. We're reasonably intelligent people, but these numbers never made any sense. Even with the company loan processor on the phone explaining them one by one.

Have you ever been to a doctor who says you have some complex medical condition, and then you've gone home and tried to explain it to a family member and been unable to? Because, basically, the doctor's explanation did not make sense to you? Well, these loan pages are like the doctor experience. They make sense at the time only as the mortgage professional cites them, because that person uses a convoluted system that does not correlate to how we ordinary people understand and conduct monetary transactions.

Frustrated by the endless delays and the confusion, we decided to check out an alternative, a direct mortgage lender that advertises heavily on television and online. By contrast with what we had experienced so far, their charges and process could not have been clearer. They offered to charge $1,500 as an origination fee, $500 of which we'd have to pay up front to them as earnest money, but which gets credited at the time of closing. And that's it. This might not be a universal fee for all the loan products they offer. I'm not claiming that I understood exactly what got credited at closing. I didn't. But it was a clear fee.

I talked to them again a couple days later and they explained that the $500 earnest money is either credited in full at closing or $250 of it is refunded to the customer at closing and the rest of it is credited. The customer's choice. One would think that learning this would have cleared everything up, but then this lender introduced a confusing new wrinkle. They offered to do our loan for only $250.


I thought I understood a clear fee amount. But now I see that if I had accepted their first offer, I would have overpaid $1,250 for this HARP 2.0 loan. Sure, they gave me some doubletalk about rates falling in the past two days, but I can check the rates online myself, and they fell .01 % the first day and .01% the second day. This is not a drop big enough to explain why the lender would suddenly be willing for forgo $1,250 on this loan. All it does is tell me that if I had agreed to the first offer, I would have been a sucker. I'm not trying to pillory the lender here, which is why I have updated this post to remove their name. But that second offer cut the land right out from under my feet.

So I'm back to comparing apples and oranges, and pondering what I am missing in all these figures. This latest lender's fees are refreshingly openly stated, but the way in which they make a profit sufficient to pay for the time of the three people who tried to sell me their loan is still unclear to me. It is equally unclear to me how my first lender and my second lender planned to make a profit. I feel as if I have wandered into a car dealership, where the sticker price is not the real price, and the dealer price is not the real price, and so on and so on, ad infinitum. I'm trying very hard to grasp where these financial companies make their profit. According to what I've found from SF Gate online, here are the possibilities:

1. Yield Spread Premium. The lender buys the money at a rate cheaper than it lends it out, thus potentially making a profit of hundreds or thousands of dollars, depending on the size of the loan. This seems most likely.

2. Mortgage Backed Securities. The lender bundles many types of loans together, some high-risk and some low-risk, and sells them as investments, at a profit. Maybe.

3. Loan Servicing. Separate from selling the loan to Fannie Mae or Freddy Mac, the lender either retains or sells the right to service the loan, which is a profitable business because the dollar amounts involved in home mortgages are so large. The loan servicer gets to keep all the late fees, after all.

4. Discount points. The loan customer buys the right to a lower rate by paying points when closing on the mortgage. None are listed on any of the loans we've been offered, but this is a clear cost to the borrower.

5. Loan Closing Fees. These include junk fees and overpriced fees such as charging $75 for a closing day credit check that only costs the lender $25, and also title fees and attorney's fees and others that can add up to a lot of money. These fees ordinarily are paid by the borrower. But if a lender has said there are no closing costs on a loan, obviously this is not where the profit lies.

Undoubtedly, as a customer's circumstances vary, so will loan offers. Some loans might cost many thousands more. At first, $1,500 was a clear, precise number, until it became $250. It wasn't huge numbers and then subtracting other huge numbers and then adding in more fees and yet subtracting some of them, too. But then it was another version of the same. I am disappointed.  

This stuff makes my head spin, and we're not done yet.

Friday, April 5, 2013

The Easy Way for a Hoarder to Empty a Room

 How to empty (NOT SORT) a room:

This is what you do before a mover comes to move the heavy furniture.

Get thin cotton or plastic gloves, markers, packing tape and regular tape, packing paper, bubble wrap, and labels. Obtain a large supply of cartons, all in one or at most two sizes. Set up each carton as you need it. 

1. Fill a carton by placing everything from one area inside it, working from top to bottom until all furniture is empty. Use packing paper or bubble wrap as necessary to cushion items but do NOT attempt to group like items. Keep everything together that was together in the room. Wear the gloves so you do not get distracted by the texture of the items to be packed.
2. Label each carton with the name of the room and the piece of furniture:, e.g., "Mom's room, top dresser drawer," or "Top of bureau, right side." This creates a record of where the items were visually.
3. Repeat for the closet. If the hanging clothes will not fit in a carton, put them in large plastic bags and tape on a label identifying the origin closet, e.g., "Mom's closet left side" or "Mom's closet middle."
4. Remove and carefully wrap all photos, paintings, and wall decorations. Put into cartons and label the cartons describing which wall or surface the items came from.
5. Do NOT attempt to "sort" or "go through" or "organize" any items.
6. Do NOT attempt to throw anything out, separate anything out for donation, or hold anything aside for any reason. Pack everything.
7. Even if an item is trash, pack it and label where it was found, e.g. "Mom's room, east windowsill."
8. Do not leave anything in the room. Empty all drawers, closets, walls, and surfaces.
9. Check behind and under the bed and other furniture for stray items.
10. Remove and pack bedding.
11. Move all cartons to a previously determined storage area.

You're done!

This method will work best if you can still see furniture. If you can't, modify the labels to reflect exactly where in the room the contents of each carton came from, e.g., "Mom's room, top of pile of papers on her bed, near foot."

The idea behind this technique is to empty a room without engaging any sorting or organizing, thus without overwhelming yourself. The labels should describe exactly where in the room a carton's contents come from, so that you can visualize the room and know which carton has which items. 

Visual memory is very strong. It is NOT necessary to GO THROUGH, SORT, or ORGANIZE items if all you want to do is remove them from one place and put them somewhere else. Do not destroy your visual memory of how the items were placed before they were moved. Embrace it and use it to keep your items organized the same way now that they are inside cartons. There will be some other day when sorting happens. Today your goal is to empty a room.

Monday, April 1, 2013

Our Bank's Wily New Game with Mortgage Bills

Ordinarily, when a bank wants its customers to do something, it makes the desired action appealing. If the bank wants more CDs purchased, it offers competitive rates and time periods to encourage people to buy them. If it wants more checking account customers, it offers free checking, free checks, free overdraft coverage, or a host of other amenities.

But what if a bank wants you to pay your mortgage automatically online every month? But does not want to offer any positive incentives? Our bank has thought of a clever way to drive traffic to online mortgage payments: Send the mortgage invoice so late in the month that you'll chance a late payment if you don't mail your check the very day after you receive your invoice. Create stress, so customers try to relieve that stress by agreeing to online automatic payments. No need to make online automatic payments appealing except as a safer bet than waiting all month for an invoice to arrive by mail.

In February, our mortgage invoice had a statement date of 2/21/13, but arrived in the mail on 2/27/13. According to the person I raised on the phone after waiting half an hour because of call volume, the bank had accidentally mailed the statements a bit late because of the President's Day holiday. Plausible answer.

In March, our mortgage invoice had a statement date of 3/15/13, a week earlier, but arrived in the mail on 3/28/13. I did not bother to call and ask what important holiday in mid-March mysteriously made it impossible for our bank to mail its mortgage invoices promptly. The only March celebration this year was St. Patrick's Day and I don't like the idea that my bank was too hung over to mail the bills on time.

Mortgage invoices state a due date of the first of the month. As far as I know, legally, anyone sending a bill has to give the receiver two weeks to pay it. Our bank has obviously decided that those two weeks should be after the invoice is due, just to rattle as many of its customers as possible and send them in the direction of skipping the hassle and just signing up to pay online.

This is sheer genius, although of course it's also pretty rotten to send bills deliberately so they arrive almost late. The U.S. postal system has fewer pieces of mail to move these days and so I can't ascribe these late-arriving invoices to the mail moving slowly. There was no cancellation on the envelope to prove my supposition that the mortgage invoices are deliberately being mailed very late in the month to push its customers to pay online instead of stressing out over a situation our bank has created itself. This is all my guesswork. Perhaps in March our bank simply could not get its newly redesigned mortgage invoice (which now uses TWO pieces of paper instead of ONE--way to save the planet!) into the mail at the proper time because of a printer delay.




Why would a bank want online automatic payments?

1. It can lay off people who currently monitor its snail mail and send the checks through the check machines.
2. It can stop mailing paper invoices, thus saving itself postage and printing costs, and again, making it possible to lay off the staff that handles the outgoing mail function.
3. It can take the money on a set day of the month every month, instead of waiting for the checks to arrive and then having to ask another bank to make good on a paper check and possibly wait an hour or two. (Yes, interbank business is that fast these days.) Again, fewer staff positions are needed.
4. If a bank gains control of millions of dollars even two or three days earlier than it usually does each month, it can manipulate that cash to earn itself lots of money. You and I can't make any money that way, but a bank can.
5. By making it almost impossible to respond to the mortgage invoice on time unless you pay very good attention and send the check the day after the invoice arrives, our bank also is deliberately encouraging its customers to pay late and incur penalties. Some people don't sit down and pay their bills the very day each bill arrives; they wait a week or so until they get their next paycheck. If a customer sees the bill and tosses it on a pile, the chances of the payment not being made on time increase dramatically. In the past, other banks have been convicted of deliberately holding mailed payments, sometimes without even opening the envelopes, until the payments are late. In this situation, our bank has created a scenario for easy abuse. Does it really take the Post Office six days to get a letter from one state to the contiguous state? I have a feeling some people could end up arguing about this with our bank. Meanwhile, our bank pockets many late payment fees from low-risk customers who actually do have the money to pay their mortgages but simply got caught by this late-arriving invoice game.
6. Finally, if a mortgage payment posts late, it can create negative credit information that will lower your credit score, thus making the cost of banking services such as consumer loans more expensive. Why would our bank want that to happen? Well, why not? Banks are in business to make as much profit as they can.

Could I be wrong about this? Could our bank simply be incompetent about getting its mortgage invoices in the mail by the middle of the month? Am I merely fantasizing that this is all a very clever and nasty method of wringing more money out of mortgage servicing? I don't think so.

Friday, March 22, 2013

HARP Mortgage Saga, A Long Story

It has been over seven months since we pressed ahead with our mortgage refinance effort. This was the second bank with which we'd initiated the process, the first to try a HARP 2.0 loan. Seven whole months have gone by, during which nothing seemed to be happening. Finally, the problem was diagnosed. Fannie Mae, the 800-pound gorilla of mortgages, refused to cooperate. Why was Fannie Mae holding us up? Because it did not accept that our mailing address had been changed by the Post Office.

That simple little hitch, the result of the retirement of a country store owner who was also a sub-postmistress, caused a six-month delay in our refi loan approval. With 80 million customers, Fannie Mae has depths of personnel the ordinary person, or even the banking professional, finds hard to penetrate. Getting to speak to the right individual at Fannie Mae to untangle the address issue took hours and hours and phone call after phone call. And that was only after months of delays based on information sent to Fannie Mae by our current mortgage servicer. Fannie Mae has something called the SURF system, in which banks deposit information. Fannie Mae only picks up that information once a month, and the information also has to be in a form that Fannie Mae approves. So if the bank gets an i dotted wrong, it doesn't get a chance to correct itself until another month goes by. Calls to Fannie Mae get obtuse answers about why the information has not shown up on the SURF system. Pretty much a brick wall, in fact. 

None of this was directly in our control, and it took months to even learn what the holdup was. We did our part by obtaining official verification from our county of the address and presenting it to our bank. Then we had to ask the bank, the very bank that was about to lose our account if the refi goes through, to put the address change information into the SURF system. Our bank obviously had little incentive other than fairness to do so, but it did. Only, Fannie Mae kept saying it hadn't.

The HARP 2.0 loan we've been trying to obtain is what our lender characterizes as "vanilla." That is, it's really, really a safe bet for them. All our documents show that we are likely to pay our mortgage every month. Why is Fannie Mae being so obstructive? Because it's so large that by its very nature it has become a bureaucracy with arcane routines and systems. SURF is no California beach day.

Meanwhile, of course our loan documents all became outdated. The rules require that we update and resubmit them, and that includes providing new W-2s and new bank statements, plus signing and returning forty-one pages of disclosures. For the ordinary person who does not own a batch scanner or FAX, that's a nuisance. We also have to pay for yet another credit report, our third for this loan attempt, because they keep getting outdated, too. And all the dollar figures on the Good Faith Estimate change each time around. Drastically. Why would a credit report at the closing table now cost $75 when before it was priced at $50 yet the three reports I've paid for so far each run around $25? It's confusing, and this is just one line out of many that changed.  

I keep reading articles about how puzzling it is that more homeowners don't take advantage of the wonderful HARP 2.0 program. (Like this one from Fortune, "Why Some Americans are Turning Down Free Money") Could it be that the process simply is too onerous? I think that's a large part of it. Also, the mortgage interest rates offered to HARP loans are much higher than for conventional loans, so that's a deterrent, too. I've talked to others who got HARP loans, and the typical rate offered recently was 4.0%, a far cry from the 3.0% the media trumpets. Plus the closing costs are very, very high, not the mere nothing the Fortune article claims. Like nearly $5,000. Or, maybe not? I still can't make any sense out of the Good Faith Estimate we received. Huge dollar figures are batted about, both pluses and minuses, and I'm just confused.

Personal finance gurus tell us to shop around for loans, but the task is very time-consuming and getting past the doubletalk of loan originators isn't easy. Very few banks even offer HARP 2.0 loans, and many national banks may not do business in your home state. You can't just call up a bank and ask what interest rate they offer and what they charge in closing costs. They won't tell you. First you have to give them all your personal information, which they plug into a calculator, and then maybe they'll tell you. They speak in a language it is difficult for the lay person to understand. They also know that you're unlikely to sign up for a loan if they tell you up front that it will cost you $5,000 in fees, so they talk confusingly about credits and rebates and points. And most of us give up.

If we finally do get a refi, we'll end up paying more for our house over the life of the loan, because we're getting another 30-year-fixed instead of shortening the term to match our current loan. I know, I know. All the gurus tell us to get a shorter term. But finding a bank that offers a HARP 2.0 at all was hard enough. Finding one that offers a 20-year fixed would be looking for a needle in a haystack. So we're starting the clock all over again on our mortgage. This is not smart if we're going to stay in this house for the next thirty years. It is smart if we're going to sell this house in the next ten to twenty years. The immediate tax advantage is that new loan payments are more interest than principal and thus in theory, we can deduct the lion's share of our new payments. (While mortgage interest is still deductible; it's on the hit list of tax rules that may become extinct soon.) The other advantage, in fact the only real advantage of going to all the trouble and expense of getting a refi, is that it lowers our monthly mortgage payments. Why do this? So if we drastically lose income, we don't have to lose the house. That's the entire reason for going to all this effort.