Put principal residence to two-out-of-last-five-years occupancy test
Monday, March 29, 2004

By Robert J. Bruss

DEAR BOB: I lived in my property for more than 10 years and have rented it for two years. Now I plan to sell it. Will I owe the government any tax for the equity? – Luz C.

DEAR LUZ: If your property is a single-family house, it sounds like you are eligible for the Internal Revenue Code 121 principal residence sale exemption up to $250,000 (up to $500,000 if you are married, filing jointly and your spouse also meets the occupancy test).

To qualify for the great IRC 121 exemption, you (or your spouse) must have owned and occupied your principal residence an “aggregate” two of the five years before its sale. Although you have rented the property to tenants for the last two years, you still appear to qualify. You need not occupy your former principal residence at the time of its sale. For full details, please consult your tax adviser.

WITHOUT NAME ON HOME DEED, SPOUSE LOST OUT

DEAR BOB: My wife died about a year ago. Although we had been married 10 years, and I paid the mortgage payments on the house, we neglected to put my name on the deed. She died intestate without any will. I now only have a life estate. She had five children (the youngest is ours). How can I get clear title so I can refinance the 9.5 percent interest rate mortgage? Three of the children are now over 18. What should I do? – Bill H.

DEAR BILL: I presume there was a valid reason the probate court awarded you only a life estate in your deceased wife’s house. After you die, when your life estate terminates, the house will probably go to the children.

Legally, they are called “remaindermen.” To be politically correct, we probably should call them “remainderpersons.”

To put the title to the house in your name so you can refinance now, the children would all have to sign quit claim deeds to you. They probably are not willing to do so. The minor children under 18 would need a court-appointed guardian to represent their interests.

I don’t see any easy way out of your messy situation. Please consult a local real estate attorney to learn if there is any alternative.

Your situation shows why husbands and wives should discuss difficult situations, especially in second marriages. A joint living trust could have prevented your problem. Details are in my new special report, “Living Trust Pros and Cons for Avoiding Probate Costs and Delays for Your Heirs,” which is available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com.

TITLE INSURANCE DOESN’T PROTECT A SUBSEQUENT BUYER

DEAR BOB: I am buying a property from a seller who has not had any title problems. Therefore, I don’t want to buy title insurance. But suppose something is later found that their title insurer should have discovered. Would I, as a subsequent buyer, be able to file a claim on their title insurance policy? If not, could I sue my seller, who would then sue their title insurer for not providing clear title? – Raul S.

DEAR RAUL: Your seller’s title insurance company has no liability to you, a subsequent buyer. An owner’s title insurance policy protects only the insured buyer, plus the buyer’s heirs who inherit the property.

To be very blunt, you would be stupid not to obtain an owner’s title insurance policy at the time you purchase any property. Even if you are acquiring title from a parent, your best friend or a relative, you need an owner’s title insurance policy to be certain you acquired marketable title.

Even the most honest property sellers might not be aware of possible liens on the property they are selling or giving to you. Examples include judgment liens, income tax liens, mechanics’ liens, child support liens (in most states), homeowner association liens and lis pendens (pending title litigation).

NO MINIMUM TIME BEFORE OWNER-OCCUPANCY AFTER TAX-DEFERRED EXCHANGE

DEAR BOB: Fifteen months ago, I completed a tax-deferred Internal Revenue Code 1031 exchange. When I visited my local IRS office, I was informed I could not move into the rental property I acquired for at least two years. I think they are wrong. Is the IRS correct? – Richard N.

DEAR RICHARD: This issue has been raised in this column many times. Every time I consult my contacts at the IRS in Washington, D.C., I am informed there is no minimum time after a tax-deferred exchange before the property owner can move in.

For readers who don’t have a clue what we’re discussing, Internal Revenue Code 1031 says all properties in a “like kind” tax-deferred exchange must be held for investment or use in a trade or business. You presumably traded one rental property for another qualifying rental property. After 15 months, you now want to move into the acquired property to make it your personal residence.

Most CPAs and tax advisers advise you showed the required “investment intent” at the time of your IRC 1031 exchange so you can now move in without any adverse tax consequences. Ask that IRS agent you consulted if there is a new IRS Revenue Ruling or other valid basis for the information you received. I’ll be waiting to hear from you.

WHAT IF HOMEOWNER ASSOCIATION WON’T ENFORCE CC&Rs?

DEAR BOB: I live in a very desirable “upscale” condominium complex, which I enjoy very much. However, the dummies on our homeowner’s association board of directors refuse to enforce our CC&Rs (conditions, covenants and restrictions), which clearly prohibit “recreational vehicles” parked on the premises. My neighbor insists on parking his old dumpy camper in the parking lot (which is supposed to be for visitors). Each condo unit has assigned parking in another area. The association refuses to enforce the CC&Rs to get rid of this camper, which is often parked in the same spot for many weeks. Several other owners are upset, too. What can we do to “light a fire” under our directors to make them enforce our CC&Rs? – Eugene R.

DEAR EUGENE: Have you discussed the situation in a friendly way with at least one member of the board of directors? If you don’t know any of the condo association directors, write a very polite letter to the condo association president requesting enforcement of the CC&Rs to have the offending camper vehicle removed.

Most condo associations are responsive to written letters. To illustrate, as longtime readers know, I own a second-home condo. Each month when I read the minutes of the monthly director’s meeting I note if there was any correspondence and how the board replied. For example, we have an owner who, month after month, is unhappy with the superb laundry facilities. But the board always politely replies to his letters.

Your next recourse is to request your complaint be put on the agenda for the next board of directors meeting. Be sure to attend. During the member comment period, very politely explain why you think the CC&Rs should be enforced to have the offending camper vehicle removed because it detracts from the condo complex desirability.

As a last resort, any owner who is subject to the CC&Rs can file a lawsuit to enforce the CC&Rs. Please consult a local real estate attorney about this alternative.

IS CONDO SPECIAL ASSESSMENT TAX-DEDUCTIBLE?

DEAR BOB: I own a unit in a high-rise condominium. In 2003, the board and co-owners approved a special assessment for needed repairs to all the concrete balconies. I paid my share in 2003. The building manager told me she thinks the special assessment is tax-deductible on my 2003 federal income tax return. Is this true? – Greg P.

DEAR GREG: If the condo is your personal residence, the special assessment is not tax deductible. It is similar to a non-deductible repair cost on a single-family house.

However, if you own a rental condo, because the special assessment was for repairs, then you can deduct it as a repair and maintenance expense on Schedule E where you also report the rental income and deductible expenses. For more details, please consult your tax adviser.

ANY RECOURSE FOR A 1-YEAR-OLD LEAKY ROOF?

DEAR BOB: I bought a home from its seller and was told the new roof was less than 1 year old. But after moving in, I noticed wet spots in the ceiling corners. Do I have any recourse even though the house was sold “as is”? – Jim F.

DEAR JIM: If the wet spots were not visible before the sale, usually evidenced by ceiling water stains, the seller probably didn’t know about the roof leaks.

However, if you can prove the seller knew about the leaks and failed to disclose them, although you bought the house “as is” (meaning the seller won’t pay for any repairs), the seller can be held liable for non-disclosure of known defects.

But the roofer probably provided at least a five-year warranty. Your best recourse is to contact the roofer and ask him to repair the leaks. If he fails to do so, and if he is a licensed roofer, complain to the state agency that issued his roofer’s license.

But panelists say housing policy not a big public discussion
Thursday, March 25, 2004

Inman News

Housing policy is generally not at the forefront of public debate, a panel of experts said this morning at a conference on “Building the Promise: Housing Assistance as Social Investment.”

The morning panel, part of the fifth annual Berkeley Conference on Housing and Urban Policy, focused primarily on public housing and studies that show the benefits of such housing go beyond economics. Public housing, panelists said, brings social benefits as well, such as a positive impact on children. Several of the panelists also touched on home ownership.

Sandra Newman, a professor of policy studies at Johns Hopkins University, said “home ownership really brings a large number of benefits to children.” But, she said, it’s not clear yet from studies whether that’s because of something inherent in owning a home or perhaps because families who own homes tend to be more stable than those who rent.

She said policy makers must decide whether developing home ownership programs for lower-income neighborhoods makes sense even if they serve less desirable areas.

Roberta Achtenberg, senior VP for public policy at the San Francisco Chamber of Commerce, said the business community can be a good ally when it comes to developing affordable housing programs. In areas with high housing costs, businesses often find they have problems recruiting and retaining employees because of housing issues, Achtenberg said.

She said religious communities, such as those in San Francisco, may also find themselves grappling with affordable housing issues. As middle-income people are priced out of the city, those churches can have dwindling congregations and students for their private schools, she said.

James Buckley, president of Citizens Housing Corp. in San Francisco, said studies like the ones Newman cited are important in persuading policymakers to address housing issues. But, he said, what usually gets their attention more are real-life stories and the chance to see for themselves affordable housing at work

Applications volume hits eight-month high
Wednesday, March 24, 2004

Inman News

Overall mortgage purchases declined by 0.2 percent last week on a seasonally adjusted basis, but the volume of refinance applications was at its highest point in eight months, according to the Mortgage Bankers Association’s weekly survey.

The MBA seasonally adjusted refinance index increased by 0.1 percent to 4,988.7 from 4,983.7 one week earlier. The seasonally adjusted purchase index decreased by 0.8 percent to 448.9 from 452.4 the previous week.

The refinance share of mortgage activity increased to 63.1 percent of total applications, up from 62.8 percent the previous week. The adjustable-rate-mortgage share of activity increased to 28.1 percent of total applications from 27.9 the previous week.

The average contract interest rate for 30-year fixed-rate mortgages increased to 5.38 percent from 5.37 percent one week earlier. Points including the origination fee decreased to 1.24 from 1.26 the previous week for 80 percent loan-to-value ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.64 percent from 4.65 percent one week earlier. Points including the origination fee decreased to 1.41 from 1.45 the previous week for 80 percent loan-to-value ratio loans.

The average contract interest rate for one-year adjustable-rate mortgages increased to 3.3 percent from 3.27 percent one week earlier, with points including the origination fee remaining at 0.98 for 80 percent loan-to-value ratio loans.

New low-wage jobs aren’t enough to stir inflation
Friday, March 19, 2004

By Lou Barnes

Mortgages reached the mortgage-rate low for the week (and the year) immediately following the Fed’s meeting on Tuesday. Since then, low-fee, 30-year rates have drifted up from 5.25 percent toward 5.5 percent.

The Fed’s post-meeting statement was slightly less optimistic than in January, and its repeated mention of “patient” intentions has pushed the threat of a rise in the 1 percent overnight cost of money out into 2005. The “carry trade” – borrowing short to buy long bonds – is dangerous, but the 2.75 percent spread between overnight and 10-year T-notes is lucrative, and the tether holding mortgage rates in the fives.

I can’t imagine mortgage rates going lower unless we get some news of a general economic slowdown – heresy to the talking heads on all the financial shows, but not to the Fed. When it says that risks to the economy are balanced, as is the risk of an “unwelcome fall in inflation,” the Fed means exactly what it says

So, how do we square the Fed’s concerns with the 20 percent explosion in commodity prices, gold at $412/oz, oil at $38/bbl, gasoline about to hit two bucks, core producer prices rising at a 3 percent-plus annual rate, and dollar weakness pushing up prices of imported goods, notably European-made autos, up 1.5 percent in a single whack?

Roughly 70 percent (and rising) of all American business costs are labor costs. Real estate, utilities, interest and materials comprise the rest. Contrary to political noise, manufacturing output in the United States is greater in volume and value than ever, but it is more efficient and uses less physical materials than ever (as an example, compare the CD carrying Microsoft’s newest software to a ‘57 Chevy). Businesses can absorb huge increases in the cost of materials because materials are a fraction of the non-labor, 30 percent portion of total cost. Meanwhile, the cost of labor, especially expressed as “unit labor cost,” has been falling at a rate approaching 5 percent per year.

At some point, the sustained rise in energy costs may become inflationary, but in recent years it has acted more like a tax. At some point, the labor economics will change, too. However, the political focus on foreign outsourcing is misplaced (and in the case of “Benedict Arnold CEOs,” an asinine deception); we in-source vastly more jobs than export, and it seems likely that much of our shortage of employment is due to domestic IT-based efficiencies for now outpacing IT-based job creation.

The newest job data are still confounding. New claims for unemployment insurance last week fell to a three-year low, now down to the 335,000 range. Yet, a new study says that the fraction of college-educated 25-to-35-year-olds with jobs is the lowest level of employment in 30 years. For now, for whatever reason, new employment is limited to low-wage jobs, those adding the least impetus to inflation.

I should know better, but I can’t stay out of the War of Spanish Appeasement.

The condemnation of Spain by Bush & Co. and others who should know better is a willful misconstruction. There is nothing cowardly in a disagreement about the means of fighting an adversary. In 1914, French infantry doctrine asserted the irresistible force of offensive spirit (élan!) and the bayonet; in 1917, 2 million dead later, the French army mutinied, still ready to fight and defend, but no longer to die stupidly. Spain and the rest of Old Europe are fully willing to support UN- or NATO-sanctioned military action, as they have and continue to in Afghanistan.

European opinion is near-unanimous that the invasion of Iraq made terrorism worse, not better; and that the threat of a rogue superpower acting unilaterally was worse than any posed by Iraq. We will learn in a decade or two who had the better argument. In the meantime, those howling “Appeasement!” might consider that a year into this venture, one key member of the coalition has voted itself out, and not one new nation has discovered the wisdom of the invasion and joined up.

McLean, VA – Freddie Mac announced today that its quarterly Conventional Mortgage Home Price Index (CMHPI) found that home values rose 8.4 percent from the fourth quarter of 2002 through the fourth quarter of 2003, up from the prior year (fourth quarter of 2001 to fourth quarter of 2002) when the growth rate was 7.6 percent.

“The 45-year low in interest rates set this past June spurred a huge refinance and home purchase wave that crested in the fourth quarter,” said Amy Crews Cutts, Freddie Mac’s deputy chief economist. “Higher interest rates in the third and fourth quarters did little to quell interest in the housing market due to the very high economic growth in the second half of the year and the tax break that many households received.”

The quarterly growth rates show a more marked increase in home values in the fourth quarter. Nationally, home values increased by an annualized rate of 17.8 percent nationwide in the fourth quarter of 2003. The third quarter 2003 annualized growth rate was revised upward to 5.9 percent.

“Even with the strong showing of home sales and housing construction in the second half of 2003, these fourth quarter home-price appreciation numbers are surprisingly high,” said Cutts. “However, they are subject to revision because we do not yet have all of the data on originations in the fourth quarter and the figures are subject to biases created by the large volume of refinance activity in 2002 and earlier in the year. Often repeat refinancers did not get new appraisals but instead relied on the appraisal from their previous refi and now this effect is showing up as we move into a home purchase market. Because quarterly appreciation rates are more influenced by the effect of ‘reusing’ appraisals, we believe the annual figures more accurately portray changes in home values.”

The Pacific states continued to maintain their four-quarter streak of leading the nation in annual house-price appreciation, growing at an impressive annual rate of 13.1 percent for the year. The Middle Atlantic states were second in growth with an annual appreciation rate of 11.9 percent. The New England states were not far behind, showing the next largest gain for the nation with an annual home-price growth rate of 11.2 percent. Then came the South Atlantic states, registering a gain of 8.9 percent, followed by the West North Central states with a smaller, but still very healthy, increase of 7.1 percent.

The East North Central states showed a rise in home values of 5.6 percent, trailed by the Mountain states, which experienced a rise of 5.3 percent in home values. Lastly, the East South Central states posted an expansion of 4.5 percent while the West South Central states ended the list for the third consecutive quarter, experiencing an annual growth rate of 3.9 percent for 2003.

“Housing construction and home sales are expected to slow from the torrid fourth quarter pace,” said Frank Nothaft, Chief Economist. “Likewise, house price appreciation will moderate, but remain at a healthy 6.5 percent clip during 2004. With low interest rates and quickly accumulating home equity, we expect to see a continuing economic boost in the first quarter from cash-out refinances. Last year, families cashed-out about $140 billion of home equity while refinancing a prime, conventional mortgage. Because of home-value growth, home equity wealth did not decline.”

The refinance share of mortgage applications in 2003 was a record 65 percent. “In 2004, we expect the refinance share to gradually decline from about 55 percent of applications during the first quarter to 35 percent in the fourth quarter, and average 42 percent for the year. Because of lesser refinance volume, single-family originations will drop by about one-third, from $3.7 trillion in 2003 to $2.4 trillion in 2004,” added Nothaft. “Purchases of single-family houses hit a record 7.2 million sales in 2003, and we expect a new record of 7.3 million new and existing sales to be reached in 2004.”

The Conventional Mortgage Home Price Index shows the following regional performances:

Pacific Division (AK, CA, HI, OR, WA): increased 6.6 percent (29.2 percent, annualized) in the fourth quarter of 2003. Over the last 12 months, home values increased 13.1 percent, and during the last five years, home values have increased 66.4 percent.

Middle Atlantic Division (NJ, NY, PA): increased 5.9 percent (25.6 percent, annualized) in the fourth quarter of 2003. Over the last 12 months, home values increased 11.9 percent, and during the last five years, home values increased 58.0 percent.

New England Division (CT, MA, ME, NH, RI, VT): increased 5.5 percent (23.9 percent, annualized) in the fourth quarter of 2003. Over the last 12 months, home values increased 11.2 percent, and during the last five years, home values increased 72.8 percent.

South Atlantic Division (DC, DE, FL, GA, MD, NC, SC, VA, WV): increased 4.2 percent (18.0 percent, annualized) in the fourth quarter of 2003. Over the last 12 months, home values increased 8.9 percent, and during the last five years, home values increased 43.1 percent

West North Central Division (IA, KS, MN, MO, ND, NE, SD): increased 3.6 percent (15.4 percent, annualized) in the fourth quarter of 2003. Over the last 12 months, home values increased 7.1 percent, and during the last five years, home values increased 40.7 percent.

East North Central Division (IL, IN, MI, OH, WI): increased 2.9 percent (12.0 percent, annualized) in the fourth quarter of 2003. Over the last 12 months, home values increased 5.6 percent, and during the last five years, home values increased 30.7 percent.

Mountain Division (AZ, CO, ID, MT, NM, NV, UT, WY): increased 2.8 percent (11.5 percent, annualized) in the fourth quarter of 2003. In the last 12 months, home values increased 5.3 percent, and during the last five years, home values increased 30.6 percent.

East South Central Division (AL, KY, MS, TN): increased 2.0 percent (8.5 percent, annualized) in the fourth quarter of 2003. Over the last 12 months, home values increased 4.5 percent, and during the last five years, home values increased 22.8 percent.

West South Central Division (AR, LA, OK, TX): increased 2.0 percent (8.4 percent, annualized) in the fourth quarter of 2003. Over the last 12 months, home values increased 3.9 percent, and during the last five years, home values increased 27.2 percent.

Jointly developed by Freddie Mac and Fannie Mae, the Conventional Mortgage Home Price Index features indexes for the nine Census divisions as well as a national index. The national index is the average of the nine divisional indexes weighted by the distribution of detached, one-unit, single-family structures in each Census division.

Unlike other home price indexes based on mean or median values of homes sold during a given period, the Conventional Mortgage Home Price Index is constructed, using regression techniques, from observations of actual sales prices or appraised values of the same homes over time. The street addresses of properties that serve as collateral for mortgages funded by the two secondary mortgage market firms are first processed using software certified by the United States Postal Service to create a uniform address format and are then matched to identify consecutive transactions on the same property. There are currently more than 26.8 million records in the repeat-transactions database used to construct the nine division indexes–this database includes transactions on properties serving as collateral on loans originated through the fourth quarter of 2003 and purchased by Freddie Mac and Fannie Mae by January 31, 2004.

Conventional Mortgage Home Price Index
Q4 2003 Release
All Entries Are Percent Changes New England Middle Atlantic South Atlantic East South Central West South Central West North Central East North Central Mountain Pacific U.S.
Quarterly Change
Q3 2003-Q4 2003 5.5 5.9 4.2 2.0 2.0 3.6 2.9 2.8 6.6 4.2
Annualized
Quarterly Change
Q3 2003-Q4 2003 23.9 25.6 18.0 8.5 8.4 15.4 12.0 11.5 29.2 17.8
Annual Change
Q4 2002-Q4 2003 11.2 11.9 8.9 4.5 3.9 7.1 5.6 5.3 13.1 8.4
5-Year Change
Q4 1998-Q4 2003 72.8 58.0 43.1 22.8 27.2 40.7 30.7 30.6 66.4 42.9
Annualized
5-Year Change
Q4 1998-Q4 2003 11.6 9.6 7.4 4.2 4.9 7.1 5.5 5.5 10.7 7.4

Source Freddie Mac

by Nancy Dunnan

Three Steps to Finding Out
You love your house. The way it sits back from the street. The shaded porch. The shutters you painted two summers ago. The deck you added. The tulips that bloom each spring.

But maybe you need more space for your growing family, or you’re being relocated by your employer. Maybe you’re retiring and headed for condo living, where someone else will rake the leaves and shovel the snow. Suddenly, it’s time to sell.

Listing your house for sale means coming up with a price—a realistic one. Many people will delight in giving you advice—your savvy brother-in-law, your well-meaning mother, your fast-track colleague who has made a small fortune in trading up, even the broker who sold you the house. But ultimately, the decision is yours.

Overpricing invites a long selling time infused with periodic drops in the price tag in order to attract buyers. Meanwhile, your property becomes what real estate agents call “stale” and buyers begin to suspect hidden problems. Underpricing, on the other hand, means you’ll be muttering, “if only…” for a long time to come.

The three determining factors
The three things that affect the price are:

Location. You’ve heard it over and over, but that’s because it’s true. If your house is in a desirable area, you’ll be able to get a higher price than you would for the same house in a less appealing neighborhood.
Condition. A house in good shape, that’s been well-maintained and looks attractive will sell faster and at a higher price than one that’s been neglected or is a fixer-upper.
Extras. A house that has currently-in-vogue amenities will command a higher price and will move more quickly than a Plain Jane. A bathroom on each floor, a finished basement or attic, an in-ground swimming pool, a large garage, a central air conditioning and/or vacuuming system, great landscaping, a patio or deck, new kitchen, family game room—all work in your favor.

Setting the price
There are three standard ways for arriving at a the right price. Each involves knowing all about the Jones’s. We’ll start with the least expensive step and move on up. Read all three; then decide—you may need to implement only one.

Option #1: On your own
Begin by finding out what comparable properties in your neighborhood are selling for. The easiest and least expensive way is to simply track the sales listings in your newspaper. This immediately gives you some ballpark figures and acquaints you with the highest and lowest figures.

$Tip: When searching for comparable houses you need to be clear on the definition of comparable—it means houses in the same neighborhood as yours with approximately the same square footage, number of bedrooms and bathrooms, acreage, age, amenities and condition.

Another source in many communities is the local tax department. A growing number of towns and counties are now posting sale prices and assessed values online. If yours is not among them, you’ll have to make an in-person trip to the tax collector’s office.

If you’re not the do-your-own-research type, log on to the Web sites of at least two local real estate firms. Click on “Residential Listings” to find not only the prices of houses for sale, but also those that have been sold recently and at what price.

To find Web addresses of local realtors “like Manny Caballero @ Encompass Realty”, check adds in the newspaper or yellow pages or use online search engines (try typing “real estate agents, [name of town]” in the search box).

Option #2: Using a real estate broker, “like, Manny Caballero”
Getting a Competitive Market Analysis (CMA) from two or three local real estate agents is another option.

A CMA is an estimated sales price for a property given the current market conditions. Agents draw up these reports for sellers at no cost, hoping, of course, to land the sale listing.

The great thing about a CMA is that it is based largely on the facts. The agent studies what properties, similar to yours, have sold for within a recent time frame; say the last six or 12 months; as well as the sale prices for current listings.

To do this, the agent will need to walk through your house first. Then he will research the Multiple Listing Service for information on similar properties in the area. After analyzing this data, the agent will make a recommendation for your house. It may be a specific dollar amount or a price range.

In the CMA report, pay particular attention to houses that have been sold and those that remain unsold. Those that sold were obviously listed at the right price. Those that have not sold may be overpriced. Unsold listings provide evidence of what the upper limit for your house may be, given the current economic climate in your area.

$Tip: Select an agent who knows your neighborhood intimately and who has sold several houses nearby within the last 12 months;not one who claims all this can be done via the Internet.

Option #3: Using an appraiser
In most house sales, an appraisal is part of the transaction [deal], coming toward the end of the process. At that time the buyer foots the bill ($250 to $500+) for an appraisal in order to meet the requirements of the mortgage lender.

You can reverse that process and be the one to pay upfront for an appraisal. I recommend doing so if you have doubts about your own legwork or the results of a CMA, or, if you plan to sell without an agent.

Appraisals are also key if you have an unusual house for which there are no comps—you live in a converted mustard mill or horse barn, in a gate or carriage house, on the edge of an historic site or tourist attraction or next to a cemetery.

Be cautious in selecting an appraiser. You want one who is experienced in evaluating houses similar to yours and in your neighborhood. (Don’t hire one who is more familiar with commercial than residential properties.) Begin by getting at least three names from friends or colleagues and real estate agents you trust.

Then, ask each appraiser the following questions:

What is your real estate background?
What training have you had in property valuation?
How long have you been an appraiser?
Are you state licensed? All states require appraisers to be state licensed or certified to provide appraisals to federally regulated lenders but not necessarily to individuals.
Are you a member of a national association? To make certain that the organization is legitimate, check for a listing in the Volta Business Directory. Click on “Real Estate”.
May I see your resume? A seasoned appraiser will have a brochure or sheet detailing his or her expertise.
What houses in my area have you appraised within the last year?
What is your fee?
May I have three references? Ask that one be from an insurance company, financial institution, government body or business.

Be there when the appraiser comes to do the job. Note what he is doing and feel free to ask questions. A thorough job takes at least one to two hours for a small house, two to three hours or more for larger homes. It’s definitely not a 15-minute drive-through job.

In addition to a recommended price for your house, the final written report should include an analysis of sales of at least three comparable homes.

The appraisal should come within $5,000 to $8,000 (perhaps $10,000 for a larger house) of the comparable homes mentioned. If your appraisal turns out to be way above or below those selling prices, question the appraiser. If you’re not satisfied with the answer, get another appraisal or if you haven’t already done so, a CMA.

Bottom line: Your own research results, CMAs and appraisals are, in the last analysis, judgment calls based on fact. They are not written in stone. If you wind up having difficulty selling, simply rethink your price tag.

Price a home is the most important aspect of selling a home in your time frame. If the price of a home is too low, then people begin to wonder way, if it too high, people think the seller is not negociable.

Most Brokers make the mistake of not preparing a seller for all the possiblities. The more options a seller has to make his/her property more sale-able, means a SOLD sign in record time. —Manny C

Virginia man faces up to 15 years in prison
by Inman News

A Potomac Falls, Va., man has been convicted in federal court in a mortgage fraud scheme involving residential property in Westfield, Mass., according to a U.S. Attorney statement.

A jury late last week convicted Angel Serrano Jr., age 42, of conspiracy, wire fraud and making false statements in connection with a property-flipping scheme. Serrano faces up to five years in prison, three years of supervised release and a $25,000 fine, on each of the three counts of the indictment.

Evidence presented during the seven-day trial proved that between 1996 and 1997, Serrano engaged in a conspiracy to defraud commercial lending institutions by purchasing properties and selling them the same day at inflated prices to unsophisticated low-income buyers. It is alleged that Serrano hid the land-flips from the original sellers and the lending institutions and caused the low-income buyers to submit fraudulent loan applications to the lender.

The indictment charges that Serrano persuaded owners of residential properties to enter into purchase and sales agreements by concealing from the sellers that the properties were to be immediately resold for a higher price. He then persuaded low-income, first-time home buyers to pay inflated prices for these properties. Serrano told these purchasers that they had to go through him to buy the property and concealed the fact that he was purchasing the property the same day for a lower price.

In one instance, Serrano bought a property for $55,000 and sold it the same day for $112,000. He used a variety of fraudulent means to obtain mortgage financing for the buyers, including causing fraudulent mortgage applications to be completed on behalf of the buyers. The applications contained false income, down payment and credit information.

The federal government insured many of the mortgages. Because of that, when the buyers were unable to meet their mortgage payments, the government sustained the loss.

Sentencing is scheduled for May 26.

The U.S. Department of Housing and Urban Development’s Office of Inspector General investigated the case. Assistant U.S. Attorney Karen L. Goodwin prosecuted the case.

Can property buyer force the seller to deliver the deed?
By Robert J. Bruss

Manouchehr Galdjie submitted his purchase offer to buy an apartment building that was available for sale. The seller, Barbara Darwish, made a counteroffer, which the buyer accepted.

The sales contract said that within 10 days of acceptance the buyer was to provide evidence from a lender that he can obtain the necessary financing. The sale was to close by April 9.

But the buyer had difficulty obtaining a mortgage. While faxing some property information to the buyer, the seller included a note that said the contract would not be extended beyond April 9—"the date everything should be wrapped up.”

However, it took the buyer until May 12 to obtain a mortgage commitment letter. Also on May 12, the seller signed instructions canceling the apartment building sale.

The buyer then sued the seller for specific performance of the sales contract. He admitted not meeting the April 9 deadline, but stated the seller encouraged him to continue trying to obtain a mortgage so the deadline was waived by the seller.

The seller answered the complaint by stating the contract said “time is of the essence,” so she should not be required to deliver the title because the buyer was more than a month late in obtaining mortgage financing.

If you were the judge would you order specific performance of the sales contract and require the seller to deliver the apartment building deed to the buyer?

The judge said yes!

Specific performance of a real estate sales contract is not usually granted by the court if the buyer is in breach of contract, the judge began. However, in this situation the seller encouraged the buyer to continue trying to obtain a mortgage, he noted.

Although the sales contract stated “time is of the essence,” the judge continued, that provision can be waived by the seller, as it was when the seller failed to timely enforce the April 9 deadline by canceling the sale at that time.

Because the seller waived the time of performance provision in the contract by continuing to encourage the buyer to arrange a mortgage after the April 9 deadline, specific performance of the contract is approved and the seller is ordered to deliver the apartment building deed as agreed in the sales contract, the judge ruled.

Based on the 2003 California Court of Appeal decision in Galdjie v. Darwish, 7 Cal.Rptr.3d 178.

By Liz Pulliam Weston

Applying for a mortgage can be a daunting experience.

It’s not enough that you’re agreeing to take on the biggest debt of your life, one that represents two to three times your annual income. You’re also confronted with piles of paperwork, flurries of fees and a tidal wave of terms, from amortization to title insurance, whose meaning is fuzzy at best.

“Whether it’s a professor at Stanford or a ditch digger,” said San Francisco mortgage broker Leon Huntting, “most people don’t understand the loan process.”

In this confusing and pressure-filled atmosphere, it’s easy to make some mistakes. Here are some common ones that lenders and mortgage brokers see, and what you can do to prevent them

Not fixing your credit
Mortgage brokers say they’re confounded at the number of buyers who apply for a mortgage with their fingers crossed, hoping their credit will allow them to qualify for a loan.

Before you even think about applying for a mortgage, obtain copies of your credit report and your FICO credit score. Your FICO score is the three-digit number that’s used in 75% of mortgage-lending decisions. You can order your FICO score on the Web for a fee of $12.95, which includes a copy of your credit report. (See link at left.)

Doing this at least six months in advance should give you plenty of time to challenge any errors on your report and ensure that they’re removed by the time you’re ready to apply for a loan. You can also see the legitimate factors that are hurting your score and do something about them, such as paying off an overdue bill or paying down credit card debt.

Not looking for first-time home buyers’ programs
These programs, typically sponsored by state, county or city governments, often offer better interest rates and terms than you’ll find among private lenders, said mortgage consultant Diane St. James. Some are tailored for people with damaged credit, while most can help people with little saved for a down payment.

Some of these resources are listed on St. James’ educational Web site, ABC Mortgage Consulting (see link at left). You can also call the housing agencies for your state, county and city to see what they offer.

Not getting pre-approved for a loan
Many first-time borrowers confuse being “pre-qualified” with being “pre-approved.” Pre-qualification is a pretty casual process, where a lender tells you how much money you probably can borrow based on how much money you make, how much debt you already have and how much cash you have for the down payment.

Getting pre-approval, by contrast, is a much more rigorous process and involves actually applying for a loan. You typically submit tax returns, pay stubs and other information. The lender verifies the information and checks your credit. If all goes well, the lender agrees in writing to make the loan.

In a hot or even warm real estate market, the house hunter who is only pre-qualified is a cooked goose. Home sellers and their agents give much more weight to offers being made by buyers who already have a loan lined up.

Borrowing too much money
Many people take out the biggest loan they possibly can, figuring that their incomes will eventually increase enough to make the payments comfortable. But few first-time buyers have any clear idea of how expensive homeownership can be. Not only will you shell out more for mortgage payments than you probably did for rent, but you’ll also need to cover property taxes and homeowners insurance, as well as higher bills for utilities, maintenance and repairs than you faced as a renter.

Lenders are perfectly willing to let you overextend, knowing that you’ll probably forgo vacations, retirement savings and new clothes for the kids rather than default on your mortgage.

“Mortgage money … is way too easy to get,” said Ted Grose, president of the California Association of Mortgage Brokers. “People tend to overbuy … and that can really stress family life. It’s also a formula for foreclosure.”

Instead of going to the edge of affordability, consider limiting your housing costs – mortgage payments, property taxes and homeowners insurance – to 25% or so of your gross income. That’s a much more sustainable level for most people, financial planners say, than the 33% lenders are typically willing to give you.

Not shopping around for rates and terms
Mortgage broker Allen Jackson of Bristol Home Loans in Bellflower, Calif., sees too many borrowers with decent credit getting stuck with loans meant for people with poor credit. So-called “subprime” loans are often more profitable, so less ethical mortgage brokers may push them.

If the borrower doesn’t know what the prevailing interest rates are for someone with their credit standing, Jackson said, they can easily pay thousands of dollars more than they need to. You can see a listing of loan rates by credit score at MyFico.com, and a comprehensive listing of prevailing rates and fees can be found in MSN Money’s Banking area.

Even people with a few dings on their credit can often qualify for better loans than they’re typically offered, said Grose of 1st Mortgage Advisors in Los Angeles. He believes most of the people being shunted into government loan programs, such as Federal Housing Administration (FHA) loans, would pay less if they used mortgages now being offered by private-sector lenders.

Paying junk fees
Lenders can boost their profits by adding on a variety of fees. Some may be legitimate, some may be inflated and others may be pure fluff. Lenders may charge for “document preparation,” for example, when all that involves typically is having a computer spit out a form. Or they may charge $150 for a credit check that cost them $15.

The time to challenge junk fees is not when you’re about to sign the loan papers. Use a mortgage broker or call a number of lenders to compare their loans. Ask about the interest rate, the “points” charged to get that rate (each point is 1% of the total loan amount) and any other fees the lender charges. Then you can compare terms.

Once you’ve selected a lender, you’ll be given a good-faith estimate of closing costs, which should include any fees being charged. Ask about each fee, and try to negotiate down the ones that seem excessive.

If the lender won’t negotiate, “take that estimate to someone else,” St. James said. “I’ll bet they can beat it.”

Unfortunately, this doesn’t absolutely guarantee you won’t face junk fees when it comes time to sign the loan. Many borrowers complain that they still face higher costs than were originally estimated, and so far the federal government has done little to prevent the practice. You can try challenging junk fees at this point, but most likely you’ll have to bite the bullet and pay the fees to get your loan.

Not planning for closing costs
The day you’re scheduled to get your loan, known as closing, you’ll also be expected to write a check for a number of expenses, which typically include attorney’s fees, taxes, title insurance, prepaid homeowners insurance, points and other lenders’ fees. Together, these are known as closing costs, and the total can be eye-popping: somewhere between 2% to 7% of the selling price of the house.

“Usually, when people see the closing costs, they’re like a deer in the headlights,” said mortgage broker Huntting, who works for Pacific Guarantee Mortgage. “It’s much more than they ever think it’s going to be.”

Plan for closing costs by getting a good-faith estimate from your lender as early in the loan process as possible. Make sure you have the cash on hand (or rather, in your checking account) and that it doesn’t “disappear” before closing because of sloppy bookkeeping or a last-minute emergency.

Not having enough cash on hand after closing
After borrowing too much, and scraping together every last dime for closing costs, many home buyers have nothing left in the bank to pay for anything unforeseen happening –and something unforeseen always happens.

“It costs so much just to move in,” Grose said. “Then the water heater breaks.”

Some people are so tapped out by the process, Jackson said, that they’re not able to make their first mortgage payment on time. That’s why “more and more lenders are requiring [borrowers have] three months’ reserves after closing,” Jackson said.

That’s a smart idea for borrowers, anyway. Having three months’ reserves, which means a fund equal to three months’ worth of expenses, will help you handle the added costs of homeownership with much less stress.