Don’t Sign Blindly
Have you ever signed documents without reading them? If you have, you’re not alone. The pages of legalese that accompany a mortgage, car loan, or almost any other major financial transaction often seem purposely designed to lull you to sleep. But the consequences of not reading them could keep you up at night. Signing documents without looking them over can often result in “unforeseen and unexpected consequences,” says Noel White, a consumer rights attorney in Dunedin, Fla. — and not good ones. Many documents contain clauses that benefit the landlord, business or lender, sometimes at your expense, he says.
Worse, there may be clauses buried deep within the fine print that bind you to obligations you didn’t anticipate and can result in unforeseen penalties or financial losses. “It’s [important] to know what you’re getting into,” says Cathleen Combs, member of Chicago consumer rights law firm Edelman, Combs, Latturner and Goodwin.
We reviewed seven types of common legal agreements. Before you sign your name on any of them, here’s what you need to know.
Your Apartment Lease
When signing a lease, look for any changes from what you and the landlord agreed to verbally regarding security deposits, due date for rent payments, the landlord’s rights to enter the property, rules about “quiet hours,” smoking and guests, says Everett Sussman, a Shelton, Conn.-based attorney. “It is easy to miss terms that force any dispute to be litigated in a faraway court, or to waive rights to litigate at all,” Sussman says. “In the event of a dispute, the landlord is almost impossible — and certainly impractical — to sue.”
In addition, White recommends looking for early lease termination fees, outlandish late fees or requirements that tenants maintain the property or lawn. “You also want to be sure to ask a potential landlord whether there are deed restrictions or condominium association rules, and if so, review those rules before moving in,” she adds. “Many condominiums have rules concerning pets and the last thing you want is to find out that your pet is not allowed.”
Credit Card Agreements
Before entering into a credit card agreement, most people look for the interest rate. But it’s also important to determine whether there are higher interest rates for balance transfers or an annual fee, White says. Look closely to find out when payments must be received and what late fees will apply. If the card starts out with zero percent interest, find out when that interest rate will change and whether it still applies if your payment is late.
In addition to the normal terms, look for others such as arbitration agreements, your credit limit, the grace period length for making payments without interest or late fees, variable interest rates, international transaction fees and whether the card issuer is allowed to change your interest rate based on your lack of payment or changes in your credit score, says Yvonne Rosmarin, a consumer rights attorney in Arlington, Mass.
Always read the fine print on your statement about how to handle billing disputes. “If you need to dispute an item on your statement, you must send a written dispute to the address designated on your statement for such disputes,” Rosmarin says. “If you send your dispute to any other address, or if you only dispute by telephone, no matter what the person you speak with says, you have not preserved your rights and, legally, it is as if you have not disputed at all.”
When you enter into a mortgage loan agreement, “beware of provisions that limit, or eliminate, your right to sue in a local court,” Sussman says. “Make certain that all the numbers match your understanding and that no new or unknown charges are included. Mortgage companies also sell personal information, so look for anything that describes to whom such information may be given.”
Read closely the parts of the agreement that discuss whether property taxes and insurance will be held in escrow. “Some people don’t understand escrow and that the amounts will change if your taxes or insurance change,” Combs says. “You may expect the payment to be fixed over the life of the loan, but when escrows change, your payment will change. Go ahead and pay the full amount and ask questions later. You don’t want to be in the position of withholding payment, even if you’re right.”
In some cases, you may be able to get copies of the mortgage documents prior to closing so you can read them in advance, rather than sitting at a table with real estate agents, sellers and others waiting for you to read the documents. If you can’t get copies ahead of time, just take your time and make them wait.
Your lawn care company, pest control provider, financial planner and others may ask you to sign a service agreement. Read it carefully. “Many business contracts contain arbitration provisions where you as a consumer are giving up your right to have a dispute decided by a court,” White says. “Instead, the dispute [will be] decided by an arbitrator who may be biased in favor of companies and against individual consumers. Arbitration often involves the loss of procedural protections and rights to consumers.”
When you open a financial account, particularly pay attention to how your financial advisor will be paid and how much. “People should always ask their advisor to point out and review with them the fee structure of the service agreement,” says Jim Saulnier, a certified financial planner in Fort Collins, Colo. “Pay attention to any asset management fees the advisor is charging, as well as annual account maintenance fees, account termination fees and trading costs. Ask the advisor to point out in the service agreement where his asset management fee is disclosed and to show you the fee schedule. This will show the total cost of managing the account.”
Saulnier also advises checking for separate fees for “account opening services.” This fee is always optional and negotiable, so if you see it, ask the advisor to waive it. “This fee is intended to compensate the advisor for helping you to complete the very paperwork he is making you complete for the privilege of working with him,” Saulnier says.
If you get a new job, you may be asked to sign a variety of employment agreements, including non-disclosure agreements or non-compete clauses. Always read them carefully before signing because “an employee who hasn’t started a job yet is in the strongest position they’ll ever be in” for negotiation, Combs says. “Once you start working there, you’ll have little room to negotiate changes.”
Non-compete clauses “can directly impact an employee's ability to continue to work in her field after leaving the employer,” White says. Before entering into such an agreement, make sure you understand what you’re signing.
In addition to non-compete clauses, check your employment contracts for non-disclosure agreements and information about severance pay and COBRA insurance provisions. “Failure to notice this information could result in loss of insurance coverage or even litigation against you,” Sussman says.
Car Loan Agreements
Purchasing or leasing a car can “turn into a nightmare if you fail to read the documents,” White says. “Often consumers will just look at the monthly payment and not look at the transaction as a whole as to whether it really is a good deal.” Make sure you understand the terms of the agreement and how much you’re really paying for the car. Because dealers “often make more money on financing than on selling the car,” Combs recommends getting your own financing rather than financing through the car dealer.
Wherever you get financing, check your documents to see if the financing terms are final or if the dealer can make changes to the contract terms, Rosmarin says. “Some dealers give some buyers a filled-out financing contract, but really have not yet gotten approval of the financing terms,” she says. “They may even send the buyer home thinking that the sale is complete. Then later, when they don't get the financing promised, they try to make the buyer come back and sign a new contract with worse financing terms.”
Also, always compare the vehicle identification number (VIN) on all the documents with the VIN on the vehicle, to ensure you are getting the exact car you thought you were buying, Rosmarin says. Compare the odometer reading on the contract with the one on the car, and check for any penalties for pre-payment of the loan or early termination of the lease.
When purchasing software or apps or opening accounts with online vendors, “most of us just click the box marked, ‘I agree with the user agreement,’ even though we rarely, if ever, read the actual agreement,” Sussman says. But this failure to read the agreement can lead to unexpected and negative consequences.
For instance, some mobile app and online agreements allow the company to sell customers’ or members’ personal information to third parties, Sussman says. These agreements also may allow additional programs to be downloaded, “some of which may affect the running of the device or leave it vulnerable to hackers and viruses,” he adds. So take the time to read them carefully.