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Sunday, October 30, 2016

How much do I need to tell my prospective lender?



For more than 30 years, JLK, a reader from Georgia, has been working hard at his job. He's been contemplating retiring next year or the year after. Right now, JLK rents an apartment, but he has his eye on buying a foreclosed house in a neighborhood close to family members.

At first, JLK planned to wait until retirement to attempt to buy the house. Given that he'd need a mortgage to afford the purchase, he figured that a lending institution would be less likely to offer one to someone who is retired and on a modest fixed income from his retirement savings.

Based on this perception, for a while, JLK decided that trying to buy the house of his retirement dreams was a nonstarter. But then a friend asked him why he planned to wait until he was fully retired to buy the place. Aside from having to move all of his stuff while he was still engrossed in his full-time job, JLK couldn't think of a compelling reason to wait.

"A bank is much more likely to offer you a mortgage when you're still working and bringing in your salary," JLK says his friend told him.

True enough, JLK thought. But given that he knows he might retire in a year or two, he wonders if he's obligated to tell the bank of these short-term plans when he applies for a mortgage.

"Would it be wrong to ask for a mortgage based on my current salary when I know that that salary is very likely to be substantially lower in a couple of years?" he asks.

JLK is concerned that if he withholds the information from a mortgage lender about the fact that he might soon decide to retire that he would be misleading the lender. Somehow that feels a shade of wrong to him.

Focusing on the "might" in JLK's comment about soon retiring is helpful in responding to him about the right thing to do in this situation. While he indeed might retire in a year or two, he also might decide to put that action off for longer. He might do a lot of things that could affect his financial condition in the future -- run up credit card bills, pay for a pricey cruise by drawing down some of his savings, skip a car payment or two. Right now, however, he's still working and still drawing a salary and that, plus his other financial history, should be what he provides to any place he applies to for a mortgage.

If JLK wants to try to buy the house and he can afford to do so by obtaining a mortgage, the right thing is to apply for one and go from there.

Putting the purchase off because of what might or what might not happen may result in JLK losing out on something he really wants. "Life moves pretty fast," the eminent philosopher, Ferris Bueller, once said. "If you don't stop and look around once in a while, you could miss it." JLK should try not to miss out on this opportunity. 

Jeffrey L. Seglin, author of The Simple Art of Business Etiquette: How to Rise to the Top by Playing Nice, is a lecturer in public policy and director of the communications program at Harvard's Kennedy School. He is also the administrator of www.jeffreyseglin.com, a blog focused on ethical issues. 

Do you have ethical questions that you need answered? Send them to rightthing@comcast.net. 

Follow him on Twitter: @jseglin 

(c) 2015 JEFFREY L. SEGLIN. DISTRIBUTED BY TRIBUNE CONTENT AGENCY, LLC.


Sunday, October 23, 2016

Hedging for a final invoice agreement



Late this summer, E.C., reader from New England, discovered that the privet hedge that surrounded his yard was dying. The hedge had lived in the front and side yard since he purchased the house more than 30 years earlier. So E.C. was faced with the decision of whether to replace the hedge or to have it ripped out and replaced with something else.

That decision didn't take E.C. long. Because the hedge had taken hours every couple of weeks in the spring and summer to trim and weed, he had longed for a hedge-free yard for probably 29 of the past 30 years he'd owned the house. Now that the hedge was dying, he saw a perfect opportunity to create a lower maintenance yard.

After interviewing several different landscapers, E.C. hired one to remove the hedge and then to re-grade his yard and put down new sod where the hedge had been as well as throughout the rest of the yard. He received an estimate for the job, agreed to the price, and the work began.

On the third morning of the project, the landscaper mentioned to E.C. that he might want to have a dry well constructed in the front yard to keep the drainage from the gutters getting too close to the home's foundation. The cost of the dry well was not part of the original estimate for the landscaping. The landscaper told E.C. he would let him know how much the dry well would cost so E.C. could decide if he wanted to add that to the work being done.

E.C. went off to work. The landscape crew continued to work, and no word was ever spoken about the dry well again while the work was being done.

When the project was completed, E.C. loved how his new yard looked. Neighbors did too. The landscaped was pleased with the work too, and asked E.C.'s permission to put a sign in the front yard mentioning the landscaping was done by his company. E.C. agreed and the sign went up.

A few days later, E.C. received an email with an attached pdf from the landscaping company. The pdf was of an invoice for $1,306 for the dry well. If he paid within 10 days, E.C. could get a 10 percent discount and pay $1,175.

E.C. responded with an email that he had no idea that they went ahead and constructed the dry well so he was surprised at the additional cost. The landscaper apologized and said that they determined it was really needed and they installed it the day he and E.C. discussed the possibility.

Ultimately, the landscaper offered to accept $986 to cover materials and told E.C. he would eat the labor costs as a show of good faith. E.C. agreed, but wonders if he did the right thing by paying anything rather than fighting the cost for the un-agreed-upon work.

While E.C. could have decided to try to fight the cost since he hadn't agreed to it up front, his decision to agree to pay the $986 for the work done was the right thing to do. Had E.C. consulted a lawyer, he might urged him to fight the bill. But E.C. did the right thing by agreeing to what both he and his landscaper believed was fair. 

Jeffrey L. Seglin, author of The Simple Art of Business Etiquette: How to Rise to the Top by Playing Nice, is a lecturer in public policy and director of the communications program at Harvard's Kennedy School. He is also the administrator of www.jeffreyseglin.com, a blog focused on ethical issues. 

Do you have ethical questions that you need answered? Send them to rightthing@comcast.net. 

Follow him on Twitter: @jseglin 

(c) 2015 JEFFREY L. SEGLIN. DISTRIBUTED BY TRIBUNE CONTENT AGENCY, LLC.