The American Automobile Association has begun offering home-equity loans and credit lines to its 40 million members across the United States.
Q–I have belonged to the American Automobile Association for 20 years, and it recently sent me a notice that it has begun offering mortgages and home-equity loans. Are the rates the AAA is offering any good?
A–About 40 million Americans belong to the AAA, a nationwide group that has provided its members with an array of auto-related services for more than half a century. Now it has teamed up with Pittsburgh-based PNC Bank to offer a variety of financial services including second mortgages and home-equity lines.
Though it’s still too early to tell how the AAA’s lending programs will ultimately work out, they’re certainly worth checking if you’re hunting for a traditional second mortgage now. The auto club was recently offering a 10-year home-equity loan that carries an 8.5 percent fixed rate, with no points or fees. That was about 1 full percentage point lower than the national average, a break that would reduce a borrower’s monthly payment by $24 and trim about $1,600 in finance charges off a $25,000, 10-year loan.
The terms for AAA’s home-equity credit lines, which work more like traditional credit cards, aren’t nearly as competitive. After a six-month introductory rate of 5.99 percent, the rate would jump to 1.25 percentage points above the prime rate. Many lenders have been offering better terms, especially for borrowers who expect to carry an outstanding balance for more than six months.
It’s important to note that AAA is offering its new mortgages and other financial products through a “branchless” system, which means you must be comfortable with handling everything through the mail, over the phone or through a computer. As always, you should also check with at least three local financial institutions and mortgage brokers because they may offer even better deals.
Q–Can you please explain how the “liquidated damages” clause in a purchase offer works?
A–Many sales contracts and preprinted purchase offers today include a “liquidated damages” clause, which is designed to avoid litigation if the proposed sale goes sour. The clause allows the aggrieved party to collect a predetermined sum in exchange for dropping, or “liquidating,” the right to sue for additional damages.
In most cases, the liquidated-damages clause is triggered when a buyer decides against completing the transaction. The clause allows the seller to keep the buyer’s deposit or to receive a specified amount of money if the buyer cancels the sale. In addition to forfeiting the right to sue for additional damages, the seller is prevented from asking a judge to enforce the original sales contract.
On its face, a liquidated-damages clause might seem like it protects only the seller. But the buyer also benefits because the clause reduces the chance of a lawsuit and also limits his financial exposure if he later decides to back out of the deal.
Q–We are thinking of either buying a new log home or having one built for us. Do you know anything about log homes, or at least know where we can get some information about them?
A–Believe it or not, about 50,000 new log homes are built in the United States every year. Many of them are log home “kits,” which are precut at huge factories using state-of-the-art equipment and then shipped for assembly to the building site. Most buyers hire an experienced contractor to assemble the home, or at least employ a professional to handle the grading of the lot, pouring the foundation and other tricky tasks.
It’s important to realize that building a log home — whether it’s a custom job or from a kit — takes special skills that many traditional building contractors simply don’t have. So, you want to select a contractor who has built several log homes in the past.
Many log-home buyers choose to build from a kit because it’s cheaper than designing a home from scratch. Most kit homes can also be easily customized to fit the buyer’s special needs or design taste. If you’re interested in buying a log-home kit, you should check with several manufacturers and distributors to see what they have to offer. Many of these companies advertise in the housing magazines sold at large bookstores and newsstands.
Perhaps the best source of information about log homes is the National Association of Home Builders, one of the nation’s largest housing trade groups. If you drop the group a postcard or letter and mention my name, it will send you a free list of more than 50 log-home manufacturers and lots of other useful information. Send your request to NAHB Building Systems Councils, 1201 15th St. N.W., Washington, D.C. 20005. Or, call the group toll-free at (800) 368-5242 and ask for extension 162.
Q–I am considering an offer on my home. The price is right, but the preprinted purchase offer includes a paragraph that says any dispute that might arise would have to be settled through arbitration rather than by lawyers and a judge. I had a bad experience with an arbitrator several years ago, so I want to keep my ability to sue if something goes wrong with my current sale. Do I have to accept the arbitration paragraph because it is on the preprinted form?
A–No, you don’t have to accept arbitration simply because the preprinted contract includes an arbitration clause. To refuse arbitration, you need only cross out the paragraph, initial the change, and have the buyer initial the change too. Doing so will reserve your right to hire an attorney and go to court if necessary.
That said, I think you should seriously reconsider your opposition to arbitration. Sellers and buyers who agree in advance to arbitrate any trouble that arises can usually resolve their problems faster — and at lower cost — than those who insist on hiring high-priced lawyers, filing a lawsuit and then waiting for a judge to decide the outcome.
Your letter doesn’t provide details about the “bad experience” you previously had with an arbitrator. But in the 20 years that I have been writing about real estate, I’ve never heard of a lawsuit or arbitration case where both parties left the courtroom or arbitrator’s office feeling 100 percent happy. There’s a good chance that your opponent in the previous case was just as miserable with the outcome as you were.
Don’t let your past disappointment with the arbitration process unduly influence the purchase offer that you are weighing now. Also realize that refusing the offer’s arbitration clause might scare off your prospective buyer because the buyer might fear that you’ll sue over the tiniest of problems that may develop.
If you’re seriously concerned that the proposed sale is headed for trouble, you should flatly refuse the buyer’s offer and look for a different buyer who makes you feel more comfortable.
Q–I read a column you wrote several months ago about mortgage-cancellation insurance that automatically pays off a mortgage loan if the borrower dies. You said that buying a term-life policy equal to the outstanding balance of the loan is much cheaper. Since I am a single parent, can I buy a term-life policy and make my two children the beneficiaries, even though they are under the age of 18?
A–You can name your young children as the beneficiaries of your life-insurance policy, but it would be a bad idea. Minors do not have the legal standing to inherit life-insurance proceeds directly and most insurers insist on paying the money to a legal guardian. If you die and there’s no guardian, the insurer can refuse to pay until the court appoints one.
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Write to David Myers, P.O. Box 2960, Culver City, Calif. 90231-2960.
