Q: I am a listing agent on a property under contract. The buyers' mortgage company declined the buyers, but they still want to buy the house by seeking other lending options. The buyers still have seven days on their financing contingency. If another offer comes in, can the seller accept it? A: The buyers' financing contingency is still in effect. The question is, could the sellers accept a back-up offer under other circumstances or with other contingencies in effect? If so, then the sellers can accept a back-up offer under these circumstances. That said, you better make sure that the sellers aren't put into the position of having signed two contracts and having two contract buyers having a claim on the sellers' property. In your situation, if the first buyer ends up finding money to buy the home, the second buyer would have a claim against the sellers for their failure to sell the home to them. You can have the second buyer sign a contract to buy the home but make that contract subject to the cancellation of the first contract. In this scenario, if the first buyer is unable to buy the property and cancels the contract, the second contract could then move forward. One note of caution: In some contracts, the sellers are restricted in marketing the property or even accepting other offers for the purchase to the property while there is another valid contract. Again, you don't want the sellers to be in a position of being sued for entering into a second contract in violation of the terms of the first contract. Please talk to a real estate attorney who can review both contracts to make sure your seller is protected. Q: My daughter wants to purchase a new home, and I want to help her with the financing. She currently owns the home she is in free and clear. Due to the down housing market, she wants to buy another property but not necessarily sell her home right away. Her plan is to borrow money from me until the housing market improves, at which time she will sell her current property. My question is this: Can I place a lien (almost like a mortgage) on her current property so that when she sells it down the road the loan is paid back to me? She feels that the reason for this legal approach is to avoid getting hit with capital gains taxes when she sells. In effect, she wants to roll over the income from the current property into the new property a few years later but with my help. Does this make sense? A: We're not sure what you or your daughter proposes makes sense. If you are lending money to your daughter, you can give her a loan and you can have your daughter give you a mortgage on both the new property she is buying and the property she currently owns. That way, if she sells either property, you have security knowing that your loan will either paid off in full or at least partly paid off depending on the circumstances. If your daughter owns the home she now lives in and has lived in the property as her primary residence for two out of the last five years before she sells, she won't have to pay federal income taxes on $250,000 of gains on the sale of the home ($500,000 if she is married). If that's the case, your daughter is mistaken in thinking of the sale of her home on a "rollover" basis. Many years ago, there was a rollover replacement rule that permitted a homeowner to sell a property and not pay any federal income taxes on the sale of that home if the buyer replaced that primary residence with a home of equal or higher value. You should talk to a real estate attorney to help protect your interests in the loan you are about to give your daughter. That attorney can help draft the mortgages and make sure that you that your interests are protected. If your daughter does well in the sale of her existing home, she will be able to pay off all or part of your loan at that time. When the loan is paid off in full, you can release the lien (mortgage) that you placed on one or both of the homes. Keep in mind that the current real estate market is under great stress. You don't want to be in a position where you give your daughter a loan and then have her be unable to pay you off. You also don't want to just hand over the cash without any legal documents that show exactly what the terms of the loan are. To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
No matter what type of home improvement project you're undertaking, one thing is pretty consistent -- building materials are heavy! From sheets of plywood to wooden beams, lifting and moving these materials can be a real backbreaker, especially when you're working alone. With that in mind, here are three great new tools that can really help you take a load off! PullzAll (Warn Works, $249.95): Many of you have probably used a come-along at some point in time. Basically a steel cable with hooks at each end and a ratcheting handle in the middle, a come-along uses your muscle power to reel in the cable, pulling whatever load it's attached to along with it. But what if you could move even heavier loads, and do it with virtually no effort at all? That's the concept of the new PullzAll from Warn Works, the people that make those top-of-the-line vehicle winches. The PullzAll works similar to the traditional come-along, but with an electric motor in place of the ratchet and handle. At one end of the small, powerful motor is a swiveling safety hook, and at the other end is a cable spool with 15 feet of 7/32-inch aircraft-grade wire rope and another industrial-grade safety hook. The motor has a top-mounted handle and variable-speed trigger, and a simple push switch changes the motor direction between forward and reverse. To use the PullzAll, it's simply a matter of hooking the motor to a stationary support, then pulling the trigger to unspool the necessary cable. Hook the cable to the object being pulled or lifted, reverse the motor direction, and pull the trigger again to reel in the cable. The motor has a pulling capacity of 1,000 pounds, and has a built-in electronic load limiter and visual strain readout to help you safely monitor the load. This is truly a tough, well-built workhorse of a tool with a wide range of applications from lifting beams to stretching fencing to moving heavy equipment around in the shop. And if you're out there working where no power is available, there's also a rechargeable 24-volt model for around $479. For more information and to see the tool in action, visit www.warnworks.com. Gorilla Gripper (Landon Innovations, $49.95): The Gorilla Gripper, which is designed to lift and carry heavy sheets of plywood or drywall, is one of those "why didn't I think of that?" kind of tools. It's simple, tough, and best of all, it really works. The Gorilla Gripper has a padded handle and two movable padded plates, all made from aircraft-grade aluminum. Simply slip the two plates over the top edge of any sheet material from 3/8 inch to 1 1/8 inches thick, grab the handle, and straighten your legs. The movable jaws grip the panel securely, and are self-adjusting to different thicknesses. So, instead of wrestling to find a way to get your hand under the panel to lift it and then struggling to carry it without losing your balance, Gorilla Gripper lets you easily lift the panel off the ground and then carry it with a comfortable, overhand grip. It's like having a carrying handle on those big, heavy, awkward sheets of material that you always dread having to move. The Gorilla Gripper will lift drywall (even two sheets at a time), plywood, OSB, siding, MDF and just about any other sheet of building material. You'll save a lot of wear and tear on your back, neck, arms and hands, as well as on the sheets of material, and make a tough job that much easier. Check out www.gorillagripper.com for more information. LegUp (Landon Innovations, $49.95): Here's another clever tool from the same people who invented the Gorilla Gripper. Anyone who's ever had to lift a sheet of plywood or other material up onto a table saw and get it correctly aligned for cutting knows what a chore that can be. You have to manhandle the sheet onto the saw table by lifting and twisting at the same time -- always a risky move for your back muscles -- then get it over against the fence and moving forward into the blade, all without damaging yourself or the material. LegUp is designed to help you complete that task safely and with a lot more control and a lot less effort. The LegUp is a long, pivoting, powder-coated steel arm with a hook at the bottom, attached to the side of your table saw with a hinge mechanism. Simply set the edge of the plywood sheet onto the hook, then use the natural leverage of the sheet to tip it over and onto the table saw. As you slide the sheet over against the fence, the hook drops back down on its own, safely out of the way and in position for the next sheet. The sheet remains much more under control, and the risk of hurting your back is greatly reduced. The LegUp comes with two different adaptors to fit a variety of different table saws. Installation is quick and easy, and is basically just a matter of choosing the right adaptor and then attaching the hinge to the table saw with a single bolt and lock nut. You can see a video of this simple and effective tool, plus get ordering information, at www.gorillagripper.com. Remodeling and repair questions? E-mail Paul at paulbianchina@inman.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
DEAR BARRY: Our laundry is located on the second floor, directly adjacent to the bathroom. Whenever I run the dryer, the bathroom becomes very humid if the door is shut. I've also noticed something like black soot on the bathroom walls. I wash it off, but it always comes back. What could be causing the humidity and the soot, and what can I do to resolve this? --Debbie DEAR DEBBIE: Here are two possibilities: The vent duct for the clothes dryer may be connected to the bathroom vent duct in the attic. This would allow steam from the clothes dryer to enter the bathroom through the ceiling vent. Another possibility is that the dryer vent duct is disconnected inside the wall or ceiling of the bathroom. This would cause the moisture from your clothes to vent into the wall or ceiling cavities, raising the humidity in that room. Another concern is that the "soot" on the walls could actually be black mold, caused by the excessive moisture condition. If so, this would raise health concerns for your family. To evaluate and resolve this situation, three things need to be done: 1) A licensed contractor should investigate the path of the dryer vent to determine whether it is disconnected or not properly vented to the exterior. According to these findings, the dryer vent should be corrected. 2) The wood framing should be inspected to determine whether moisture exposure has caused fungus infection and dryrot. 3) The area should be evaluated by a qualified mold inspector to determine if mold is the problem and if mold remediation is needed. Air samples should be taken from wall cavities to determine whether there is mold behind the drywall. DEAR BARRY: My dishwasher was leaking for a long time. I didn't realize it till the wood flooring began to buckle. The washer hasn't been used for several months now, but the floor still looks bad. I'd like to have everything repaired but can't find anyone who will do the whole job. One guy wants to repair the floor but won't deal with the dishwasher. Another guy says the flooring can be flattened if I use a dehumidifier. This is very distressing. What should I do? --Maria DEAR MARIA: You could probably find a general contractor who would undertake the entire job, but why pay for a middleman when you have two entirely unrelated repairs? First, you need an appliance technician to fix or replace the dishwasher. Then you need a flooring contractor to repair or replace the buckled floorboards. A general contractor could hire both of these people and oversee their work, but this would simply increase the cost of the project, with no tangible benefit to you. As for the recommendation to use a dehumidifier: This is unlikely to restore the condition of the wood flooring. When floorboards have been damaged by moisture, they usually don't return to their original condition. If you haven't used the dishwasher for months, the flooring is probably as dry as it is likely to become. If it is still buckled, replacement may be the only solution. To write to Barry Stone, please visit him on the Web at www.housedetective.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
Q: I hired a contractor to remodel two bathrooms, and paint and plaster the entire interior of our 1,200-square-foot home. We agreed to buy all the fixtures, including the bathtub, toilets, plumbing materials, etc. We signed the contract agreeing to this for a price of $28,000. From the very start things went south: The contractor had to redo the first bath three separate times because of terrible work in which he ruined $1,850 worth of tile. This happened 18 months ago when the contract said he would start and finish the job within 30 days. I paid him in full -- a big mistake, I know now -- and to this day our bathrooms are not done. We were doing this work to sell the home. Now, we've lost our home to foreclosure and will very soon be evicted. What, if anything, can we do to at least get our $28,000 back? (By the way, we also had our kitchen remodeled, installed new doors, windows, new floors, and painted the exterior -- luckily with other contractors -- but went through all of this only to lose our home.) A: I'm sorry you lost your home to foreclosure. It's bad enough getting stiffed by a bad contractor, but to lose your home after you've done all this work to it just adds salt to the wound. What can you do now? You may have the right to sue the contractor, but you might first want to consult with an attorney that has had experience with contractor fraud. Most states have consumer protection laws. Some states have specific laws to protect homeowners against bad contractors, in addition to consumer protection laws. While your contract may provide for a remedy to you in case your contractor has failed to perform properly under the contract, you may find that the contract provided by the contractor does not provide you with any protections. Because the contractor's contract has no protections for you, your state's laws are your only hope if you have to pursue legal action against the contractor. Once you consult with an attorney you may find that your state laws give you some remedies against the contractor but also provide for you the right to recover your costs in suing the contractor. Unfortunately, you're faced with a double whammy. On the one side you're facing foreclosure and on the other you're facing the prospect of having to sue the contractor for failing to finish the work under the repair contract. Make sure you keep all of your documentation from the contractor and keep detailed records of the repair job, including pictures of the problem caused by the contractor or the failures in his performance. Q: I am paying my ex-husband for his share of my house. I still owe him $23,000, which is due in one lump sum. I already hold title to the property. Can I get title insurance at this point? And, if so, from what company? I had a title search done just before I made the first payment to him, but am concerned that he may have incurred additional liens against my property. Is there any other way to protect myself from debts he may have incurred? Two lawyers I consulted have been little or no help in this matter. A: Good for you for wanting to make sure that your ex-husband hasn't laid any little financial landmines for you. However, you generally cannot buy title insurance on a property that you already own. And, title insurance would not protect you against liens he incurred against the property after the date the original title insurance policy was issued. If you've done a recent title search, you should already know what liens have been placed against your property. Since your ex-husband no longer owns the property, he may not have been able to subject your property to claims of his creditors. But you need to make sure that you own title to the home and that when your ex-husband transferred title of his share of the home to you, that transfer was done properly. In most states, you can also visit your local recorder of deeds office or other local governmental office that handles the recording of documents and look up the title to your property. (In some counties, you can sometimes do your search online, which makes it easy, and can even receive copies of the documents online for a small fee.) When you search your property's recorded document, you should see only liens against the property for any mortgages or home equity lines of credit or loans that you've taken out and placed the house as the collateral. If you see a lien against the property for a loan you didn't sign for and you don't see a release of that lien on the record, then you may need the services of an attorney. Q: I seem to be in a confusing predicament that is above my head. I have a house with a recent appraisal of $110,000 that my friend would like to purchase. He has a house with a tax-assessed value of $150,000 that I want to purchase. I owe $55,000 on a private loan for my house. We would like to mutually reduce our asking prices by approximately $50,000 in order to make our houses that much more affordable. So, technically I would just need a loan of $90,000 and he would just need to obtain a loan of just $55,000 to pay off my mortgage. How can we structure this? If I tell an appraiser I'm buying it for $90,000, wouldn't that make the "market value" of the property $90,000? I don't want the future value of the home to be reduced just because I'm buying it at a lower value than anybody else could buy it for right now. A: Please talk to a local real estate attorney about arranging a swap of property. There would be a value assigned to each piece of the property, and you would accomplish this with paperwork and at an official closing. The attorney can advise you on how to obtain financing for the new property. Just keep in mind that your tax-assessed value in some places may not reflect what your property is actually worth in the current real estate market. You and your friend may need to do a little additional work to determine what your property and what his property are worth. In some states, when you exchange properties you save some money in the transaction fees relating to the sale or purchase of that property. In other states, the swap of properties won't save you anything but at least gives you the ability to buy and sell knowing that your buyer has to buy and sell where both of you know exactly what is going on in the transaction. Q: I just purchased a townhome in Mississippi and everything was going well. I introduced myself to the head of the homeowners association (HOA) who welcomed me and then sent me information about an emergency meeting to vote on the street repairs, which will cost each homeowner $1,200. The letter came two weeks to the day after my closing. I just called her and she said that they (the sellers) knew about this since the beginning of the year and the last notice that went out about this was in July. The seller did not list this home for sale until August or maybe even September. What recourse do I have because this is something that they should have disclosed to me, right? A: Did you ask the seller specifically about any special assessments coming down the pike? Did you request HOA board minutes from the last two years, where this would have been discussed? Did you request a copy of the HOA budget for the last full year plus the projected budget for the current year? These would have been savvy things to ask for, and your attorney (if you had one) or your agent should have suggested you get these important pieces of information before you made an offer on the property. That said, sellers have an obligation to disclose material facts that are hidden. An announced project could well be considered public information that would not fall under the seller disclosure rules. So, I'm not entirely sure that the seller had a legal responsibility to share this information with you. Many real estate contracts have certain representations by the seller relating to homeowner association issues. Do you know if the seller made any representations about the association in your contract? You do, as a home buyer, have an obligation to find out everything you can about the property before you sign the contract to purchase the home and certainly by the time you close on it. I'm not saying the sellers or their agent shouldn't have shared this information -- and if you asked them specifically about special assessments and they didn't disclose it then you might have some sort of seller disclosure case. But if you never asked them specifically about it and you never asked them to provide you with the HOA minutes for the past two years and building or development budgets, then I'm not sure what legal options you have. You can certainly go back to your agent and ask why he or she didn't know about this (and if this information was known, why it wasn't shared with you). You can also talk to a local real estate attorney who can help you decide what, if anything, you should do about this situation going forward. To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
Q: We got preapproved for a loan and started house hunting in June of this year. In August, we made an offer on a bank-owned home (REO), and the bank accepted. Three days before we were supposed to close, the mortgage broker told us that the loan was in jeopardy because we have a state tax lien on our credit reports for $6,000. The thing is, we told him about this tax lien back in June, when we gave him a copy of our payment arrangement letter from the state! We have always made the payments on our lien on time. We signed a three-week extension of escrow. Can this stop us from getting the loan? Why is this just now coming up? What is our recourse against the mortgage broker if he screwed this up for us? A: You really have three issues here: (1) your concerns that your mortgage broker is not on top of things, (2) how the tax lien may impact your ability to qualify, and (3) how the payment arrangement affects your ability to secure the mortgage. Mindset Management Between your discontent with the mortgage guy and your need to secure your mortgage quick-like, obviously getting the mortgage takes top priority. Just for a few weeks, shift out of outrage mode (even though your anger is justified) and into problem-solving mode. Often, people with tax-liens got them because they suffer from "non-filer" syndrome, which you might as well call ostrich syndrome, because it amounts to just sticking your head in the sand and practicing extreme procrastination when it comes to handling unpleasant financial matters. If you want this house, you do not have the luxury of time to avoid the unpleasant, so get ready to get in motion. Need-to-Knows & Action Plan In response to your question of whether this issue could prevent you from obtaining a mortgage, the answer is yes it could. Frankly, with the current credit crunch some lenders will pounce on a last-minute surprise to avoid funding the loan. Also, every mortgage professional I know -- lenders and brokers -- says that no reputable mortgage lender will lend to a borrower with an active tax lien. However, they will lend to a borrower with a recently released tax lien, or to a borrower with a tax lien that gets paid off at closing by the escrow company. So, your first matter of business is to get the tax lien released. I'm not sure what state you are in, but some states will release a tax lien just on the strength of your having reached and abided by your payment agreement. Others will release it only if you pay the entire outstanding amount. Try contacting your state tax authority first to ascertain which position your state takes; you might even want to talk with a tax attorney and get some help in getting the lien amount reduced or the lien itself released. Every state will release your lien if the outstanding amount is paid off. You don't say whether you have the funds to pay your lien off, but if you do (or you can scrounge them up) -- you're golden. Work with the tax authority, the lender and the escrow holder to determine whether you should pay it off in advance of closing or whether you should have escrow pay it from your funds at closing -- because of your short time frame, if you send the funds over in advance and the lien is not released in time, you could lose the place. Most lenders will allow the transaction to close if escrow is given the funds and instructions to pay the lien off. If you don't have the funds to pay the lien off, there are two possible workarounds available to you. First, see if you can still qualify for the mortgage if you redirect some of your down-payment funds to pay the lien off. Second, see if you can negotiate a closing-cost credit increase that escrow can use to pay the lien off. Before you go this latter route, check with the lender to see if that application of a credit is acceptable. You may or may not have to agree to increase the purchase price, which might, in turn, require a revised appraisal. The bank seller may or may not play ball, but if your other option is losing the property (and, potentially, losing your earnest money deposit if you have removed contingencies or your objection period has expired), it behooves you to try! If your state agrees to release the lien without it being paid in full because you are in compliance with your payment agreement, you now have the issue that your monthly debt obligations are higher than the mortgage lender initially believed. Your monthly payment to the state will be added to your other monthly obligations so that the lender can re-calculate an accurate debt-to-income ratio for you. If the debt-to-income ratio thus calculated falls within their guidelines, you're golden. If not, you may have a problem. In that case, your loan officer will need to apply for an exception and potentially even apply for a loan with another lender with a more generous guideline for debt-to-income ratio, but such a loan might have a higher rate or other less desirable terms -- if you have to apply for a different loan or use a different lender, make sure you read your good faith estimate so you know what changes you are in for! With all that said, before you try any of this, you may want to get a second opinion from a reputable mortgage professional, and consider changing mortgage brokers. Get referrals from friends and family who have rave reviews about their loan rep's awesome problem-solving skills. If you truly did disclose this months ago, and your mortgage broker was sloppy or sneaky enough to let this issue creep up on you this late in the game, it calls into doubt the issue of whether he can pull this now-tricky deal off in such a short time frame. The issue of a tax lien should have been a red flag for him in June when you went in to get preapproved, and should have been resolved before you even started house hunting -- definitely before you put deposit money down on a home. Focus now on getting your transaction closed. If you get it done, limit your recourse to describing your transaction in an online vendor review forum like Yelp.com and move on with the business of enjoying your home! If you don't get the home, and you lose your deposit money because of it, contact your mortgage broker's company owner to seek compensation for the lost deposit money and, if the broker holds a license, report his negligence to the licensing agency. Beyond that, the amount of the deposit and the miscellaneous facts of the case will dictate whether you should take him to small claims or superior court for negligence resulting in your lost deposit -- consult with a real estate malpractice attorney to understand whether you have a valid claim worth pursuing. My hope for you is that you work out the lien issue, get the home and have many happy years there! Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook," and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
Q: Do you think banks will cut off all equity lines of credit? We have an established equity line set with a major bank. The bank also holds our mortgage. With the economic uncertainty and most of my income coming in the form of a commission, we may have to dip into our existing equity line of credit for living expenses. We hope this won't be the case, but we're worried that our bank will cut off our line of credit. A: Banks and mortgage companies have already begun to shut off home equity lines of credit. The bank's ability to shut off the line of credit should be set forth in the loan documentation for the line of credit. When lenders shut off home equity lines of credit, they either close the line of credit completely, or they lower the amount of credit available, based on the lender's understanding of how much home values have declined in a particular neighborhood. You should review your home equity line of credit documents to determine if the paperwork gives the lender any right to cancel the line of credit. If you are depending on this cash for a possible economic lifeline, I'd think seriously about drawing down at least some of it now, to keep the line open and active. Also, be sure to renew the line of credit on time. Often, you'll pay a fee of $30 to $50 per year to keep your home equity line of credit (HELOC) open. If you're late with that payment, you might find your HELOC shuttered. But in general, I don't think banks and mortgage lenders will close off all home equity lines of credit. There may be many different circumstances that impact the bank's decision to cut off or limit a line of credit. Some of these issues may involve what real estate values have done in your area, the problems the bank is having in the local real estate market, and any negative credit information the bank receives about your finances. If your credit is good, your property value has not decreased, the balance on your main mortgage loan and the balance on the home equity line of credit are lower relative to home value than the norm, and you live in an area that has not been hit hard by other foreclosures, even if your current lender cuts your equity line of credit I believe there will be others in the neighborhood that would be delighted to have your business. Q: In one of your articles you wrote about transfer on death (TOD) deeds not being accepted for real estate in Florida. As a Florida resident, I have some further questions concerning this matter. I live in a mobile home. It is a resident-owned park where we the residents all own the park. We buy shares in it when we become a resident. On the title for my mobile home, I have a TOD on it. There is no mortgage on the home. I also have other assets recorded in the same manner. My question is: Does a TOD apply only to real property and not mobile homes? A: There are two basic types of property: personal property, including items like furniture, artwork, stock certificates and bonds; and, real property, which refers to real estate. If you own the land on which your mobile home sits, and it is permanently attached to the land, it is considered real property. But if your mobile home sits on a rented lot, it is considered personal property. Many states have passed TOD (transfer on death) laws for personal property like stock certificates, bank accounts, etc. But only a handful of states permit real property to be transferred in this way. I'm not sure why this is. It's an easy and inexpensive way to transfer property upon someone's death. I do know that there is a movement to study this issue further so perhaps over the next few years more states will adopt this code. For more details, please talk to a real estate attorney or estate attorney. Q: My wife and I are getting a divorce, and we live in Florida. She wants to remove her name from our mortgage so she can go out and purchase a home of her own without being financially tied to this home. Is a quitclaim deed the way to go? A: In general, you can remove someone's name from a mortgage only by refinancing the loan, paying the loan off by selling the property or by using cash. In rare cases, you can petition the bank to have one of the borrower's names removed from the loan. A quitclaim deed would only remove her name from the ownership of the home but not from the obligation she has under the mortgage. If you decide to refinance the loan to remove her name from the mortgage, at the time of the closing of the loan, she could quitclaim her ownership interest in the home to you as she is removed from the burden of the mortgage. Some title companies and closing agents will help you prepare the quitclaim deed when you refinance the home. But in other states, you might need to do it yourself or hire a real estate attorney to prepare the documentation. To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
DEAR BENNY: Why does one have to pay monthly insurance payments in escrow to the lender? Also, after having paid this payment in escrow for five to six years, why can't this be cancelled? --Marcelle DEAR MARCELLE: First, let me express my personal view. I dislike the concept that homeowners have to pay money into a lender's escrow account, on a monthly basis, so that lenders can pay the real estate tax and the yearly insurance premium. While lenders claim this is to protect their security, the reality is that lenders make a lot of money on these escrow accounts. At the very least, lenders should be required to pay interest on the moneys they are holding. I have had a number of clients who have complained that despite the fact that the lender is escrowing, the real estate tax was not paid. I don't think this is deliberate, but with lenders selling their loans all over the country, many lenders just do not know where to send in the tax payments -- or even when such payments are due. Having said this, however, I want to respond to your question. The lender has a mortgage loan on your property, and even if you have 95 percent equity, should your house burn down, the lender's 5 percent equity will be jeopardized. That's the reason lenders give when they require escrows for insurance. My suggestion: Talk to your lender and see if it will be willing to release you from the escrow obligation (for both the real estate tax as well as insurance) so that you can pay your own insurance premium and your own real estate tax. Some lenders will go along with this, on two conditions: (1) that you send the lender annual proof of payment, and (2) should you not send in that proof, it can reinstate the escrow. DEAR BENNY: When my mother bought her house several years ago she placed my name on the title along with hers. She passed away in January. We want to sell the house with the proceeds going to my sister. Is there a simple way I can transfer the property to her? If so, would there be any tax liability on my part? What would the basis be for my sister? --Jim DEAR JIM: For specifics regarding your case, you really should consult a tax accountant. Furthermore, because I do not know where the property is located, my answer has to be very general. Different states -- such as community property states -- have different rules about determining basis in cases such as yours. I also do not know how you and your mother held title. If it was as joint tenants with right of survivorship, then on her death, by operation of law you became the sole owner. On the other hand, if title was as "tenants in common," then on her death, her assets (including her interest in the property) has to go to probate. Let's assume for this discussion that you are the sole owner. You can do with the property as you see fit; you can sell it and give the sales proceeds to your sister, or you can give the house to her. If you sell it, (and assuming that you had an ownership interest for more than two years) unless you also have lived in the house for at least two years before it is sold, you will not be eligible for the up-to-$250,000 exclusion of gain. You have to determine your basis, which as I indicated will be different depending on where the house is located. If you sell the property for a price above the basis, you will have to pay the federal capital gains tax, which currently is 15 percent. You may also have to pay any applicable state or local income tax. On the other hand, if you give the property to your sister, her tax basis will be your basis. Remember: When a person gives a gift, the recipient of the gift (giftee) takes the basis of the giftor. If you sister will then own and live in the house for the "two out of five" rule, then she can exclude up to $250,000 (or up to $500,000 if she is married and files a joint income tax return). This is just an outline to assist you in making your decision. You must talk to an accountant to determine your tax basis. DEAR BENNY: My husband and I are purchasing a house from the estate of his uncle. The house is assessed at $300,000, but they have agreed to sell it to us for $150,000. Why is it necessary for us to pay PMI if the LTV ratio is at 50 percent? I almost feel like the mortgage companies are just trying to get extra money from us by having us refinance soon. Even in this economy this house would sell for higher than the loan amount. --Hollie DEAR HOLLIE: Generally, lenders require that home buyers obtain private mortgage insurance (PMI) when they do not put down at least 20 percent of the purchase price. This is referred to as the "loan to value" (LTV). In your situation, although the house is worth $300,000, the purchase price (which is what lenders look at) is only $150,000. Thus, unless you put down $30,000 and get a loan of not more than $120,000, I can understand why a lender may be insisting on PMI. I agree with you, however, that it makes no sense. Here are some suggestions. First, talk with several lenders and see if they can be convinced to waive the PMI requirement. Second, see if you can get what is known as a "piggyback" loan; you would get a first trust of $120,000 and a second trust of $10,000-$15,000. You will need to put down at least $5,000 in my example. This kind of loan is part of the cause of our current "mortgage meltdown," and piggybacks are now very difficult to get. However, you may be able to convince a lender that because the property is worth so much more, they will have plenty of equity -- i.e. security -- and thus should make the loan. If all else fails, get the lowest adjustable-rate loan that you can get, and consider refinancing shortly thereafter. It will cost you a little more for the second settlement (called escrow in the West), but should be much less expensive than having to pay monthly PMI payments. However, you have to make sure that you will be able to refinance quickly, and that there will be no prepayment penalty. Discuss all these options with a number of lenders. Mortgage lenders want more business, and I suspect that some lender will be willing to cooperate. DEAR BENNY: My sister and I own a house together. She is getting married and wants to give me full ownership of the house. What would be the best way to handle the paperwork without having to refinance? --Rosie DEAR ROSIE: You have a very nice sister; you should be proud. Your sister can deed her interest in the property to you, and because this is a transfer between children, your lender cannot try to call the existing loan. I suspect that there is a "due on sale" clause in your mortgage loan documents, but federal law makes it clear that lenders cannot use that clause under certain circumstances, and your situation appears to be one of the exclusions. However, your sister may have gift tax consequences, and before she transfers the property, she should consult a tax attorney for specific advice. DEAR BENNY: My wife and I are gifting our son $15,000 for a down payment on a condominium in our community. This is his first venture in home ownership, and the property was purchased from HUD. The mortgage company is asking for a letter stating that we gave him the money as a gift and do not expect to be repaid. The form letter provided by the mortgage company requests our account numbers from the accounts where the funds originated. I feel uncomfortable providing this information. Is this request mandatory in order to secure the mortgage? --Frank DEAR FRANK: Unfortunately, if your son wants a loan from that lender, you will probably have to comply with its requests. I appreciate your concern, but also understand why you are being asked to provide that information. There are too many situations where false gift letters are provided, and the lender -- especially in today's uncertain market -- is merely attempting to protect itself. You should talk with the lender and see if it will accept a written, sworn affidavit from you that this is a true gift. Otherwise, I think you will have to comply with the lender's demands. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
Q: I live in a large apartment complex, and have as neighbors a family that takes their religion, and its mandate that they spread their faith, very seriously. I'm constantly greeted with blessings and inquiries as to my spiritual condition, and written materials are often left at my door. Even a casual encounter in the elevator or laundry room becomes an opportunity to spread their views. Other tenants in the complex have had the same experience, and we've complained to management. They answer that it would be illegal to interfere with these tenants' free expression of their religion, even though it substantially annoys other residents. What do you think? --Larry S. A: Management is taking a very cautious approach to your complaint, no doubt mindful of the Fair Housing Act's prohibition against discrimination on the basis of a tenant's religion. Aware that their ads cannot indicate a preference for tenants of a certain religion (or against others), that they cannot turn prospects away because they disagree with the prospects' views, and that they cannot make facilities and services, such as use of the clubhouse, available to some but not all religious gatherings, they are assuming that interfering in this situation would be illegal too. But that may not be the case. First, understand that the fair housing prohibitions prevent landlords from discriminating based on a person's membership in a protected class, not on what that person actually does as a tenant. For example, a landlord would be acting illegally by refusing to rent to someone because he's a member of a specified religion. But suppose that as part of practicing that religion, the tenant engaged in the daily practice of prayers accompanied by loud drumming. A tenant who behaved that way would be disturbing his neighbors' rights to peace and quiet, and a landlord would be on solid ground in asking that it stop, based on the landlord's duty to ensure all tenants' "quiet enjoyment" of the premises. If the drumming didn't stop, a termination would be justified on the grounds of excessive noise, irrespective of the tenant's membership in a protected class. The question for your landlord is whether your neighbors' behavior interferes with your right to be left alone at home. On the one hand, some amount of this sort of thing is to be expected and happens all the time -- who hasn't encountered door-to-door visits from Scouts selling cookies and soccer teams selling raffle tickets? But the situation you describe is rather different. Unlike a door-to-door pitch, which you can end by politely saying no thanks and closing the door, your neighbors' actions are not so easily avoided. If you're doing your laundry, it may be awkward to end an encounter and stay to get your clothes out of the dryer. And repeated drop-offs of literature forces you to handle it and dispose of it, which could become burdensome. One thing you haven't mentioned is whether you've spoken directly to your neighbors about their actions. You might start there, beginning with your respect for their right to practice their religion. Emphasize that you are firmly and comfortably at peace with your own beliefs, and would appreciate their acknowledgment of that. If you're not successful with the direct approach, and management continues to refuse to get involved, consider contacting a landlord-tenant mediation service in your town (often legal aid offices and city government offer this service, which extends to tenant-tenant situations, too). A mediator may help both you and your neighbors come to an acceptable resolution. Failing that, your only option would be to move out. If you have a lease and are worried about being held responsible for the rent for the balance of the term, you'll argue that your leaving was justified because the landlord actually broke the lease first, by failing to preserve your right to quiet enjoyment of your rented home. Q: I park in an underground garage in my apartment complex. A community pool with a cement deck is above. The pool leaked and water dripped onto my car, damaging the finish. My auto insurance gave me an estimate but it's below my deductible, so I'll have to pay. However, they suggested I contact the property owner. I have spoken to management and they claim they aren't liable. I think that because maintenance of the pool is under their control, they should be responsible for the damages. Can you help me determine who is correct or what my rights are as a tenant? --Judith O. A: Your landlord is responsible for the consequences of his negligent acts. If he knew the pool was leaking and didn't take action, or failed to conduct any regular maintenance (which would have uncovered the leak), it's likely that he was careless. On the other hand, if the leak resulted from a sudden accident or "act of God" that no one could anticipate (such as an earthquake that split a pool wall or pipe, resulting in leakage), he may not be responsible. We expect property owners to take reasonable steps to prevent harm and damage; we don't make them automatically responsible for events they could not know about or could not control. So the first question for you to answer is whether this was a long-running problem or a sudden occurrence. If the former, you have a good case for expecting your landlord to pay up. If the landlord has liability insurance, it should cover this situation. If the landlord doesn't have this coverage, he'll have to pay up or face you in small claims court if you want to take the matter to court. Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord's Legal Guide" and "Every Tenant's Legal Guide." She can be reached at janet@inman.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
Many mortgage borrowers are tempted to finance their closing costs, that is, adding the costs to the loan amount. This could be attractive to borrowers who can earn high returns on their free cash, or those who don't have any free cash. Financing closing costs is very costly, however, if the larger loan increases the price of the mortgage. This will happen if the loan amount crosses a "pricing notch point" (PNP) -- a point at which the interest rate, points or mortgage insurance premium increases. Since any price increase will apply to the entire loan, not just the increment used to finance closing costs, it will make the increment extremely costly. For example, suppose financing $8,000 in closing costs on a $400,000 loan takes the loan past a PNP where the mortgage insurance premium jumps by 0.25 percent. The additional premium amounts to $1,020 in year one alone, of which $20 is on the $8,000 loan increase and $1,000 is on the original $400,000. On conventional loans, PNPs in the ratio of loan amount to property value are 80 percent, 85 percent, 90 percent, 95 percent and 97 percent. As an example, if the $400,000 loan is 80-83 percent of value, adding closing costs of $8,000 to the loan won't affect the price because the ratio will remain below 85 percent. But if the initial ratio was 84 percent, adding the $8,000 will bring the ratio above 85 percent, so the price of the loan will be higher. On FHAs, the only PNP at this writing is 95 percent. The conventional loan amount also has a PNP at the largest loan that can be purchased by Fannie Mae and Freddie Mac, called the "conforming loan limit." Above the loan size maximum, the loan price will be higher. There used to be only one nationwide maximum, but now the maximums vary from county to county and range from $417,000 to $729,750. You can find the maximum for your county at http://www.ofheo.gov/media/hpi/AREA_LIST.pdf. Don't Wait to Pay Off a Collection Account I am frequently asked whether, prior to applying for a mortgage, it is a good idea to pay off old collection accounts so they will no longer appear in the credit record. This turns out to be one of the trickier issues that arises in connection with credit scores, and I consulted with my credit guru, Catherine Coy, to make sure I had it right. Borrowers should understand that paying off a collection account, like bringing a delinquent payment current, does not remove it from your credit record. As time passes, the impact on your credit score of an adverse item in the report gradually declines, because older information is less predictive of how good a credit risk you are than more recent information. But the adverse item does not disappear. That's why Catherine advises people who decide to pay old collection accounts to negotiate with the collection agency to get a "delete letter" sent to the credit reporting agencies. In effect, the letter states that it was all a mistake and the adverse item should be removed from the record. When a borrower pays an old collection item, not only does the item not disappear, but the payment converts it into a current item, which increases its weight in the credit score. As a result, paying an old item, unless it is also deleted from the record, reduces the credit score! The moral is very clear. The time to pay off old debts is well before you expect to be in the market for a mortgage. If you wait until just before you enter the market, the genii who scores credit will penalize you as one who disregards obligations until they need additional credit. An Interest-Only Loan Cannot Pay Off Sooner One of the most common myths that loan officers foist on prospective borrowers is that, if the borrower makes the same payment on an interest-only (IO) loan that he would make on the same loan without the IO option, the IO version will pay off sooner. This is nonsense. If the interest rate is the same on both, they will amortize in exactly the same way. And if the IO carries a higher rate, which is very likely, it will amortize more slowly rather than more rapidly. The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
Changes in the housing market can change the nature of home-sale transactions. For instance, before the boom in the home-sale market that began in the second half of the 1990s, the California Association of Realtors (CAR) purchase agreement used by most California Realtors included a clause in which the seller warranted the condition of the property. The boom market changed that. The version of the CAR purchase contract most widely used during the fast-paced market that subsided in 2006 did not include a seller warranty. Instead, the buyer agreed to purchase the property in its present condition subject to the buyer's inspection rights. Market conditions changed the home-sale transaction in a very significant way. Similar changes are taking place in the current market. The most obvious change is that it's harder to get financing. Not only is there a lack of liquidity, there are fewer lenders in the mortgage business and the qualification requirements have tightened considerably. Lenders now fully qualify buyers for mortgages, which takes more time than it took to grant a stated-income mortgage, a popular type of home loan during the boom years. With a stated-income mortgage, the borrowers didn't have to verify the income that they stated on their mortgage application. Now, most lenders require complete verification of employment, income, assets and credit history. Full qualification and underwriting approval can take up to three weeks or more, depending on the lender, the mortgage amount and your financial situation. Many lenders now require two appraisals rather than one, particularly on loan amounts over $1 million. With some lenders it can take as long as seven to nine days after the first appraisal is sent to underwriting for the second appraisal to be done. This means that your loan contingency could expire before you have complete approval. Some lenders work faster than others. Find out before you make an offer how long the entire loan approval process will take. Tailor your loan contingency time period accordingly. Otherwise, you might have to ask the seller for an extension. HOUSE HUNTING TIP: It's always best to meet the contingency deadlines stated in the contract. You may want to ask the seller for a concession at some point, perhaps to cover the cost of a defect discovered during inspections. A seller who's happy with your performance is more likely to be cooperative than one who is mad or anxious because you have not met your deadlines. With mortgage approval taking longer, short closings are virtually impossible unless you're paying all cash. In most cases, it's difficult to close a home-purchase transaction in less than 30 to 40 days from contract acceptance. During the boom market when financing was easy to obtain, many buyers closed within a couple of weeks. Check with your lender to find out a realistic time frame for closing before making an offer. There is far more negotiating now than there was a couple of years ago. More buyers are asking for sellers to pay to correct inspection-related defects. Some buyers require that the work actually be done before closing. This can pose a problem. It's often hard to line up contractors at the last minute to do work within a short time frame. For this reason, it's a good idea for sellers to have pre-sale inspections done before they put their homes on the market. If there are defects discovered that will be red flags to a buyer, consider having the work done before your home goes on the market. THE CLOSING: Not only will this minimize your chance of a delayed or failed transaction, your home will be more salable. Dian Hymer is a nationally syndicated real estate columnist and author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
Q: My husband and I are having a new home built in the California foothills. I resisted suggestions to go with vinyl windows to save on cost. The latest struggle is the roof. The architect designed the house with a concrete tile roof to go with the English Tudor style. My husband and the general contractor have been encouraging me to consider a composition roof to save money, and I suspect, make the process easier for the contractor. The only concern I have is that the roofing companies and the general contractor advise that concrete tile roofs do not repel water the same as a composition roof; they claim that the underlayment is the only thing that keeps moisture and snow effects from infiltrating the structure below. Is this true? This will be our retirement home that we plan to live in for the next 35-plus years, and we don't want to be worrying about a roof replacement while in our 80s or 90s. Anything you can provide to reassure me that holding fast to the decision to have a concrete tile roof is the best decision (in spite of the additional cost), would be greatly appreciated. A: We're real sorry, but we're going to have to side with your husband, the builder and the roofing companies on this one. Given the choice, we'd opt for a high-quality composition roof instead of concrete tile. From a design perspective, we're having a tough time picturing a Tudor cottage with a concrete tile roof. But, to each her own. A 40-year warranty on an architectural-grade composition roof is easily available. Our experience with composition roofs is that, if installed properly, they last longer than the warranty. So, even when the roof is on the last portion of its useful life, you shouldn't have to replace it in your sunset years. We don't know if we can say the same for concrete tile. We understand that as the coating wears off with time, these roofs require recoating to continue to repel water. With the coating gone, the concrete tiles absorb water and become heavier. Worse, condensation can form under them and on the underlayment. If the underlayment is old and brittle, a leak can happen. What our reader calls "underlayment" is tar-saturated building paper called roofing felt. It is the second line of defense against the ravages of water and wind. The first line is the roofing material itself. A reader recently wrote with a problem that sounds eerily similar to the warning of your contractor and the roofing companies. She writes: "I downsized last year and bought a home built in 1991 with a tile (I think it is) roof. I had a leak last winter and the guy I called out said I needed a new roof. I didn't think you ever had to replace a tile roof, but he said the tar paper underneath it gets brittle and cracks -- and thus needs replacing. "I declined his offer to put on a new roof and he fixed the leak for a very reasonable amount ($150), but I'm wondering if I should take care of this?" This reader's experience and the information you've gotten from your builder makes us leery about the concrete roof your architect designed. By the way, you were right to nix the vinyl windows. The general rule is to spend money on things that can't be easily replaced and to buy quality. Windows fall in this category. Once the windows are in, it's a big production to change them. On the other hand, if the budget won't allow for granite countertops today, laminate will work for the time being with the ultimate plan being to replace them with stone at a later date. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
Predators have come to the party wearing a variety of hats, yet their intent clearly is common. Webster's gives the definition of "predatory" as "relating to, or practicing plunder, pillage or rapine … showing a disposition to injure or exploit others for one's own gain … " In the home mortgage business, predators historically have jockeyed to the most vulnerable rung of the housing ladder, seeking to "dine and dash" with the least suspecting group of borrowers having to pay the bill. The past few years, more and more borrowers were hit with loan presentations that seemed too good to be true. It's been a big piece of the current mortgage mess. If you don't get loan jargon or don't speak English as your primary language, you can easily find yourself as a target. That's why housing officials are now pushing for more safeguards against predatory lending, hoping to curb the quick-hit artists who have no intention of spending years in the home-mortgage industry. Put yourself in a pair of "fast buck" shoes for a moment and think about the possibilities. First, you have a huge group of "last-time buyers" who are not familiar with the terms or the plethora of loan programs available today. These folks have had no need, nor interest, in researching loans the past 20 years because they've had no intention of moving. They have surfaced to find the current maze of loan opportunities that are foreign to their borrowing background. And, speaking of foreign, the National Association of Realtors reports that nearly one-third of all first-time home buyers were members of a racial or ethnic minority, indicating the huge language challenge for real estate agents and loan reps. However, the language challenge is not reserved for first-time buyers. I recently interviewed a consumer, a native of Honduras, who was pressured into abandoning his fixed-rate loan for a higher adjustable-rate deal that left him with a lump-sum payment of $85,000 after nearly 20 years of payments on a $95,000 loan. "Eduardo" is not actually identified here because of privacy concerns. Authorities are reviewing his case with his lender. "I have to think my Latino background had something to do with it," Eduardo said. "She just kept pressuring me and pressuring me with deadlines. She said if I signed by the end of the month I would be able to save a mortgage payment." Eduardo was seeking to lower his monthly mortgage payment of $898 plus pay off approximately $6,000 in consumer debt. He has a good job with the U.S. Postal Service and makes timely payments on all money he owes. "The loan person continued to tell me that I was the only one of her clients who was second-guessing this deal," Eduardo said. "I was skeptical and kept insisting that all this be put in writing so I could really understand it. "But she kept telling me this was the best way for me to save a lot of money. One day she came over with the paperwork for me to sign. I ended up signing it. She didn't break my hand or anything, but there was a lot of verbal pressure." Eduardo's monthly payments zoomed to $1,167 a month. He also discovered that if he refinanced or prepaid his loan within the first three years, he would owe a sum equal to six months of payments. Eduardo's case, and others like it, has become one of the hottest topics in housing today. In a report on abusive lending, the federal government recommended that increased consumer education and disclosures about the lending process would cut down on abusive lending. Among other measures, the report also called for bans on harmful loan sales practices that do not consider the consumer's ability to repay a loan; a ban on lump-sum credit life insurance; and, limits on points, prepayment penalties and fees that can be financed with a home loan. It used to be that intentional deception centered on equity-skimming con artists who assumed mortgages and quit making payments. When the mortgage holder foreclosed on the loan, the lender sought full payment from the initial borrower -- typically an innocent veteran or senior who was left holding the bag. Solutions started to arrive more than a decade ago to cover specific hurts. For example, government loans used to be fully assumable, with virtually no requirements. Now, there are more stringent guidelines. Freddie Mac, HUD, Fannie Mae, the Mortgage Bankers Association of America and the National Council on Economic Education are among the groups who have jumped on board to educate potential home buyers about lending abuses and teach them homeownership skills. This is not about investment portfolios or extra cash. It's about keeping the scammers away from a consumer's basic shelter. Predatory lending is a despicable practice and a despicable crime. To get even more valuable advice from Tom, visit his Second Home Center. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
A new survey from First American CoreLogic, a real estate data company, has concluded that nearly a quarter of all homes with mortgages are worth less than what is owed on the loans. According to the data, which was first reported in the New York Times, nearly 10 million homeowners are either at negative equity or zero equity. The four states with the highest number of homes that are underwater: California, Florida, Nevada and Arizona. None of this would come as a surprise to some acquaintances of mine, who like millions of Americans find themselves in a leaking boat in the middle of a lake without a paddle. One was a real estate developer of high-end homes in Arizona when that market crashed. He lost his job and a six-figure cash investment in the process. The cash came from a home equity loan on his primary residence, which put his primary residence at risk. While he was employed, he and his wife had no trouble making their monthly payments. But once he lost his job, making the payments on their first and second mortgages with only her self-employed income became impossible. They were turned down for a refinance because their income isn't enough to support the loan payments. Their house is now worth substantially less than what they owe, which would make it impossible to sell. And while they've gone back to their bank and asked for a relief under the new mortgage edicts from Washington, they -- like so many others -- don't appear to qualify. If you can't sell your home because it's not worth enough to cover the mortgages and you can't refinance because the bank says you don't have enough income to make it work, what can you do? One of the answers is to hand over the keys to the lender. In my acquaintance's case, that would mean the second lender would be completely wiped out and the primary lender would take back a house that's worth substantially less than what is owed. But returning the keys to the lender only adds to the pile of foreclosures that need to be cleared out before we can find a floor to the housing recession. Recently, more lenders agreed to pitch in to refinance mortgages so that they are affordable to the inhabitants. Fannie Mae and Freddie Mac announced that they would modify mortgages of those who are three months behind on their mortgage. Sheila Bair, who heads up the FDIC, doesn't think the proposal goes far enough. But how far is far enough? Modifying mortgages means investors who bought these loans will take a huge hit. Fair enough, since they bought a bad investment. But it may make them reticent to buy mortgages in the future or lend out other cash. Lenders will take a huge hit, although some of this might work out in the long run and it will be less than if they have to foreclose on an extra 2 million homeowners. And so the credit crisis continues. Where we are now is a place where everyone loses: homeowners who are facing foreclosure; homeowners who are able to make their payments just fine, but whose house is worth less than the mortgage on it; homeowners who are trying to sell but can't because there is a glut of foreclosed homes listed for sale in their neighborhood; higher-than-desired mortgage interest rates because investors have concerns about whether Fannie Mae and Freddie Mac will be backed by Uncle Sam in the years ahead; lenders who don't want to make loans; businesses that can't find the financing they need to make payroll; and, a period of recession and rising unemployment, which means more homeowners who can't make their mortgage payments and will ultimately face foreclosure. We have to break the cycle. To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
DEAR BARRY: Construction of our new home was recently completed, but four days before the closing, vandals broke into the house. They stopped up all of the drains and turned on the faucets. The builder found the mess in the morning. He immediately replaced the carpeting and some of the drywall, but he dismissed the possibility of mold. We are confident that he can repair all of the water damage but are concerned about future health issues in the home. Because of this, we may walk away from the transaction. Do you think we are overreacting? --Ken DEAR KEN: Your concerns about mold are reasonable, but this should not become a deal-killing point of contention. Mold may or may not be an issue in this situation, but the matter needs to be determined, one way or the other. Mold typically occurs when there is a prolonged moisture condition. In this case, the moisture may have been addressed before mold had a chance to develop. A mold report would provide the answer to that question, and the builder should be willing to go that extra step to resolve your final concerns in the aftermath of the vandalism. Instead of dismissing the issue, he should hire a qualified mold inspector to evaluate the property and provide a comprehensive mold report. The fact that mold may be unlikely is not the deciding factor. There is also the issue of future disclosure. The home was flooded, and that occurrence is now part of the history of the property. When you eventually sell the home, this will need to be disclosed to future buyers. A clean mold report can prevent that disclosure from raising major concerns when that day arrives. On that basis, the question of mold needs to be answered by a qualified professional. DEAR BARRY: I am looking for the legal definition of a bedroom. I bought a house that was listed as a four-bedroom home. Two bedrooms are in the remodeled attic. They have 82-inch-high ceilings and short alcoves for closets. I am trying to determine whether they are legal bedrooms. Can you help me? --Christine DEAR CHRISTINE: A bedroom must be at least 70 square feet in area, with neither dimension less than 7 feet in length. The minimum required ceiling height is 7 feet. When the ceiling is sloped, 50 percent of the ceiling can be less than 7 feet, as long as no portion of it is less than 5 feet. The 82-inch ceilings in your attic rooms are lower than 7 feet. A bedroom must also have an openable window for light, ventilation and fire escape. For light, the window size must be at least 8 percent of the floor area. For ventilation, the openable portion of the window must be at least 4 percent of the floor area. For fire escape, the window must be at least 5.7 square feet in area. The opening must have a minimum height of 24 inches, a minimum width of 20 inches, and a maximum sill height of 44 inches. And contrary to popular belief, no closet is required for a bedroom To write to Barry Stone, please visit him on the Web at www.housedetective.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
Q: My condo community requires us, the homeowner, to be responsible for the replacement of our windows. I have done this, going through the proper channels, even going to the extent of having someone from the management office come over while the installation was being done. While we were installing the windows, two members of the homeowners association board looked things over and gave me the "thumbs up," and even asking the installer for his card. I was concerned about the covenant inspection and was told that everything was "just fine." Two days later, the covenant committee rejected the color of my windows, informing me that I have 10 days to replace them! I have been walking around my community and have seen the same color windows on many other homes. The contractor who installed mine also installed these others windows of the same exact color, and I pointed this out to the covenant committee. I am being harassed now that I've brought this to their attention and they're hinting at taking legal action. Do you have any advice for me? A: Stand firm. It's unreasonable for them to suggest you change out the windows, as the entire process sounds like it was approved from the get-go. The only mistake you made was not getting written approval based on a photo submission or other written documentation. That would have been absolute proof that you had the association's blessing. What I suggest now is to wait and let them come back to you. If the homeowners association's covenant committee has allowed other residents to replace their windows with the same color windows you've chosen, and there is no written rule regulating what color windows you can use, you're probably fine. Perhaps they have levied a fine to these other neighbors for this infraction, and if that's the case, then perhaps you'll have to pay that as well. Still, it's probably worthwhile to find a local real estate attorney to help you out just in case the matter escalates. It doesn't seem right that the association should stand by while you have the windows installed and then raise the issue once the installation was complete. While associations have the right to set up rules for the homeowners to follow, it seems that these rules should be applied in a consistent manner and in a nondiscriminatory manner. Q: I have a loan on property in Oregon and the interest rate is 7.75 percent. It is on a manufactured home on 110 acres. I have looked into refinancing, but nobody will give me a better rate on the place. It is a second home that we rent out, so the lenders are telling me it is an investment property. We have very good credit and enough money to pay off the loan, which is around $60,000. We are getting only 3.5 percent interest on the money in a certificate of deposit (CD). The value of property is about $250,000. Should we pay off this loan? A: Great question. At this point in time, cash is king. So, if you have plenty of cash (or at least enough to pay off this mortgage plus an emergency reserve), then consider paying off the loan. But if you're earning income from the property, then having a loan helps offset the income you're receiving. The tax advantage could be worth more than the 3 to 4 percent you're "losing" by having the cash in a CD. Let me explain. At this point in time, federal income taxes top out at 35 percent. Income generated from a rental property is paid at the highest marginal tax bracket. So if you can lower your income by offsetting it with expenses, you're saving quite a bit on your tax bill. If you treat the property as an investment property and take depreciation on your tax return for the property, the tax depreciation also will lower the federal income taxes you pay on the rental income from the property. I think you'll have to take out a pencil and pad of paper and do the calculations to see whether having the loan would help your bottom line more than not having the loan, particularly when you take into account your other expenses associated with the ownership of this investment property. If you do your own taxes, you can run any number of scenarios through your tax software. Otherwise, you may want to have a quick conversation with your tax preparer or accountant. Q: Our neighbor built a fence last year that was 31 inches over the property line onto our land. As we live in Maryland, we did not find out about the fence until we were in Virginia this summer to check on our tenants who live on the property. I personally asked our neighbor to move the fence back to their property line and was told to get a lawyer. I then sent these neighbors a letter but received no response. I had a boundary survey done to prove that their fence is located 31 inches over the property line. I do not wish to grant them a license to leave the fence on our property. Do I need to engage a lawyer to force them to move their fence back or can I take down the fence by myself? If I incur legal fees or contract labor to remove the fence, can I recoup my expenses through small claims court in Virginia or do I need to file a separate lawsuit to get my money back? A: I would talk to a local attorney and ask him or her about what the process should be with regard to dealing with this neighbor. Clearly, you have the facts on your side. You've nicely asked the neighbor to move the fence, and they've decided to ignore you -- perhaps because they're embarrassed and perhaps because they don't really want to go through the expense and annoyance of moving the fence or they just want to keep the fence there to suit their needs. The attorney can advise you on whether he or she should first send a more formal letter, whether you might have to sue the neighbor in small claims court to get a judgment against your neighbor, or whether you can simply hire someone to tear down the fence. Although this fence is on your property, you'll want to make sure you're not running afoul of any local rules or regulations before you tear it down. To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
Today's Top Real Estate News
Provided by Inman News
12/3/2008 1:41:55 AM
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Loan approval, contingencies, defects take center stage
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New consumer safeguards proposed
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Dear Lender, take my house keys
Circumstances that cause homeowners to give up hope
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Couple's dream home vandalized before closing
Health concerns may force buyers to cancel deal
Barry Stone
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HOA: Replace windows or face wrath
Owner upset after committee approves then rejects project
Ilyce Glink
Inman News
Astoria, New York 11102
Ph: 718-777-5700
Fax: 718-204-5464
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