Q: My father passed away in March. About a year before he died, he gave me the keys to his house and cars. My dad then moved into my grandmother's house. She was his power of attorney until his death.
At the time he died, the house and the cars were all legally in my name. My grandmother is telling me I don't have legal rights over the house or cars. But she does not have the power of attorney anymore.
She gave my father's cars to my uncle even though I paid all of the expenses for the cars, did the maintenance and made sure the title was in my name.
The house has my name on the title and I've put about $20,000 into the plumbing, painting and maintenance of the house for my family and me. My brothers want to tear the house down and get the money for the land.
We're going to probate court in February. I want the house because I've taken the time to clean it and fix it up. What do I do?
A: My condolences on the loss of your father. You need to hire an estate attorney or real estate attorney who can help you figure out what you own at this point. Just because your father left you the keys to his house and cars doesn't mean you own them. If your father not only gave you the keys to the home and cars, but also transferred the title to the cars and home to you, you should be the legal owner of the home and cars.
Your grandmother may be under the mistaken assumption that the power of attorney she had gave her the power to undo actions taken by your father. She would be incorrect. However, if your father was unable to handle his affairs and your grandmother had power of attorney, or had been assigned the right to manager your father's affairs, the transfer of the cars and home to you could be undone by your grandmother.
At this point, you really need the help of an estate attorney to tell you whether your grandmother has any reasonable basis for taking the actions she did. If she did not, those cars are yours and whoever has them should be unable to transfer title to them without getting title from you. You would be entitled to retrieve the cars from them.
In all of this it's critical to know whether your father owned the cars and home when he transferred them to you, whether he had the capacity to transfer them to you, whether he took the necessary actions to actually transfer title to the cars and home to you, and whether there are any other factors that would entitle a third party to contest the transfer of the cars and home to you.
Once you answer these questions, you'll have a better clue of how to proceed with your grandmother and other family members. Even if it turns out that your father did not properly transfer title of the cars and home to you, you might have rights in probate court to part of your father's estate. Once in probate court, you can make your claim to whatever improvements and maintenance expenses you have made to the home and seek reimbursement for them. You should expect to be asked to document the expenses (try to hang onto your receipts) so you can prove what you paid for.
Your attorney should be able to help you further.
Q: I'm a 56-year-old widow. I have good credit and plan to sell my home and buy a smaller home next year. I have recently gone through and closed all my open but unused credit cards, including a department store charge and two Visa cards). I was thinking this would look better on my credit report when I seek a new mortgage.
But my friends are telling me that I've done the wrong thing. They say I should have left these accounts open. Is this true?
The only debt I have is my mortgage and line of credit. I use three major credit cards regularly, mostly for the benefits like cash back, and all are paid off at the end of the month.
Am I on the right track?
A: With so much confusing information out there about fixing your credit history and raising your credit score, it's no wonder that you're getting caught in the cross breeze.
While much of your credit score depends on your available lines of credit, you can cancel some cards as long as the credit accounts you leave open are your longest-standing accounts. You get a bump to both your credit history and score the longer you have been able to successfully manage your accounts.
For example, I have a credit card account that has been open for 20 years. I don't carry a balance on that account (or on any of my accounts), and I wouldn't close it because it is my oldest piece of credit. On the other hand, I have a few store credit cards that I could close and not take much of a hit on my credit history and score simply because this 20-year account is still active.
If you've canceled your oldest accounts, then you may have caused some damage to your credit history. But if the three credit cards you use are your oldest accounts, you probably haven't hurt your credit history or score at all.
Here's one way to tell: Go to AnnualCreditReport.com to get a free copy of your credit history (you're allowed at least one free report from each of the three credit reporting bureaus each year). At the same time, you should opt in to purchase a copy of your credit score from Equifax for less than $10. The Equifax score is most closely tied to the credit score used by mortgage lenders.
If you're thinking about applying for a mortgage or home equity line of credit this year, you'd want to pull a copy of your credit history and score anyway, so this is a good time to do it. Once you have them, check your credit history carefully for errors to be sure that there's nothing else that's pulling down your credit score.
From what you've written, my guess is that you'll be pleased with what you find on your credit history and the corresponding score. The best thing you have going for you is that you're paying all of your bills in full and on time each month. This goes a long way toward giving you a solid credit history and score.
You can't reopen accounts you've already closed, but if you pay your bills on time and in full each month and maintain your oldest credit accounts -- even if you don't carry balances on them -- your credit history and score should stay in good shape.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.
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DEAR BENNY: I had a few acres of rural property that I put on the market. I received an acceptable offer along with a deposit. Before the closing, the buyer withdrew the offer for a reason that was not listed on the contract. The buyer's Realtor requested the deposit back, and my Realtor told me it wouldn't be worth fighting, so I followed her advice. Later, I received another acceptable offer, but the same thing happened, as the buyer withdrew for a lame reason. Again the listing had been removed, and the deposit was returned.
I thought that a contract was legally binding, and that if a buyer withdraws an offer for a reason not specified on the contract, he or she will lose the deposit. Am I wrong in my thinking? If not, what can I do to make sure this doesn't happen again? --Paul
DEAR PAUL: In order to have a valid and binding legal contract, three elements are required: (1) an offer, (2) acceptance of that offer, and (3) consideration. Usually, the earnest money deposit will satisfy the third requirement, but consideration can also be where the seller takes the property off the market in reliance on the contract.
Often, buyers will place contingencies in the sales contract -- such as the ability to get appropriate financing; making sure the house appraises at least to the contract price; or the buyer must sell his or her house first.
These contingencies should have a time limit imposed, whereby if the buyer cannot remove the contingency, the contract can be declared void at the option of the seller. (Note: In today's market, a seller may not want to lose a sale and will agree to extend a contingency for a reasonable period of time.)
If the buyer wants to back out of the contract using excuses that are not listed in the signed contract, I would consider this a default and (depending on the terms and conditions of the contract) you would be entitled to keep the earnest money deposit.
Your real estate agent advised you to release the deposit to the buyers. Did you ask why -- other than it would not be worth the fight? Obviously if the buyer does have a valid reason, you probably would not want to have to go to court to litigate who gets the money.
Keep in mind that although the buyer may be in default, unless he signs a release authorizing the holder of the deposit (called an escrow agent) to give it to you, the moneys cannot automatically be released. A basic rule of law is that when money is held in escrow (such as the earnest money deposit) the escrow agent cannot release the funds unless the parties agree or a court gives its authorization.
In my opinion, you should have challenged your agent, and perhaps even discussed the situation with an attorney.
How do you protect yourself? First, make sure that the deposit is large enough to make the contract buyer hesitate about trying to walk away from a contract. Second, should someone want to back out of another contract, make sure that you know the specific reasons, and that those reasons are specifically stated in the sales contract.
DEAR BENNY: If your home is foreclosed on by your mortgage lender: (1) Will the lender go after you if the house sells for less than you owed? and (2) If there are two loans on your house, what is the role of the second mortgage (trust) holder? --Jefry
DEAR JEFRY: Because my column is national in scope, I can give you only a general response. Foreclosure law is based on state, not federal, laws, and different states have different laws.
Your first question involves what is known as a "deficiency." If, for example, you owe the lender $150,000, but the home sells at the foreclosure sale for $125,000, there is a deficiency of $25,000. Some lenders when they pursue foreclosure will start the bidding process at the amount of the outstanding balance, while others will set a minimum bid at less than the balance.
Some states do not allow the lender to go after you for the deficiency, while other states do. You have to get the answer about your state from a local attorney.
You also asked about the role of a second trust lender. In general, if the first trust holder forecloses, it wipes out the security of the second lender. On the other hand, if the second lender forecloses, anyone who buys at the foreclosure sale takes ownership subject to the first mortgage. In other words, the buyer steps into the shoes of the homeowner who was foreclosed upon and owes the money on the first trust.
But even if the second trust holder's security (the deed of trust or mortgage document) is wiped out, you are still obligated to pay that lender. Keep in mind when you borrow money to buy or refinance a home, you signs two important legal documents: the deed of trust (called a mortgage in some states) and a promissory note. The second trust note remains valid even if the trust has been eliminated.
DEAR BENNY: I have a problem and I can't find the solution. Back in the early 1990s, I purchased land to build a house. Unlike more recent times, I couldn't get bank financing to do the actual construction so I got private financing. I paid it off, and got a satisfaction-of-mortgage letter, but my county will not accept that for recording.
The original deed of trust was recorded, and named a title company as trustee and a husband and wife as the beneficiaries. The county told me to contact the title company. Well, I visited the title company and they said they don't know what to do as the husband died and the way they are listed on the document is just their names, not joint tenants, etc. Any suggestions as to how to proceed? The widow of the couple that loaned us the money (which was paid in full) is over 80 years old. --John
DEAR JOHN: Does the trust allow substitution of trustees? Most trust documents anticipate that a named trustee may die or not be able to function, so the beneficiaries would have the authority to select new trustees.
If the widow is mentally competent, she should have the right to appoint substitute trustees who should be able to release your trust from land records.
I would also retain local counsel. The lawyer may be able to convince the title company to release the trust, especially since you have proof of payment in the mortgage satisfaction letter.
In the final analysis, however, you may have to go to court and file a quiet title action. This means that you are asking the judge to "quiet title" into your name.
The judge will require that you make a concerted effort to notify (and serve) everyone named on the trust, and you may even have to advertise the lawsuit in your local newspaper. The judge, upon reviewing all your evidence and concluding that you have paid off the mortgage, will quiet the title into your name and extinguish the trust. If that happens, don't forget to record the judge's order on the land records where the trust is recorded.
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.
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Q: When I'm driving to work, it seems like every five minutes I hear another advertisement for loan modification services on the radio. I'm not behind on my mortgage, but it is set to adjust next year -- will my mortgage company actually work with me to stop that from happening? I'm also upside down by about $75,000 -- will they reduce the amount I owe, too? If so, will they charge me points like when I refinanced? Can I do it myself or do I need to hire one of those services?
A: Believe me -- we've all heard those ads! And they are not all scams. Loan modification is a legitimate possibility, and there are do-it-yourself options as well as legitimate loan modification consultants with successful track records at helping their clients obtain modified mortgage terms that work for them.
Mindset Management
Getting your mortgage modified might very well be possible for you, but I don't know anyone who would call it simple, easy or painless. But the upside potential -- saving your home -- is good enough to warrant the pain.
Part of the pain I see would-be loan modifiers experience is shattered expectations. So let's create some realistic expectations. First things first -- I do not see many people successfully obtaining principal reductions, that Holy Grail of loan modification in which the lender simply forgives a big chunk of the debt you owe, because your home is upside down. There is little to no incentive for a mortgage lender to do this, as it locks in their losses from the down market and allows you to reap 100 percent of the benefits when the market recovers. If your home is upside down and you don't want to own it unless you have positive equity in it, then loan modification may not be for you. If, on the other hand, you would like to keep your home for a long period of time and are OK riding out the bumps in the market, a modification might give you the relief from a mortgage payment adjustment that makes keeping your home feasible.
Also, I think we have all heard the party line that lenders do not want to own more foreclosed properties due to the expense of maintaining them, the fact that they are not in business to own properties, the costs of foreclosure, etc. This mantra, while true, has caused many of us to expect that when we call up a lender, express that we'd like to keep our home and request a lower rate or payment, the lender will trip over themselves in their haste to help us avoid foreclosure.
Suffice it to say, this is not exactly the case.
The process of applying for and obtaining a loan modification takes the average homeowner somewhere between 30 and 90 days, filled with preparing detailed financial statements and packages; writing letters; calling for status checks; wondering why on earth your calls haven't been returned; again providing the same financial statements and letters you submitted to get the process going in the first place; getting a negotiator assigned; waiting for a new negotiator to be assigned when your first one quits to go work for a loan modification consulting firm; and so forth. Eventually, the lender offers a loan modification that provides a payment the borrower can live with. Or not, but there's no real way to know until you go through the process.
Fortunately, applying for a loan modification directly from your lender does not cost anything, but if you use a consultant, you can expect to pay anywhere from $1,500 to $4,000 for their services.
So, go into it expecting the loan modification process to be one of the least fun experiences you will ever have. Educate yourself about what loan modification involves so that you can make yourself as strong a candidate for loan modification as possible, and so that you can propose and negotiate a modification with long-term sustainability. And, again, stay mindful that the potential outcome of keeping your home is well worth it. Oh -- and if you lack the energy, the resilience, the fearlessness or the time to do this process, and you have a few thousand dollars to invest in saving your home, consider hiring a reputable, ethical loan modification consultant.
Need-to-Knows
According to HUD, a loan modification "is a permanent change in one or more of the terms of a mortgagor's loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford."
Reality-check time -- lenders don't just prepare loan modifications to order. The loan terms they are willing to modify, as a rule, include the following elements, which are designed largely to reduce the borrower's mortgage payment:
The loan terms they are unlikely to modify? Principal loan amount, as discussed earlier. The exception is a government program called Hope for Homeowners, through which participating lenders agree to allow you to refinance your mortgage and reduce the principal to 90 percent of the fair market value of your home. I do not personally know anyone who has navigated this program successfully, but a number of lenders claim they are willing to make these exceptions to the no-principal-reduction rule on a case-by-case basis. Hope for Homeowners is, strictly speaking, a refinance program, not a loan modification; get more information at HUD.gov/HopeForHomeowners.
Good candidates for modification are homeowners who (a) have a valid reason they fell behind in the first place, like a change in their income or a change in the payment amount, and (b) can document sufficient income to make the agreed-upon post-modification payments. Lenders don't modify loans for people who can't afford to make the payments they are agreeing to. Loans that have adjusted or are set to adjust are good candidates for modification. Unfortunately, it turns out that lenders seem to be more likely to modify loans for borrowers who are late on their mortgages (but not so late that the foreclosure auction is set for tomorrow!), and the companies most likely to grant modifications (in my experience) are the lenders who have gone under and been bought out. Also, loan servicing companies seem to be tougher to secure mortgage modifications from than mortgage banks.
There are numerous self-help options for obtaining a loan modification. You can contact your mortgage holder directly, or find a free HUD-approved housing counselor at HopeNow.com. However, many borrowers I know have attempted this process solo and grown so frustrated with the lender's unresponsiveness and time-consuming false starts that they look for other assistance.
If you don't have the time or energy to manage your own loan modification, or you just aren't getting anywhere with your lender, you might consider hiring a loan modification consultant. I know this is controversial advice, because there are charlatans galore in this field. With that said, there are reputable, ethical loan modification consultants who (a) offer money-back guarantees, (b) will not take your money until they have given you an accurate idea of what modifications they are likely to be able to help you secure, and (c) are actually helping people save their homes. I know attorney-assisted loan modification firms who have more than a 90 percent customer satisfaction rate and are able to complete modifications in about half the time it would take the borrower to do it themselves. Keep in mind that their services are not cheap, though -- expect to spend up to $4,000 for a good loan modification consultant. For that reason, you might want to give it a try yourself or with a HUD-approved housing counselor first, especially if you meet the above-described criteria for being a good candidate for mortgage modification.
Action Plan
1. Gather all your financial documentation together, including: income and expense information and documentation; your most recent mortgage statement(s) from all mortgages; and bank statements. Your lender will need these items, and they will help you get clear on what you can and can't afford.
2. Write a hardship letter detailing why you are in mortgage and financial distress, and why you feel you will be able to get and stay current on your mortgage, if modified.
3. Find a HUD-approved housing counselor at HopeNow.com.
4. Contact your lender's loss mitigation department and apply for a loan modification.
5. If push comes to shove, ask your Realtor for a referral to a reputable loan modification consultant.
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.
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What is the top real estate story of 2008? Fannie Mae? Lehman Brothers? Washington Mutual?
A year ago, we discussed how the excessive extension of credit that led to defaults, foreclosures, home prices and more expensive mortgage money was the most talked-about story of 2007.
Everyone in the home buying and refinancing process was complicit, including brokers, bankers, securitizers on Wall Street, wide-eyed consumers and real estate agents.
Clearly, lenders made loans far too available, bowing to the pressure of Wall Street funds willing to securitize any instrument secured by a home. Yet home buyers and investors did not use caution. While genuine buyers determine what they can afford by measuring their borrowing costs against their income, many others were blinded by the dollars signs of potential appreciation and stretched themselves to the maximum.
This year, the demise of the once-revered players who extended that credit is the story of the year. The big names have come tumbling down.
Four short years ago, when housing still was the bright light in the economy, who would have expected the two biggest providers of mortgage money -- Fannie Mae and Freddie Mac -- to be pulled into government supervision? Who could have predicted that Lehman would file for bankruptcy protection after 158 years of doing business? Or that WaMu, which built its reputation on vanilla, 30-year, fixed-rate loans with down payments of at least 20 percent, would be derailed by an option adjustable-rate mortgage (ARM) whose most desirable option had owners owning more than they originally borrowed?
What to do about all of this? The National Association of Realtors, the largest trade group in the world with 1.2 million members, recently offered a solution. NAR presented Congress with a Four-Point Housing Stimulus Plan to help stabilize the housing and mortgage markets. The crux of the package suggests using $130 billion of the $700 federal billion bailout funds on housing, specifically earmarked for an interest-rate buydown and more tax credits.
That buydown would be a one-percentage-point, interest-rate buydown on fixed-rate loans for all buyers. The reduction reportedly would result in approximately 840,000 additional home sales and reduce the inventory of homes by as much as 20 percent. Inventories currently at a 9.9-month supply would decrease to approximately a 7.5-month supply. The buydown offer would be available for a specific time period.
What about the homeowners who lived within their means, who did not try to buy more house than they could afford, who did not take a vacation with funds from a home equity loan they could not afford to repay? Insurance companies offer lower life insurance premiums to nonsmokers -- individuals deemed to be lower risks for not smoking. Why not offer a lower interest rate to borrowers who have toed the line?
"In a situation like this," said Lawrence Yun, NAR's chief economist, "not every situation is going to be as equal or as fair as others."
Ironically, the best rates used to be saved for borrowers with good credit who had saved enough for a 20 percent down payment. (What a concept!) They got fixed-rate loans -- the conventional mortgages WaMu was famous for. Then, WaMu and other lenders discovered a lot of money could be made in not-so-conventional loans. WaMu got into the subprime mortgage business full throttle in 1999 along with promoting its option ARM.
Subprime lenders got hammered for the current state of the housing market, but the original concept filled a needed niche. The traditional subprime borrower did not conform to standard credit, down payment, income or job standards, and some lenders specialized in making those loans with higher rates and fees.
There were unfair accusations and a lot of inaccurate information about subprime mortgages. First and foremost, a subprime loan is not any loan that comes with a balloon payment. Adjustable-rate mortgages with balloons have been around for years and are not new. The same goes for option ARMs, yet they all have been lumped into the subprime category.
What WaMu did not do was pull back on its option ARM when loan brokers had no idea how to properly explain the potential fallout to consumers or were captivated by the money they could make by putting marginal borrowers in the loan. Consumers were to blame, too, betting that future appreciation would cover greedy decisions. The fallout occurred -- big-time -- bringing down the 119-year-old bank and several of its banking teammates.
Big names, big problems. Such was 2008.
To get even more valuable advice from Tom, visit his Second Home Center.
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As we get ready to say goodbye to 2008, it's worth looking back at the year that was for home buyers, sellers and homeowners.
Frankly, I wouldn't be surprised if this year goes down as one of the worst ever for housing since the Great Depression.
Housing values fell by double digits in many metropolitan areas. Housing starts virtually stopped. Inventories of new and existing homes grew dramatically. Mortgage interest rates remained relatively high, even as the short-term federal funds rate plunged to nearly zero by the end of December.
Foreclosures reached record numbers, and lenders found themselves literally buried under stacks of short-sale proposals, foreclosure filings and loan modifications. Late in the year, Fannie Mae announced it would stop tossing renters who paid on time out of houses that had been foreclosed upon.
Of those loans that had been modified, more than 50 percent went delinquent, reflecting the increasing number of jobs lost and diminished paychecks.
The old lender's maxim holds true: If you don't have a job, you probably won't make your mortgage payment.
Sometime around the middle of the year, when Fannie Mae and Freddie Mac were taken over by the government, lenders realized that having a real job with a real income is central to assessing someone's ability to make monthly payments of principal, interest, taxes and insurance. Having a great credit score simply isn't a good enough predictor on its own, which is why "no-doc" loans have entirely faded away.
Lenders also rediscovered the beauty of having some skin in the game. Except for the USDA's rural loan program and a VA loan, zero-down-payment mortgages have virtually dried up.
Sellers aren't happy. But there are plenty of deals to be had, as the economy is expected to get worse at the beginning of 2009. Higher rates of unemployment mean more foreclosures, driving down the price of homes.
As we ended 2007, I wrote that some were comparing the 2007 housing market to the Great Depression. Looking back on this year, most housing markets took a turn for the worst. The silver lining for homebuyers: If you're looking to buy a house, 2009 could be a great year to close on a deal.
If you're planning to buy a house this coming year, here's my annual list of New Year's resolutions you should consider making:
As a buyer, I resolve to:
1. Get my credit and finances in shape.
Put a lid on your spending, perform "plastic surgery" on your credit cards, and don't max out any one card (in fact, never charge more than 25 percent of your maximum credit limit) or your credit score will suffer. If you're going to cancel an account, do it in writing, but remember that you get bonus points on your credit score the longer you maintain a credit account. So a credit card account that you opened in 1984 is worth a lot more than one you opened last month.
Don't forget that good credit also means job stability. Most lenders require that you work for the same employer for at least a year, and maybe two, before they'll approve your home loan application. If you're self-employed, they'll want to see at least two years of tax returns before you'll qualify for a conventional loan. If you're offered a better job in your field, by all means take it. But if you want to buy a home, try not to jump from job to job to job within a relatively short period of time, particularly if the job changes are in different industries.
If you want to buy a house next year, pull a copy of your credit history and credit score. Try to reduce the amount of personal debt you have, including credit card debt, student loans and auto loans. While having personal debt doesn't mean you can't qualify for a loan, it will lower the amount of the mortgage a lender might be willing to give you. And, given the current mortgage crisis, lenders are paying close attention to your credit history and credit score.
If you keep one resolution this year, choose to clean up your credit. One of the best things you can do to prepare for buying a home is to make your monthly debt payments on time. Even if you have a lousy credit history, lenders will be more forgiving if they see you've gotten your act together in the last six to 12 months.
Federal law now requires each of the three main credit reporting bureaus (Experian, Equifax and Transunion) to give you a free copy of your credit history once a year.
To get yours, go to Annualcreditreport.com. At the time, buy a copy of your credit score from Equifax. The cost is under $10, which is still less than buying it through MyFico.com.
2. Know how much I can afford to spend before shopping for a home.
You have three options when it comes to figuring out how far your down payment and income will take you: (1) you can guess; (2) you can pay a visit to your local lender, who will prequalify or preapprove you for a loan; or (3) you can go online.
Your lender will look at your income, debt, assets and liabilities, and come up with the maximum amount you can spend on a home. Once you know how much you can afford to spend, you'll avoid making a common, heartbreaking, homebuyer error: looking at homes you can't afford to buy.
Too busy to visit a lender? There are several Web sites that offer good mortgage information. Try Bankrate.com for a state-by-state look at current interest rates from lenders who work in your area, including online lenders. Every major mortgage lender has a Web site. And, don't forget to check the rates at your local credit union -- it's often the cheapest place to get a loan.
3. Know my neighborhood, and be comfortable with it, before I buy a home there.
Everyone wants to live on the best block in the best neighborhood. Unfortunately, that location may not be in your budget. You might be able to afford the smallest home on the best block, but that won't do you much good if you need four bedrooms and that home has only two. Balancing affordability with location means you will have to compromise. While you may be willing to compromise on the size garden you have, you may not be willing to change your children's school districts.
Start looking at various neighborhoods and the amenities they offer. Is there a park? Shopping? Transportation? A house of worship? Do your friends and family live close by? Be careful not to limit your choice of neighborhoods too early on in the process. Explore new areas and the housing stock and amenities they offer.
Make sure you spend time during different parts of the day and night in the neighborhoods you like. Walk the streets, and go into local shops. Visit the neighborhood police department and local schools. Stop by the local park district offices and see what programs and classes are available. Drive the commute from prospective neighborhoods to your job during rush hour. Get to know the neighborhood and its residents inside and out before you buy.
4. Interview at least three brokers before hiring one.
There are traditional agents, buyer agents, exclusive buyer's agents (who never represent sellers) and discount agents. There are large brokerage firms and small neighborhood shops. You can even choose not to use a real estate agent, although as a buyer, you won't be out of pocket for the cost, so there's no reason not to use one.
Many buyers today opt to use buyer agents, or buyer brokers, who represent the interests of the buyer rather than the seller. One older study showed that buyers using buyer agents or exclusive buyer's agents paid less for their home than those who use traditional agents.
Choosing which agent to use -- or choosing not to use an agent -- can be critical to your successful purchase. Look for an agent whose philosophy and mannerisms are compatible with yours. Look for someone you can trust, with whom you wouldn't mind spending a lot of time. Look for an agent who has ample experience, and who is knowledgeable about the neighborhoods you've selected for yourself.
5. Read and understand all documents before signing them.
So many folks don't even bother to read either their purchase contract or loan documents. That's unfortunate, given the enormous legal implications of a home purchase. But it's a bigger deal this year if you're buying a home in a short-sale transaction or a property that's been foreclosed upon.
Before you put down any money towards the purchase of a home, understand the process that you will need to go through to buy the home. With a foreclosure or short sale, the home-buying process is stretching out from days to weeks or even months. Understand what it will take to get out of the deal in case it doesn't work out and exactly when you must make the decision to pull out of the deal before you lose any money you put down to buy the home.
Take the time to read all documents thoroughly. Ask an attorney or broker to explain things that don't seem to make sense. It's important that you understand what promises have been made and what warranties have been granted, and what implications these documents have for your personal financial and emotional well-being.
Even if you live in a state where attorneys are not generally used to close residential transactions (I'm not talking about the lender's attorney, who the buyer typically pays for, but someone who actually represents the buyer's interests in the deal), it's extremely important to hire a knowledgeable real estate attorney to walk you through a short sale or foreclosure.
NEXT WEEK: If you're trading up, you've probably got a home to sell before you can buy. How can you sell in a slow market? How can you compete against 10 other homes for sale in your neighborhood? Next week, we'll continue our look back on 2008 and I'll have your home seller resolutions for the New Year.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.
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DEAR BARRY: Since purchasing our home, numerous cracks have appeared in the walls. Some are as wide as half an inch. We've also noticed that patching has been done at many of these cracks, indicating that the sellers of the home were aware of the problem but had attempted to hide it. None of this was reported by our home inspector when we were in escrow. How serious do you think this problem is, and what should we do about it? --Thomas
DEAR THOMAS: Cracks as wide as half an inch indicate a major structural problem with the foundation system and/or instability of the soil. The fact that so much movement has occurred since the cracks were patched warrants immediate attention and concern. When symptoms such as these are intentionally masked in order to sell a property, some home inspectors are able to see through the concealment. But when cosmetic repairs are effectively done, it is sometimes possible to prevent discovery of building settlement by a home inspector.
Your first course of action is to notify all parties to the transaction by certified mail. Inform the home inspector, the sellers, their agent and your agent that there are serious, undisclosed problems with the home and ask that they all come to the property to see what is taking place. And don't perform any manner of repair work in the meantime. Inform all parties, particularly the sellers, that you want a detailed structural engineering report on the home. The sellers should accept whatever costs are necessary to repair the structural defects, as determined by the engineer. If no one is willing to cooperate, you should enlist the aid of an experienced real estate attorney.
DEAR BARRY: I bought a small commercial building about four years ago. Recently, I discovered evidence that there was once a fire in the basement. This was never disclosed by the seller. Now the seller says that the tenant in the building had the fire, but the seller provided no details. I have just listed the property for sale and don't know what I should disclose to buyers. What do you recommend? --Mary
DEAR MARY: If the fire was a substantial one, the fire department was probably called, and an insurance claim may have been filed. In that case, the fire department would have an official report of the event. Therefore, you should check with the local fire authorities to see what their records show. If they have a fire report on file, it may indicate whether the owner of the building was aware of the situation. You should also ask the seller provide the name and policy number of the insurance company so that you can learn what claims may have been made.
If the fire department and the insurance company were never notified, then the fire may have been small and the damages cosmetic in nature. In that case, you should disclose to future buyers of the property as much as you know about the situation and about your unsuccessful attempts to learn more. You should also hire a professional inspector to evaluate the condition of the property, including the fire evidence in the basement.
To write to Barry Stone, please visit him on the Web at www.housedetective.com.
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Q: I would like to pay off my mortgage with an IRA distribution. A friend told me that you have some advice on your Web site about the best time of the year to do this. The amount on my condo is only about $40,000, but of course my IRAs and regular mutual funds are shrinking daily.
Can you tell me if I should do something before the end of the year or should I wait until next year?
A: I don't think I'd pay off my mortgage with an IRA distribution for a few reasons. First, when you withdraw cash from your IRA, you'll pay income taxes at your marginal tax rate on the distribution. If you're under the age of 59 1/2, you'll pay a 10 percent tax on the distributed amount on top of the taxes.
How much do you need to withdraw to pay off the house? Assuming that you need $100,000 in order to pay off the house, it will look on your federal tax return as if you added that amount in income, which is likely to push you up to the highest federal and state tax rates. It'll cost you another $10,000 if you're under 59 1/2.
That means you might have to withdraw as much as 45 to 50 percent more than you need to pay off the loan, or $145,000 to $150,000 from the IRA.
Next, if you withdraw this cash from your IRA, you'll be selling assets at their lowest price in years. Unless you think that the United States and world stock markets will never recover or won't recover for many years to come, you'll be selling at a low point and miss out on the gains you'd earn back as the stock market rises.
If you can't afford your mortgage payment, you should certainly consider refinancing your mortgage. If you can't refinance (perhaps because the house is worth less than your mortgage amount), only then consider using an IRA distribution to pay off the mortgage loan.
Lastly, you have to really decide why you would want to pay off your mortgage in this manner. If you are able to refinance today or in the coming weeks, interest rates on home loans appear to be heading lower. If you are able to refinance at 5 percent or 6 percent, that interest rate is quite low and you would be able to preserve the money invested in your IRA for future use during retirement.
If you're bound and determined to withdraw the cash, you should do it in smaller amounts so that you're less likely to add to your income tax burden the following April 15th. Also, if you withdraw your money early in the year, your obligation to pay any tax on that money won't occur until April 15th of the following year. The company holding your IRA will, in any event, withhold the 10 percent penalty (if you owe one) at the time of the withdrawal. Your tax preparer or accountant can guide you further.
Q: My husband and I are getting divorced. The house is in my father's name and in mine. My father put down $35,000 at the closing seven years ago. The house payment came directly out of my paycheck (I work for my dad).
I left the house due to spousal abuse, and my soon-to-be ex-spouse is living in the house. The judge ordered him to start paying half of the mortgage until the property settlement is done. My dad has been paying the other half of the mortgage.
What is the portion that each of us will get in the divorce settlement? Remember that my father and I are the only ones on the note.
A: If the property was purchased before you were married, then your ex-spouse might not be able to make a successful claim of ownership to the property. However, if you were already married when your father purchased the house, it's possible that the divorce court will find that your half of the property is actually marital property. That means it could be an asset on the line when it comes down to dividing things with your spouse.
If the property was purchased half by you and half by your father and the law deems that your half falls within marital property, then your spouse might be entitled to a quarter share of the property.
If that's the case, your soon-to-be ex-husband would also be obligated for his share of the expenses for the home. Since he is living in the home, the judge has already ordered him to pay half of the expenses for the home. The question is whether the judge feels that he needs to pay only half the expenses because your father owns the other half of the home.
Your father could make the argument that he is not getting any of the benefit of the home and that the person living in the home should actually pay all of the expenses of owning the home until the divorce settlement is final.
You and your attorney will need to strategize on a plan of action to deal with the many issues involved in your case. Just because your father owns part of the home won't mean that the judge won't consider your half share part of what you and your husband own. At the same time, if there is a mortgage on the property, your husband would have to assume part of that debt. When you take into account the debt and the value of the home, your husband may be entitled only to a small amount of money for what his interest in the home might be worth.
In dividing up all of your assets, the amount he might be deemed to own in the house is considered with all other assets. If you want to keep the home, you might be entitled to keep the home, or your father might then be entitled to force the sale of the home should your husband be unwilling to negotiate giving up any interest he may have in the home during the divorce proceedings.
Q: Can I buy a house with no money down and truly awful credit?
A: It would be extremely difficult to do so these days, if it was possible at all (and I'm not sure it is). You should spend the next year or two cleaning up your credit and saving up for a down payment. Then, you can buy a house with confidence, knowing that you'll really be able to afford it.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.
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Q: I just learned that I qualify for my city's first-time homebuyer's program. I thought it was a grant, but it's actually a second mortgage. Is this a good deal or not? Is there anything I need to watch out for?
A: Congratulations! The current market has presented the odd paradox for a buyer's market of having lower prices, but increased down-payment requirements. Many first-time homebuyers who would never have been able to afford a home a couple of years ago have been frustrated in their efforts to take advantage of lower home prices because they do not have a large chunk of money for a down payment. One of the last remaining sources of down-payment assistance for hard-working homebuyers are city first-time homebuyer down-payment assistance programs (DAPs) -- if you qualify for your city's DAP, kudos!
Mindset Management
Did your parents ever tell you that nothing in life is free? Same goes for money from your city to help you buy a home -- it seems like free (or cheap) money, but there are some intangible costs. Participating in a DAP adds one more party to the transaction -- another lender, really, who likely has additional restrictions and guidelines that must be followed. Incidentally, many times the DAP staffers are government employees who are burdened by bureaucracy and red tape; as such, their "piece" of your purchase transaction may take longer to get decisions, get loan commitments and get funded than the elements of your transaction that are handled by commission-paid real estate and mortgage professionals.
With that said, government DAPs are an incredible resource of down-payment funds, usually at low interest rates and on flexible and favorable terms, in an otherwise credit-crunched market. The upside is usually worth every second of added work and stress. In my experience DAP staffers will work more quickly and decisively if they are asked to, nicely, by the buyer/borrower directly (rather than only ever speaking to the buyer's Realtor and mortgage broker). It behooves you to establish and maintain a pleasant working relationship with the administrators of your DAP.
Need-to-Knows
Government DAPs have various formats. Some offer only homebuyer education and counseling. Others offer grants or actual properties for sale at a below-market price. Most frequently, though, government DAPs offer second mortgages that you can use to cover some or all of your down payment or closing costs. In a mortgage market where zero-down loans are all but nonexistent, the funds offered by government DAPs empower buyers to own homes who otherwise would not be able to buy.
How do these DAPs work? Often, the city requires prospective participants to take a homebuyer education course. Usually, the buyer must first qualify for a first mortgage from a regular mortgage lender. The vast majority of mortgages that will allow buyers to get their down payment from a government DAP are government mortgages, like FHA- (Federal Housing Administration) or state-insured loans. Fortunately, these government-insured first mortgages generally have a very low down-payment requirement, mandating as little as 3.5 to 5 percent down -- some or all of which you can get from the DAP.
The DAP/second mortgage provides you with a certain number of dollars that you can apply toward either down payment or closing costs, or both, depending on the program. I've seen them range from $5,000 to $75,000. There are some common characteristics you do need to be aware of and take into account when deciding whether to participate in a DAP:
While these restrictions might seem burdensome, they are all imposed to ensure that buyers who use city money buy homes in good condition, and don't overextend themselves -- minimizing the likelihood you'll end up in foreclosure.
Action Plan
1. Run a search for 'Your City's Name' and 'First Time Homebuyer Program' or "Down Payment Assistance Program" to see what's available in your town. Look closely at the income limitations to get a very rough and dirty idea of whether you might qualify.
2. Ideally, select a Realtor and mortgage professional (whether a broker or an in-house lender representative) with a track record of successfully closing transactions involving city DAPs.
3. Attend your DAPs homebuyer education workshop -- you'll learn lots about real estate and mortgage basics, your particular DAP, and other information to stack the decks in favor of successfully obtaining DAP funds for your home purchase.
4. Stay involved -- make an interpersonal connection with someone at your DAP office, and maintain it -- you may need to call on it if you encounter any glitches with the DAP during escrow.
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.
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Q: Can a company put a lien on your house or property if you're incarcerated? My brother has been in jail for 10 years. He returned his car to the finance company and it in turn auctioned it off for $4,000 less than what he owed on it. Can the finance company sue or take his house?
A: Whether a person is incarcerated or not isn't the issue. If a creditor is able to get a judgment against the person that owed it money, that creditor can try to satisfy that judgment anyway it can. One of those ways is to go after assets owned by the debtor: his bank accounts, cars and even real estate.
The simple answer to your question would be that your brother's house is at risk if the creditor has a valid judgment against your brother to force the home to be sold. In some circumstances, the home may be protected depending on how the title to the home is held and whether your brother's family lives in the home. But you'll need to talk to an attorney to go over these specific issues.
Most states have time limits for judgments. You should try to determine whether the creditor still has the right to pursue the judgment against your brother. Ten years is a long time. The creditor might have had to go back to court to keep the judgment against your brother active. If the creditor did not follow the proper procedures in keeping the judgment against your brother alive, the creditor may have lost its right to continue to go after your brother.
Q: I have a long driveway that I share with two neighbors. My neighbors have more frontage acres on the road but no driveway. My home is quite old and their homes are about 10 years old. My seller was too cheap to put in additional driveways when he had the other homes built. Can I make them put a driveway in and prevent them from using my driveway?
A: Before you try to force your neighbors into building their own driveways, you're going to have to do some homework and understand a little about the legal rights your neighbors might have to use your driveway.
Your homework will be to search your files to see if you can find your title insurance policy from the purchase of your home. A title insurance policy discloses issues that affect the title to your home. That policy will show what mortgages, real estate tax issues, easements, and other legal documents that affect your home and land.
Look for a document that shows if your seller created a homeowners association for your home and your neighbors' homes. Your seller also could have created an easement agreement for the shared use of the driveway. Either one of these documents could outline the rights your neighbors have to use your driveway but may also outline the costs they might have to share to maintain the driveway.
Finding those documents -- if they exist -- might be the easy part. If you do find them, you'll know whether you're stuck with your neighbors using your driveway and whether they will have to share in the costs of maintaining it.
But what if you don't find any documents that allow your neighbors to use the driveway? Your situation becomes quite tricky. In some cases, easements can be created due to specific circumstances involving the land and the way it was developed. If local municipal officials prohibit access to the main road except for the continued use of your driveway, your neighbors effectively would lose all access to their land if you cut them off. Therefore, when your seller subdivided the land and used your driveway to allow access for your neighbors, your seller's actions might have been sufficient to create that easement right. But if the need for that easement later is eliminated, you might be able to claim that your neighbor's right to use your property ended at that time.
Easement rights differ somewhat from state to state so you would need to consult with a local real estate lawyer further to see what circumstances apply to you and your neighbors.
While the legal issues here might give you reason to terminate your neighbors' rights to use your driveway, you might also want to consider neighborly issues. If you have a community that gets along and you enjoy living in that community, think about why you are determined to terminate the easement. Are your neighbors doing something that disturbs your use and enjoyment of your home?
If you can terminate their right to use your driveway, but decide not to go that route at this time, you could still allow them continue to use the driveway and give yourself the right to cancel the agreement at some future date if circumstances change. For example, if your neighbors build their own driveways, don't share in the maintenance and costs of your driveway, or if your home or their homes are sold, the easement could end.
This way, you might maintain your right to terminate their rights in the future while being neighborly today.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.
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DEAR BENNY: I bought a condo just over a year ago. It was difficult to get a certificate for the sale, because there was no operating HOA. However, when the Realtor finally got it from an interim property manager, everything was clear; there were no encumbrances on the property.
After I bought the property, a more active HOA began making decisions. I then found out that there was a large loan that was taken out for repairs on the property several years before I bought my condo. It was initiated and signed by the property manager at the time (who no longer lives there), and there was no HOA approval in writing. The loan was, in essence, a signature loan between the property manager and the bank.
The property owners have been paying interest only on the loan, and now the principle is due. The HOA is asking each owner to pay his or her portion of the loan.
Am I required to pay my portion of this loan since I was unaware of its existence when I bought the condo? If I am not required to pay my portion, who is? I have considered going back to the seller, but I doubt if she would be willing to pay off a loan on property she no longer owns. The title company is also not responsible because the property was not used as collateral on the loan. --Sylvia
DEAR SYLVIA: Welcome to the wonderful world of community association living. I strongly suggest that you immediately retain counsel to assist and advise you.
There are many parts to my answer. First, does your state require that sellers provide you with certain disclosures about the condition (both financial and physical) of your association? Many states specifically require such disclosures, which would have (should have) disclosed the existence of the loan.
Second, your lawyer -- and perhaps the association's attorney -- should carefully review the loan documents. It is possible that the loan was not authorized by the association in the first place, and thus could be challenged in a court of law.
Third, was the loan recorded on the land records in the county where the property is located? If so, then your title company should have alerted you to this.
Finally, your lawyer should look at the loan documents to determine if, in fact, you as a new owner are responsible to make any payment at all. The general rule of community association law is that a new owner is bound by all legitimate obligations of the association. In this case, however, the loan documents may not "run with the land" and may not apply to you.
Incidentally, in the future don't call a condo a homeowner association (HOA). There is a difference.
DEAR BENNY: Not only is our association suffering foreclosures but here's the twist: Many unit owners are paying their mortgage but not the dues and a special assessment. Also, we have a published fine schedule for individual unit problems, but one person now refuses to pay her fine.
What is the best way to make sure we collect our dues and fine payments? --Theresa
DEAR THERESA: Your association has a set of legal documents, whether it is a condominium or a homeowner association. Those legal documents should spell out the rights and obligations of the owners to pay their assessments on a timely basis. The documents will also provide you guidance on what legal rights the association has to pursue legal action against any delinquent owner.
I also suspect that your documents provide that if collection efforts are taken, the association can collect reasonable attorney's fees in addition to the delinquent assessments.
Your association should immediately retain legal counsel who understands community association law. I have often said that if the delinquency is one month late, it's hard to collect. If it's two months late, it's harder to collect. And if it gets to three or more months, it may be impossible to collect.
Associations should adopt a "zero-tolerance" approach to delinquencies. Act quickly. It sends a clear signal to all other owners that the association will not allow delinquencies to mount.
DEAR BENNY: I live in a gated deed-restricted community in Florida. There is a homeowner association, but the developer controls the voting by having two-thirds of the outstanding votes until he sells 90 percent of the lots and then transitions the homeowner association to the property owners. My question is regarding changing the declaration of covenants, conditions and restrictions for the community. Can the developer, because he controls votes of the association, substantially alter the CC&Rs to make them very restrictive as far as existing homeowner rights? I purchased my home with a given set of CC&Rs in place, and it doesn't seem fair or legal to have the developer place further restrictions on me. Some of these new restrictions are quite arbitrary. Would these new restrictions apply to my existing home? --David
DEAR DAVID: I don't practice law in Florida so I can provide you only with a general response. You -- and other owners in your community -- should consider talking with local counsel for specific answers.
The general rule of community associations is that an owner is legally bound to the terms of the existing legal documents and as they are properly amended from time to time.
So, yes, because the developer retains control of your association, he has the right to amend the CC&Rs -- so long as he follows the rules relating to amending those documents.
You should organize the 10 percent of owners and retain an attorney to assist you. Perhaps if the developer realizes that you have concerns -- and will take all appropriate action to try to stop him from making changes -- he will agree to rescind his changes.
The developer wants to sell lots, and as you know, this is a very difficult real estate market. If you mount a publicity campaign to let the world know of your concerns, the developer may be unable to sell more lots. Of course, your attorney should be consulted to make sure that you are not violating any local laws -- or the CC&Rs.
DEAR BENNY: I recently bought a home where entire streets consist of houses for sale. The home was bank-owned (in foreclosure) and was priced right. I bid $10K less, thinking that the bank would be happy to get rid of the property. The bank counter-offered at $2K less than the selling price. While I was thinking about responding, my real estate agent told me that the bank had received another bid, and that if I didn't accept the counteroffer, I'd probably lose the house. What could I do? I accepted the bank's counter offer.
In the back of my mind, though, I wondered where this second buyer mysteriously came from. With the large number of houses available and the small number of buyers, the odds of two people bidding on the same house (which incidentally had been on the market for six months without a nibble) seemed small. And then I found out the seller's agent works for the same real estate company as my agent. That increased my suspicion.
I mentioned my concern to my agent, and he said he had seen the second offer, and it was indeed valid. Is there any way to find out if I was deceived? And if I was, do I have any recourse against the Realtor? --George
DEAR GEORGE: You should have asked your agent for a copy of the second bid before you accepted the bank's counteroffer.
It is not too late, however. Your agent has advised you that he saw the second bid. I would demand from him -- or his manager -- that he obtain and produce a copy for your review. Although they have the right to delete the name and other personal information from that other offer, you have the right to see what your agent saw.
If your request is rejected, I would file a complaint with your state real estate commission.
You also have the right to file a lawsuit against the agent if he refuses to provide this information to you, but that route can be expensive. The difference between your original bid and your final purchase price was $8,000. A lawsuit may cost you that much -- if not more.
DEAR BENNY: I paid off the loan for my house in May of this year. I received a letter from the mortgage company stating the loan has been satisfied and I am now responsible for homeowner insurance. At this time they also returned accumulated escrow funds. Is there anything else I have to do? --Ingrid
DEAR INGRID: You have to make sure that your mortgage (usually called a deed of trust) is formally released from the land records in the county where your house is located. Ask your former lender to confirm that they arranged for this release. Some lenders will do this on their own, while others will not.
You should get your original promissory note and deed of trust returned to you, marked "paid and cancelled."
If you are having trouble determining whether the release was filed, the local recorder of deeds may be of assistance. Otherwise, you should contact a local attorney who should be able to quickly find the answer.
Don't forget to advise your county real estate tax office to start sending you the real estate tax bills. And one other suggestion for those of you who had automatic bank withdrawals to pay your mortgage: Make sure you stop these payments immediately. You would be surprised at the number of people who forget to do this, and suddenly wake up to learn that the former lender is still receiving the monthly mortgage payment.
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.
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The financial crisis has torpedoed the retirement planning of many seniors. Those foolish enough to have followed the advice of investment advisors who preached that homeowners should convert all their home equity into investments, now find that their home equity is negative because of declining home prices. At the same time, the value of any common stock they purchased by mortgaging their houses up to the hilt is probably way down because of the sharp decline in stock prices.
We can't undo the past, but we can make better decisions in the future. This is a guide on how to make decisions about mortgage repayment.
The Core Principle is That Repaying a Mortgage Is an Investment: The yield on mortgage repayment is the mortgage interest rate. Repaying a 6 percent mortgage yields 6 percent, the same return as acquiring a 6 percent bond. Note: Bonds and mortgages have different interest compounding periods, which impacts their "effective return," but not by enough to worry about.
Before-Tax and After-Tax Returns: In comparing the return on mortgage repayment with the return on alternative investments that are taxable, it doesn't matter whether the comparison is made before-tax or after-tax. If you are comparing repayment of a 6 percent mortgage with acquisition of a 5 percent bond, for example, the before-tax comparison is 6 percent versus 5 percent. The after-tax comparison, assuming the borrower is in the 40 percent tax bracket, is 3.6 percent versus 3 percent. If mortgage repayment earns the higher return before-tax, it also earns the higher return after-tax. If income on the alternative investment is not taxable, however, returns should be compared after-tax.
The Investment Decision: In general, borrowers should repay their mortgage when their mortgage rate is higher than the return on alternative investments of comparable risk. Since mortgage repayment carries no risk, the safest application of this rule would limit alternative investments to government securities, insured deposits and other federally guaranteed assets. The returns available on such assets would usually be below the mortgage rate.
Borrowers can also compare the mortgage rate with returns on assets that do carry risk. To justify selecting such assets, they should carry a return above the mortgage rate large enough to justify the greater risk. But that is a difficult judgment to make, and it should reflect the capacity of the borrower to take the risk, which among other things varies with the borrower's age.
For example, I usually recommend that seniors involved in this exercise limit their selections to fixed-income assets. Over long periods, investment in a diversified portfolio of common stock yields a significantly higher return than mortgage repayment, but the volatility of returns on stocks is very high and includes episodes of negative returns, such as the one we are in now. Seniors may not have the time to wait for such episodes to run their course.
Allocating Excess Cash Flows: Borrowers are faced with two types of mortgage repayment decision. In one, they invest excess cash flows each month over an indefinite future period. They should allocate excess cash flow to mortgage repayment if the mortgage rate is higher than the return, adjusted for risk that can be earned that month on newly acquired financial assets. The owner confronts a new investment decision every month.
Liquidating Financial Assets to Repay the Mortgage: Many seniors are faced with a different type of decision -- whether to liquidate financial assets in order to repay the entire mortgage loan balance. In making a one-time investment decision that is irrevocable, the borrower can't adjust to future changes in the investment rate. He has to look ahead and anticipate what these changes might be and how long he will be around.
To help deal with this problem, I developed a spreadsheet that allows a borrower to enter any scenario for future interest rates, and compare his wealth in every future month in the two cases: where he liquidates his assets to repay the mortgage at the outset, and where he retains both the mortgage and the assets. The spreadsheet is on my Web site and is titled Loan Repayment Versus Investment. Seniors confronting this decision may find it instructive to play with the spreadsheet.
Anticipating a Reverse Annuity: Seniors in modest circumstances who have no interest in leaving an estate may have a special reason to prefer mortgage repayment to asset accumulation as a way of increasing their wealth. After age 62, the equity in their house can be converted into income by taking out a home equity conversion mortgage (HECM) while they continue living in the house. If there is a mortgage balance at the time, it must be paid off with proceeds from the HECM, which reduces the income the owner can draw.
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.
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In the current home sale market, it might seem ludicrous to make an offer on a listing if it means competing with another buyer. However, multiple offers are on the rise in some markets. But, it doesn't always mean that you need to pay a lot more than the asking price.
Sellers are ever hopeful of receiving multiple offers. These days, this is usually an unrealistic expectation. That is, unless the listing is a prime property in a high-demand neighborhood where few homes are being offered for sale.
Price is a critical part of the equation. Some sellers price their homes low because they need a quick sale. If the price is below market, multiple buyers could step forward with offers. Sometimes an overpriced listing is reduced to market price or below and results in offers from more than one buyer.
Most multiple offers today are on low-end foreclosure properties. Investors make up a large part of the buyers in this segment of the market. In some areas of California and Florida, prices have fallen 40 percent since the market peaked in 2006.
HOUSE HUNTING TIP: Don't shy away from making an offer just because there is more than one offer. In some cases, a dozen or more buyers make offers on foreclosure properties that are listed at bargain prices. But, the highest bidder is not always the winner.
Even in non-distressed-sale situations, multiple offers in today's market don't always result in an overinflated sale price. For instance, a charming older home on a sought-after street in the Crocker Highlands neighborhood of Oakland, Calif., sold after only two weeks on the market with multiple offers. The property was listed for $1.3 million, and sold for $5,000 above that price.
In another case, buyers from the East Coast bought a home in Marin County in the San Francisco Bay Area. Against their agent's advice, they offered less than the asking price even though they were competing against other buyers for the property. Their offer was the lowest of three offers, but it was accepted by the sellers. The reason the sellers accepted the lower offer was that the winning buyers had solid financial backing.
There are far fewer financially qualified buyers in the home-buying market today than there were two years ago due to credit tightening, more rigorous financial qualification requirements and recent stock market losses. In some areas, as many as one-third of home sale transactions fail to close, often due to the inability of buyers to obtain the financing they need.
Sellers who receive more than one offer should carefully consider all aspects of the offers, not merely the offer price. An offer from an all-cash buyer who doesn't need a mortgage to finance the purchase, and who can close quickly, should be taken seriously even if the price is lower than the other offer(s). However, some all-cash buyers -- who are fully aware of their strong position in this market -- feel they are entitled to a major price discount.
Whether or not you'll have success countering for a higher price will depend a lot on the profile of the buyer. Buyers who intend to occupy the property for the long term are more likely to pay more than will investors who base their purchase decisions on the numbers, not their emotions.
THE CLOSING: Sellers should try to keep greed out of their decision when faced with multiple offers. Today's buyers are willing to walk away from a negotiation rather than pay over market value, or it they think the sellers are unreasonable.
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.
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The holidays are an ideal time to give the home handyman or handywoman on your list a cool new tool or two. Here, in order of price, are a few worth considering, and all are under $200 -- many of them way under! Most are available at local home centers and hardware stores, or check out their Web sites for more information.
Striker Magnetic LED Light ($6.99, www.strikerhandtools.com): Here's a clever little gadget that is sure to be a big help to do-it-yourselfers and pros alike -- a spotlight that's about the size of a golf ball! The Striker is a little acrylic sphere, studded around the outside with 12 powerful rare earth magnets and a bright, wide-angle, LED light. The magnets hold the sphere firmly to any metal surface, while the light gives surprisingly bright illumination. And with a choice of 12 different magnetic positions, you can direct that light right where you need it. Use it under the sink while you stop that leak, behind the stereo while you sort out the cables, or inside the cabinet while you get the last screw into the drawer guides -- the possibilities are endless!
Zip Sander (Model 7186, $11.99) and Zip Sanding Sponge (Model 7233, $9.99, www.zipsander.com): You may not take these little guys seriously when you first see them, given their bright yellow resemblance to your favorite bathtub rubber ducky. But if you're used to doing your hand sanding by wrapping sandpaper around a wood block, you're sure to love these innovative sanders. The Zip sander is made of a tough foam material with a contoured grip that fits perfectly in your hand. It has a flat bottom with pointed ends to simplify sanding along edges and into corners, and it uses hook and loop material to make changing sandpaper a snap. If your project calls for a sanding sponge instead of sandpaper, try the Zip Sanding Sponge, which has the same comfortable foam grip and interchangeable sponges in different grits.
Stanley Maxsteel Multi-Angle Vise (Model 83-069M, $29.99, www.stanleytools.com): Here's a versatile little vise that's perfect for all your small- to medium-size projects. Made of durable cast-aluminum, this multi-angle vise has a huge ball socket that allows the head of the vise to be rotated, pivoted and angled into a virtually unlimited number of positions. The jaws will open to 3 inches wide, and have steel faces with a horizontal V-groove for holding pipe, dowels and other round objects. There is a also a pair of soft jaw covers that slip in place when working with more delicate objects. A large screw clamp holds the vise securely to your workbench, table or truck.
Dremel Duo Cordless Screwdriver and Rotary Tool Combo (Model 1130-01, $92.99, www.dremel.com): This is a great combo kit, featuring the "Dremel Driver" cordless screwdriver and the Dremel "Stylus" cordless rotary tool. Both are compact and powerful, with 7.2-volt motors and lithium ion batteries. The Dremel Driver, with variable speed and reverse, is less than 5 inches long but is powerful enough to drive 3-inch screws. The Stylus is also small and lightweight, with a very comfortable grip and a speed dial that regulates the speed from 5,000 to 25,000 RPM. The dual charging stand holds and charges both tools at the same time, and also provides bit storage. The kit also includes a nice collection of 33 different accessories in a storage case.
Bosch Lithium Ion I-Driver Kit (Model PS10-2, $119.95, www.boschtools.com): Bosch has taken advantage of the smaller, lighter lithium ion battery with its compact and powerful 10.8-volt "I-Driver." It's the perfect solution for those tight spots when you need real power. The head rotates to five different positions, from zero to 90 degrees in relation to the handle. It has an eight-position clutch, accepts any 1/4-inch hex bit, and has a comfortable, sturdy feel -- a real workhorse in a compact size. The complete kit includes the driver, two batteries, a 30-minute charger, soft carrying case, and a couple of bits.
Skil X-Bench (Model 3100-12, $159.95. Optional accessories range from $19.95 to $79.95, www.skilshop.com): If you don't have the shop space to spread out all your tools or if you need a portable shop you can take to where the work is, Skil's new X-Bench may be just what you need. The X-Bench has a solid 53-by-23-inch table top with ruler markings to help with your layouts, mounted on a sturdy frame that folds in half for transport. The table sits on four steel legs that independently adjust from 24 to 34 inches high, allowing you to set the table to the height that works best for your project, or to compensate for uneven surfaces. The table has a "cut channel" in it that allows you to lay materials on the table for cutting without worrying about damaging the table top.
Inset into the table is an innovative Universal Insert Plate system that lets you turn your portable tools into bench-top tools for easier, more accurate use. There's a router plate that accepts several of Skil's routers, making the X-Bench into a router table in seconds. There's a plate to hold a jigsaw, and one to hold a sander. There is also a tail vise attachment, a vacuum sanding table, a staining table and more, all designed to work with the basic X-Bench.
Remodeling and repair questions? E-mail Paul at paulbianchina@inman.com.
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Q: I am a landlord and had a tenant who is in the Army Reserves. He received mobilization orders in February, directing him to appear in June, several months away. My tenant just gave me a verbal notice seven days before he left. He claims he is entitled to a full refund of his deposit because the Army gives some rights to their personnel when they have to be mobilized. I would like to know if this is true and what my options are. --Robert S.
A: As a member of the armed services, your tenant does have special rights when it comes to breaking a lease, if that's what he has to do to fulfill his activation orders. Under the Servicemembers' Civil Relief Act, a tenant who must move can give his landlord a 30-day notice, which will end the tenancy 30 days after the rent is next due. For example, suppose rent is due on the first, and your tenant gives you a 30-day notice on Dec. 15. Responsibility for rent will end on Feb. 1 (but the tenant must still pay January's rent).
Your tenant had plenty of time to give you the required amount of notice. Having given you only seven days is not sufficient. You may treat this notice as if it was done properly -- that is, consider it a 30-day notice and consider the tenancy to have ended 30 days after the date that rent would have been next due.
Now to the security deposit. The Servicemembers' law does not vary your state's rules on the retention and use of the deposit. In general, you may use the deposit to cover unpaid rent and to remedy damage in excess of normal wear and tear. If your tenant left the place spotless and had no unpaid rent to his name, you'd need to return the entire deposit. But apparently the tenant did leave unpaid rent behind -- that next month's rent, which he was responsible for under the Servicemembers' law. You may deduct that month's rent from the deposit.
Q: I live in an old apartment complex. I would like to purchase a big new flat-screen TV for my living room, but have encountered a stumbling block. The landlord has referred me to the DIRECTV agent who services our buildings, but he says he can't give me high definition until the owners improve the wiring. And when I ask the manager, I get the runaround.
My unit has a large private deck where I could easily mount a satellite dish and run wires directly into my apartment, thus bypassing the present wiring. I heard a year or two back about a law that should apply to a situation like mine -- permitting a tenant to independently contract for individual cable or satellite television despite any exclusive arrangements by the apartment ownership. Could you provide me a citation to this statute or ordinance and give any clarification of my options? --Jim A.
A: Your memory has served you well -- just about a year ago, the Federal Communications Commission issued a final regulation that forbade owners of multi-unit residential buildings from entering into "exclusive" deals with audio and video providers. The theory behind the rule, which was opposed by apartment industry lobbying groups, was that exclusive arrangements kept healthy competition from flourishing, thereby making it more expensive for tenants to receive their programs. The apartment industry argued to the contrary, claiming that exclusive deals resulted in more competition, for the exclusive deal itself, and that the price savings would be passed on to the tenants. Importantly, the regulation decreed that any existing exclusive arrangements would no longer be enforceable.
But here is where your situation and the regulation your remember part ways. Your wish -- to receive high-def TV -- wouldn't necessarily be solved by invoking the FCC rule and calling a different cable provider (whom your landlord wouldn't necessarily have to let into his building -- the ban on exclusive contracts didn't mean that every cable company has the right to enter the building). You'd still face the roadblock of the antique wiring. You have, instead, hit upon a different solution, which is to rely on your right to receive satellite transmissions independent of any wiring in the building or existing cable deals between the owner and a cable company, exclusive or not. Since 1996, the year the Federal Telecommunications Act was passed, landlords cannot unreasonably interfere with tenants' rights to mount an antenna within their exclusive rented space. You can learn the specifics of this rule by going to the FCC Web site (www.fcc.gov) and typing "Over-the-Air Reception Devices Rule" in the search box.
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.
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Q: I feel my best friend has been pushed into buying a home by a real estate agent. He told her the amount he was willing to spend on a house and she kept showing him more expensive homes.
Finally in frustration, he looked at one that kind of met his needs. He asked for a privacy fence to be adjoined to two other neighbors and for a cabinet to be added in the kitchen.
He has not signed the final contract or purchase papers and no closing has happened. There was only this request for a modification to the property.
He has decided he doesn't want to close, but now his real estate agent is telling him that the seller will sue him and he must buy this house. He has no choice. Is this true?
A: If your friend feels pushed into buying a home, he shouldn't sign anything. There is no contract for purchase (that will stand up in court) unless there has been an offer made in writing and it has been accepted in writing. Your friend should immediately call the managing broker of the agent's office and inform him/her that he feels pressured to make an offer and will not be going through with it.
He should also inform the broker that he will no longer work with this person. He should follow up by summarizing the call in a letter or e-mail and sending it to the managing broker.
My question for your friend is: When is he going to stiffen up his spine? This is the single biggest purchase of his life and it's easy as a buyer to simply drift away from someone. But if he doesn't want to purchase the home, he shouldn't. He has plenty of choices, both in who represents him and how he goes about making the single biggest purchase of his life. I suggest to you that perhaps your friend isn't really ready to buy and when he is, there are other agents who will treat him less aggressively.
For legal advice (I'm not a real estate attorney), he should contact a local real estate attorney to make sure that there isn't more to the agent's claim that he is legally at risk.
Q: Will a quitclaim remove my name from the mortgage or will I still be responsible for the house payment if he does not pay it?
A: A quitclaim deed removes your name from the deed -- but leaves it on the mortgage. So, you're liable for the mortgage but have no ownership rights. It's the worst possible scenario.
Q: I pulled my money out of mutual funds and put it into money market accounts just before the market tanked big time.
Where is the best place to put that cash now? I want my cash to be safe but still earn some interest. Should I put my cash into a CD or other investment?
This is retirement money and possible down payment cash that I can't afford to risk, but there must be something that pays better than a money market account but is still reliable.
A: If you want your cash to be available and safe, then choose either a money market account or a CD at an FDIC-insured bank. There aren't any other investments that are as safe or pay as well without taking any real risk.
But honestly, you will probably want to start thinking about reinvesting the funds that are for retirement back in the stock market, especially if you have more than 15 or 20 years to invest before retiring. You won't be able to beat inflation with just CD interest rates, and you'll want to make sure that you're getting in on the eventual upswing in the markets.
Cash that will be used in the next three to five years should stay in a money market deposit account or a CD, so it doesn't evaporate in the current market conditions.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.
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