Some of the most followed media personalities are non-lawyers who have become self-proclaimed experts on various issues such as saving, investing and retirement planning, including the F.I.R.E. movement. Others are tax, finance and legal professionals who have significant experience in their subject area and a deep history of working with affluent individuals. Add to that a chorus of consumers and non-licensed promoters with their own strong opinions, overly broad anecdotes and personal agendas and the sheer volume of advice, let alone qualifying good sources and ideas from bad ones, makes it difficult for consumers to navigate.
Here are two specific, yet popular, blunders to be leery of.
‘Having a big insurance policy makes you a target’
I’ve seen this gem in at least three large Facebook groups about physician finances. This is just plain wrong and dangerous advice for several reasons. Tanveer Shah, a personal injury and medical malpractice attorney and managing attorney of Viper Law Group in Scottdale, Ariz., said that insurance is a significant source of recovery, but he also confirmed these four key points:
- If there is clear and significant liability; and
- The insurance limits the defendant is carrying are insufficiently low; and
- The defendant actually has significant real and personal property assets he can reach;
- They are going to have to take the insurance AND come after those personal assets to which their client is entitled.
“If we’ve done the work to get a judgment or feel it’s likely we would obtain a significant one, we will certainly go beyond the policy to make our clients whole. A seven-figure umbrella policy will protect you against most claims and is vital for this reason” said Shah, which is what I also consistently advise.
‘They never take your house in a lawsuit’
This statement was incredibly funny to the experienced collections attorney I ran it by. When he was done laughing, he confirmed what we’ve always taught: It’s just a math equation.
Let me be crystal clear on this issue. Yes, a creditor with a significant judgment against you can — and typically will — take your house if you don’t have other assets available to satisfy the judgment. This is even more likely in the case of a contingency fee attorney, as that is literally “their money.” Their total compensation is tied to the total they collect.
To enforce a judgment against your real property, including your home, a creditor will use their judgment to obtain a judgment lien, which is then recorded against the property. In some cases, such as where there is little legally available equity, a creditor will wait until the property is sold or refinanced to enforce their lien. In other cases, such as with many high-income physicians who make debt reduction and paying off their mortgage a priority, there is significant equity. Creditors will force the sale of the home to get what is inevitably theirs sooner rather than later.
Here’s the math that happens in the lawyer’s office. They take the current value of the property, subtract the following costs:
- all pre-existing liens and mortgage,
- the costs of foreclosure and sale,
- the homestead exemption in your state (varies widely, from “zero” to unlimited in a few states) and that they have to give you back.
The sum total simply needs to be a number that is big enough that it either satisfies all or a significant portion of the judgment debt.
Let’s look at some real numbers based on an Arizona example, where homestead protection is $150,000 by law:
|Market value of home||$1,300,000|
|Mortgage balance||– $400,000|
|Airzona homestead||– $150,000|
|Availabile equity||= $750,000 (less costs)|
In this rough example, even after paying off a nearly $500,000 mortgage and assuming costs as high as $100,000, a creditor would certainly see this as a worthwhile collection effort that would net them $650,000.
Social media can be a great source of information. But even the best Twitter account, blog or Facebook page does not automatically apply to your subjective circumstances, so do not blindly follow advice you read on social media. Always qualify your sources, understand their actual authority, consider their biases and verify it with your advisers.