Tue, 13 May 08 00:00:00 -0700

Before quitclaiming share, make sure compensation is fair

Ilyce Glink
Inman News

Q: My domestic partner of 11 1/2 years and I have split up. We purchased a house in 1999. While I am on the deed, I am not on the mortgage but have been contributing towards the monthly payments the entire time we've owned the property.

She wants me to sign a quitclaim so that she can refinance the mortgage in order to get a more affordable payment for herself. Am I entitled to anything? Will she have to buy my half of the ownership? Thank you for your assistance.

A: I'm assuming that you and your domestic partner didn't take the basic, but savvy, step of preparing a business partnership agreement that outlined your financial responsibilities and ownership interests in your real estate property.

While I'm sure you thought your relationship would last forever (who doesn't think that?), the reality is about 50 percent of marriages end in divorce and it's likely that domestic partnerships are at least as susceptible to break-ups as traditional marriages.

If you had a partnership agreement, it would have outlined what each of you brought to the purchase of the property, who contributed what, what percentage of the property each of you owned, and what would happen if you broke up or dissolved your partnership down the line. When nonmarried partners purchase property, I strongly suggest that they invest a few hundred dollars in a partnership agreement that covers all of these issues.

From what you've told me, it sounds as though you're in a pretty good position. You're listed on the deed, but you're not responsible for the mortgage. I would suggest that if your partner wants you off the deed, you and she should have to agree on some sort of financial sum that represents your share of the equity in the property.

If you own the property equally, you can ask a real estate agent to give you an estimate of what the property would sell for in the current market. You can even hire an independent appraiser (cost: around $250 to $350) to appraise the property.

Then, subtract the mortgage from the value of the property and include those costs that you would have had to have paid if you and your partner had sold the home. The costs of the sale might include real estate brokerage commissions, transfer taxes and other fees that a seller ordinarily pays to sell a home. What's left is a number that you can either split in half (or nearly in half, depending on whether you are factoring in the other costs of sale), or you can subtract the cash that each of you put down on the property and then divide the equity that remains.

This may not be an easy conversation for you and your ex-partner to have, but it's a necessary one. You should also discuss how the transfer of ownership will take place. I suggest that it happen at the refinancing table. You can find a mortgage lender who will work with you and arrange to have your share of the equity paid to you at the closing, which is where you will sign away your ownership interests in the property.

While you likely didn't work with a real estate attorney when you purchased the house (that's the person who would've drawn up the partnership agreement), you should consult with one now to make sure that this process goes smoothly and you wind up with everything you're owed.

Q: I have a neighbor who burns freshly cut and wet grass constantly. The spot she burns in is directly across the street from my house, it's on the very back corner of her property very far from her house.

The smoke is horrible and the smell is disgusting. It has caused me to have two asthma attacks just this week. I can't let the kids out to play. We either have to leave the area or stay inside with all the windows closed. The fire lasts for at least a week. It smolders and then a wind will come along and it will start kicking up smoke again. The smell lasts the entire week.

We have tried to talk to her, but it didn't do any good. She has at least two acres of yard and she cuts her grass almost daily and bags and burns every bit of it. Her burning starts in the early spring and continues through fall.

We live in a neighborhood in the country so there are no city laws that apply to us. The county law states there will be no open burning: "No person shall cause, suffer, allow, or permit open burning of refuse composed of animal, fruit, or vegetable matter, garbage, offal, or any other nauseous matter of organic or inorganic matter at any time except within a furnace or incinerator, and then not in a manner which permits the escape or discharge of noxious odors."

And yet, my neighbor said that the county health department said she could burn as much landscape waste as she wants. Is there anything we can do to stop this? Thank you very much.

A: Why are you taking her version of what the county health department says as the gospel? You already know what the law says, and if what you've quoted is accurate, it seems that she should not be burning grass clippings.

Instead of fuming silently, a better idea would be to pay a visit to your county's health and building departments. Have a conversation in person about what your neighbor is burning and ask them whether it is against the law. You can provide photos or even a video for them to see. While your neighborhood may be in an unincorporated part of the country, your neighbor should still be subject to county ordinances.

Getting her to follow them may be tougher. You can push the county to enforce its rules and perhaps they will fine your neighbor, but she still may not stop. At that point, you should sit down with a real estate attorney who can advise you as to your legal options, if there are any. In addition to the local ordinance, there may be other laws that your attorney may be aware of that could be used to challenge your neighbor's burning of her yard waste by your home.

Finally, even if you are right and your neighbor is wrong, you may just have to consider selling and moving if the burning of her yard waste is making you physically ill. The most important consideration should be your good health.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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Tue, 13 May 08 00:00:00 -0700

Should seller get 'as-built' permit or simply sell 'as-is'?

Barry Stone
Inman News

Dear Barry,

In past articles you've mentioned "as-built permits" for additions and alterations that were done without building permits. I have a property that was totally renovated -- new electrical, plumbing, heating, and roof -- all done without permits. I'm going to list the property for sale and want to know if an as-built permit is a good idea before I sell. Could you explain how this works? --Lou

Dear Lou,

When you sell a home with nonpermitted alterations, you have two choices: You can sell it "as is," but with full disclosure of nonpermitted work, or you can get an as-built permit and, hopefully, make everything legal. But before you apply for an as-built permit, you should be aware of the pros and cons.

Most building departments offer as-built permits as a way to bring maverick additions and alterations into legal conformity. On its face, the concept is quite simple: You submit a set of plans to the building official with an application for a building permit. With a normal building permit, you obtain permission to perform work. With an as-built permit, you seek approval for work that was already completed, to be sure that it complies with the building code. If the proposed plans conform with municipal standards, they are accepted, and a building inspection is scheduled. If the scope of work is not acceptable, the permit is denied, and the building official may order restoration of the building to its original state.

Examples of unacceptable changes would be additions that are too close to property lines, a garage conversion where enclosed parking is required, or a second living unit where single-family occupancy is the limit.

If the plans are approved, the next hurdle is the building inspection. In the best of cases, the building inspector performs a visual, walk-through inspection of the project area. If no building violations are found, the work is officially approved, and the completed work is given the same status as construction that was permitted in advance. In most cases, some code violations are cited, and a correction notice is given to the property owner. When faulty conditions are corrected, the property is reinspected, and final approval is given. But "cakewalk" approval of this kind is not always the case.

If the building inspector finds significant defects that warrant further evaluation, or is overly committed to hardcore scrutiny or just happens to be having a bad-hair-day, you could incur demands that would make your head and pocketbook spin. For example, the inspector might order partial or total removal of drywall and other finish materials so that wiring, plumbing and framing components can be inspected. Excavation of foundations or of buried utility lines might be ordered so that code compliance can be verified. If concealed deficiencies are found, the inspector could demand numerous upgrades and improvements or demolition of all completed work.

To prepare for this process, you should hire a qualified home inspector to perform a preliminary inspection. This will alert you to defects likely to be cited by the municipal inspector. With that information, you can make an educated choice between an as-built permit or disclosure of defects and of nonpermitted work.

To write to Barry Stone, please visit him on the Web at www.housedetective.com.

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Mon, 12 May 08 00:00:00 -0700

Without records of improvements, IRS audit could bring trouble

Benny Kass
Inman News

DEAR BENNY: Friends of mine recently sold their home they owned for 22 years for $1.5 million; they paid about $500,000. They told me that they did not have to pay any capital gains tax, because their tax advisor claimed that they must have spent at least $1 million on improvements over the 20 years they owned it, although they did not have any records. He told them that it was within IRS guidelines, and their tax return was accepted without any problems.

Do you have any knowledge of those IRS guidelines? It is important for me because the existence of such guidelines will determine if I should sell my home or not. --Russ

DEAR RUSS: Hopefully, your friend did not get audited by the IRS. Although there may be an IRS ruling, I know of none.

A good source of information can be found in IRS Publication 523, entitled "Selling Your Home," which is available from the IRS Web site.

Basis is basically what you paid for your house. Adjusted basis adds any improvements that you made over the years. The best definition of an improvement is that which adds to the value of your home and prolongs its life. Publication 523 provides a number of examples: "adding a recreation room or another bathroom in your unfinished basement, putting up a new fence, putting in new plumbing or wiring. …"

However, repainting your house inside or out, fixing your gutters or floors, or repairing broken windows are considered "repairs" and will not increase basis.

The IRS provides a caveat: Adjusted basis does not include the cost of improvements that are replaced and are no longer part of the home. For example, 15 years ago you installed wall-to-wall carpeting. Later you replaced that carpeting. While the cost of the new carpets is an "improvement," you cannot include the cost of the old carpeting.

If you have pictures of your house before and after you made improvements, you may be able to convince an IRS agent to allow some of the estimated cost as an improvement. But as far as I am concerned, if you do not have sufficient documentation, you will have an uphill fight should you be audited.

DEAR BENNY: I plan to purchase a home at a foreclosure sale. I think I can get it cheaper that way than buying it from the current owner. But I want to rent it to the current, soon-to-be former, owner. He's a bullheaded dunderhead, but he's family and I want to help him out. Once he gets back on his feet I might sell it back to him. However, I'm told that it is illegal to foreclose on a home and then rent it to the former owner. --Gene

DEAR GENE: There are a large number of predators throughout the United States that prey on homeowners who are in financial trouble. Some of these characters outright lie: They tell the homeowners that they are going to lend them the money they need to stop a foreclosure and all they have to do is sign a promissory note and a deed of trust. But the unwitting homeowner does not realize that he or she is actually signing over a deed to the house. There have been many lawsuits against these individuals that have resulted in the deed being thrown out and the house restored to the original owner.

There are other people who will buy homes from financially distressed homeowners, and let them rent the house back for a fixed term. Typically, the sale price is the amount of the current mortgage, with a little extra thrown in. The arrangement gives the homeowners the ability to buy back the house when their financial situation gets better. But often the repurchase price is steep -- and way above the real market value.

Many states have adopted legislation prohibiting (or at least restricting) this "buy-back" provision. You would have to talk with an attorney in your area to get an opinion on whether your plan will work.

Since you will be buying the house at a foreclosure sale, I do not think that any such laws will impact on you. But you should confirm this with your attorney.

I have a say that you are either a saint or a "dunderhead" also. You want to rent the house back to the family that is about to lose the house. If you are legally permitted to do this, make sure that you have a strong lease, that you understand and comply with the landlord-tenant laws in your state, and that you satisfy yourself that your prospective tenant will be able to make the monthly payments.

DEAR BENNY: I read your column with interest (as I do every week) regarding wills, etc. You mention that "everyone over the age of majority should have at least four legal documents: a last will and testament, a durable power of attorney, a power of attorney for health, and a living will (also known as an advanced healthcare directive)."

I would appreciate your defining three of the four documents (I am familiar with last will and testament). I thought an advanced directive is the same as a power of attorney for health. And does a durable power of attorney refer to financial matters?

This is a very interesting subject for me as I thought we had all the proper documents and now I'm not so sure. --Patricia

DEAR PATRICIA: A rose by any other name is still a rose. You can use a durable power of attorney for health purposes, so long as it contains language giving the holder of the power the authority to make health decisions on your behalf. But I prefer to have separate documents. Often, you may want one person to have the power for general and financial matters, but someone else to handle the health issues. For example, if you have grown up children, you might want to give your spouse the power to sign checks, or sell your stocks or your house, but you would want your children to handle your health concerns.

Advanced healthcare directives are legal documents that give instructions on what healthcare a person desires to have when he or she is unable to make decisions. An advance directive may include both the appointment of an agent (or proxy) to make medical decisions, as well as specific instructions on what type of care and treatment the individual wishes to have. Although all of these issues can be rolled into one document, I generally recommend that you have two separate documents: one to name a person to make decision on your behalf regarding your health (the durable health power of attorney), and one spelling out what medical care -- if any -- you should be given if your doctors believe that you are about to die. Do you want your life to be sustained at all costs? Do you want to be resuscitated if your heart stops beating? In effect, do you want that "plug" to be pulled?

Every state has different forms for these documents, and it is advisable to use the appropriate form. You would not want a doctor (or the attorney for a hospital) to challenge your document claiming technicalities.

So, while you may incorporate the living will and a durable power of attorney into one advance directive, I still believe that it is better to prepare separate documents.

DEAR BENNY: I had a listing agreement with a Realtor for several multifamily properties last year. In November, I asked for and received a written release on all listings. The properties are in Wisconsin. Because I was going to be in Florida for the winter, I did not want to deal with it. And besides, not much happens with sales in northern Wisconsin in the winter anyway.

Now I have been contacted by an interested buyer that looked at one of the properties during the listing period. How long after I have received a written release from the listing am I obligated to the Realtor for a commission if I sell to someone who originally looked at the property while they had it listed?

I've been told one year and also six months both by different real estate agents. --D.E.

DEAR D.E.: First, I would have to review the release that your agent signed. This may resolve the issue. When a person signs a general release, that means each party completely releases each other; unless there is some exception contained in the release agreement, neither party has any further claims.

I have done a quick survey, and it appears that some states limit the so-called "protection period." In fact, in Wisconsin, I understand it can run for one full year after the listing period has ended.

The real estate agent can also try to argue that she was the procuring cause and might want to file a lawsuit against you for the commission. However, I believe that the release should resolve the matter in your favor.

This is not an easy issue. As we all know, when there are two lawyers, there may be as many as three different opinions. You should consult a local attorney in Wisconsin who can give you a more specific answer after reviewing the release document.

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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Mon, 12 May 08 00:00:00 -0700

If home doesn't meet long-term needs, don't buy it

Dian Hymer
Inman News

There are deals to be made in the current real estate market. Home buyers in many areas finally have the upper hand. Ironically, buyers tend to pull back when the market is soft and buy when the market is high.

Savvy investors attempt to buy when the market it low and sell when it's high. But, it's impossible to time the market, so there is always an element of risk involved. Here are some guidelines to keep in mind if you're considering buying a home in the current market.

Short-term investing paid off for many investors a few years ago. In most cases, this strategy should be avoided today. Although the home-sale market is localized, generally the current housing market is soft and is expected to take a year or more to recover. You don't want to be caught having to sell in a year or two when the value of your house might be less than or equal to what you paid for it. After taking into account the costs of sale, you could find yourself selling at a loss.

With this in mind, don't buy unless you're economic future is secure, and you're sure you won't be relocating during the next five years. Also, don't base your decision solely on price. You might be able to buy a small two-bedroom, one-bath home for a low price in this market. But, if this won't suit your long-term housing needs, don't buy it.

Not too long ago when the market was racing upwards, many first-time buyers bought small starter homes. They stayed in these homes for two or three years and then sold for a profit. This helped fund the purchase of a larger long-term home. This strategy could get you into trouble today. You might be better off waiting to buy until you can afford a home that will provide a long-lasting solution to your housing needs.

Avoid houses that could be hard to resell. These are usually houses that lack broad-based buyer appeal, like houses that are too small or that are located next to a freeway. If you do buy one of these houses, make sure you get it for a good price. Keep in mind that unless you sell in a hot market, you could have difficulty selling in the future.

HOUSE HUNTING TIP: Some home buyers are so anxious to move that they will settle for less than they need. Or, they buy a home that doesn't quite work with a plan to remodel it to correct its deficiencies. This home-buying scheme is not for everyone. For example, some Oakland, Calif., homeowners purchased several years ago and subsequently completed costly renovations. They sold recently for more than they paid, but not for enough more to cover the renovation costs.

The finance markets have been in turmoil. Many mortgage companies have had to shut their doors due to fallout from the subprime lending crisis. Some of these companies left buyers in the lurch when they failed to fund loans just before closing. It might be wise to submit applications to two lenders so that you have a fallback, if necessary.

Don't skimp on inspections. Property condition has a big affect on property value. If you buy a property that has deferred maintenance, make sure you buy it for a good price. Plan to take care of correcting defects, many of which will worsen over time.

THE CLOSING: Financial planning for a home purchase should include factoring in the cost of curing deferred maintenance, as well as the cost of ongoing maintenance.

Dian Hymer is 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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Mon, 12 May 08 00:00:00 -0700

Part 2: Fixing the housing finance system

Jack Guttentag
Inman News

(This is Part 2 of a five-part series. Read Part 1, "Lenders wise to beef up default-risk reserves.")

The first article in this series pointed to a serious weakness in the way the mortgage system deals with default risk. Interest-rate risk premiums collected from borrowers that are not needed to meet current losses are paid out as income to investors and not reserved to meet future losses. Because major default episodes occur infrequently, perhaps every 12 to 15 years, the system is never adequately prepared for one when it happens. It certainly was not prepared for the one we are now in.

The remedy for this systemic vulnerability is to reserve a much larger portion of the risk-based dollars paid by borrowers. This article explains how to do that.

Investors in mortgages face two kinds of risk from borrowers who default. Collateral risk is the risk that the investor who forecloses on a loan and sells the property will fail to recover the unpaid balance of the loan plus the foreclosure costs. On loans with small down payments on which the collateral risk is the highest, private mortgage insurance is available to protect investors.

Investors also face cash-flow risk. While they ultimately may be made whole from their collateral and mortgage insurance, until that happens a loan in default is a nonperforming asset, which is not generating any income and is not saleable except at substantial loss. There is no insurance now available against cash-flow risk on individual mortgages.

On conventional loans (those not insured by FHA or VA), investors pass the cost of both risks to borrowers. The major charge is an interest-rate risk premium -- the greater the perceived risk, the larger the premium. On low-down-payment loans, lenders can also require borrowers to purchase collateral-risk insurance from private mortgage insurers (PMIs).

PMIs place roughly half of all the premiums they collect in reserve accounts. Rate risk premiums, on the other hand, are not reserved to any significant extent.

The vulnerability of the system could be reduced by extending the reserving principle to cover both collateral risk and cash-flow risk. The best way to do this is to have private mortgage insurance policies cover both types of risk, with the borrower paying a single mortgage insurance premium. The insurers would reserve a major part of the premiums, as they do now on policies that cover only collateral risk.

We call this new type of insurance "mortgage payment insurance," or MPI, recognizing that it covers both collateral risk and cash-flow risk. Traditional mortgage insurance, or TMI, covers only collateral risk.

Under MPI, the insurer would guarantee timely receipt of the payments so that the loan remains in good standing when the borrower defaults. This is the cash-flow insurance part of the policy. If the default is not corrected, the payments continue until the foreclosure process is completed, at which point the investor is reimbursed under the collateral-risk insurance part of the policy.

The insurance premiums covering both types of risk would vary from loan to loan, but since the insurer assumes the default risk there would be no interest-rate risk premiums. All borrowers would pay the prime interest rate on the type of mortgage they select.

The incremental cost of MPI above the cost of TMI at worst is very small. That's because one way or another, the insurer ultimately gets back all of the payments it advances. If the loan returns to good standing, the insurer will be reimbursed for the advances it made. If the loan defaults, the advances will reduce -- dollar-for-dollar -- the bill the insurer has to pay after foreclosure.

And here is the kicker: Since MPI removes the risk premium from the interest rate, the interest rate will be lower, and this reduces cost to the insurer. On loans that default, a lower rate means more rapid amortization and therefore a lower balance, and it also means smaller accruals of unpaid interest that the insurer must pay when a loan is foreclosed. In many cases, the interest-rate reduction will cause MPI to cost the insurer less than TMI.

This is a mind-boggling insight, which I can write without blushing because it is not mine. The insight is Igor Roitburg's, although I have verified it. I have been working with Roitburg to develop MPI since he approached me with the idea last year.

In the following weeks I will explain how MPI can protect the system against future default crises, reduce costs to borrowers, AND help get us out of the current mess.

Roitburg has a patent pending for MPI in which I have an interest.

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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Fri, 09 May 08 00:00:00 -0700

Proposal to end petroleum dependency not without consequences

Arrol Gellner
Inman News

We Americans have happily given our cars the run of the country, paving over a good 40 percent of our cities so they can roam unfettered, and generously ceded a big chunk of our hard-earned homes to keep them warm and dry. But apparently that's not enough. Now some interests are suggesting that, in order to keep our four-wheeled friends tanked up at all costs, we share our food supply with them as well.

Imagine creating fuel from plants instead of having to drill for it! We can guzzle all the biofuels we can grow! No more oil wars! No more Third World countries trying to push us around!

Alas, as appealing as all this may sound, it's a pipe dream. Among the many pitfalls of the biofuels concept:

Economics: Farmers across the globe, whether corporate or independent, will switch to growing plants for biofuel the instant it becomes more profitable than growing food crops. The current price of gasoline will give you a good idea how many seconds this decision might take. Result: Besides ceding even more of our environment to automobiles, we'll also be competing directly with them for food.

Logistics: To replace even a small fraction of current fossil fuel consumption, vast portions of arable land would have to be dedicated to growing biofuels crops. It's been calculated that satisfying 10 percent of the European Union's total fuel demand with biofuels would require an agricultural area the size of Spain.

Science: U.S. and E.U. leaders alike are jumping on the biofuels bandwagon as a panacea for petroleum woes. Case in point: A 2003 E.U. directive requires that 5.75 percent petrol and diesel must come from renewable sources by 2010 -- a quota the E.U. plans to increase to 10 percent by 2020. Yet the European Environment Agency's Scientific Committee -- the E.U.'s own advisory panel on biofuels -- has concluded that this move will not curb the production of greenhouse gases, and in fact may actually increase them.

"I see absolutely no reason to use a lot of energy, money and large swaths of farmland (to produce biofuels)," concluded professor Helmut Haberl, a member of the E.U. panel. "The E.U. should scrap the 10 percent mixture rules."

In the United States, a recent study led by Timothy Searchinger, an agricultural expert at Princeton University, concluded: "By using a worldwide agricultural model to estimate emissions from land-use change, we found that corn-based ethanol, instead of producing a 20 percent savings, nearly doubles greenhouse emissions over 30 years and increases greenhouse gases for 167 years. Biofuels from switchgrass, if grown on U.S. corn lands, increase emissions by 50 percent."

While the scientific news is bad enough, the worst thing about the political push for biofuels is that it only mires us deeper in a broken system, pandering to America's energy addiction and perpetuating a culture and an economy in thrall to the internal-combustion engine.

We'd all like a world with adequate energy, a clean environment and fewer conflicts. If biofuels can't help deliver it, what can? In the short run, at least, that answer truly IS easy: Conservation. American technology, not to speak of American resolve, could easily reduce petroleum consumption by 10 percent given the moral leadership to do so. The fault, dear Brutus, is not in our fuels, but in ourselves.

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Fri, 09 May 08 00:00:00 -0700

Many enticed by low construction costs, energy efficiency

Paul Bianchina
Inman News

When you're ready to go shopping for building materials for your next home, you may not need to go any further than the nearest hay field. Straw-bale houses are becoming increasing popular and accepted in many areas of the West and Southwest, and this method of construction can offer an interesting alternative to conventional building.

There are a number of methods employed when constructing a straw-bale house, depending on the size and design of the house, local building codes, and a variety of other factors. Essentially, though, the house is constructed by using bales of straw for the exterior walls, which are then typically covered with stucco on the outside and plaster on the inside. Construction usually begins with a poured concrete footing, and the bales are then stacked up in courses with a running bond, similar to the laying of bricks, so that the mid-point of the bales on one course fall over the butt joints between the bales in the row below.

The tightly bound bales of straw have a good amount of compressive strength, meaning that they will support quite a bit of the weight of the roof. However, some sort of wooden or metal plate is used on top of the bales around the perimeter of the house in order to equalize and spread the roof load, and wood or metal posts are usually employed at set intervals between the bales for additional support.

At window and door openings, wood or metal support framing -- called bucks -- are installed first, then the bales are cut out and conventional windows are doors are installed. The thick bales result in some very deep window sills, and some builders will "splay" or angle the interior wood or plaster interior window openings to allow even more natural light to enter the rooms.

Once the bales are in place, conventional hand- or machine-applied stucco is used over the exterior. The stucco can be colored by painting or by adding cement dyes to the raw material prior to application. The interior of the bales is covered with plaster, again hand- or machine-applied. Interior walls are typically built with conventional framing methods, and finished with drywall or plaster to blend with the plaster finish on the exterior walls.

Being a relatively new and different construction process, one hurdle for the straw-home builder may come in the form of building code compliance. In the Southwest, for example, where this type of construction originated, many local codes have provisions that allow straw-bale homes and set the standards for their construction. Other jurisdictions may not have them in place as yet, so some solid research and communication with your local building department will be required before the first bale is ever set in place.

Two of the most common questions regarding straw-bale construction are how well the home will resist fire, and whether it is an invitation to insects and other pests. However, numerous studies and test homes built in a variety of locations have shown that once the bales are stuccoed and plastered, they are extremely resistant to both fires and pests. The U.S. Department of Energy quotes tests showing that straw-bale homes actually outperform conventionally framed homes when exposed to fire, and that the plastered walls so limited access to pests that they again outperformed conventional framing.

Another concern is rot, and this is something that needs to be addressed throughout the construction process. Straw-home builders look for bales of straw made up from thick, long-stemmed straw that is free of seeds, typically from the harvesting of wheat, oats, rye, barley, rice or flax. The straw needs to have been baled dry and then protected from the weather while stored at the construction site and also during construction. Moisture meters are typically employed to test and monitor how dry the bales are.

So why build a straw-bale house? Advocates of this form of construction cite a number of reasons, including increased energy efficiency; the use of a cheap, recycled material that lessens dependence on wood; and the relative ease with which an ambitious do-it-yourselfer can undertake much of the work. Construction cost estimates from the Department of Energy show a range from as little as $5 to $20 per square foot for a very modest home with lots of salvaged, recycled materials, to as high as $80 to $120 per square foot for a high-end home with lots of custom features.

For more information on the basics of straw-bale construction and testing, check out the U.S. Department of Energy's Energy Efficient and Renewable Energy Network Web site. You can also get plans and tips by visiting www.balewatch.com.

Remodeling and repair questions? E-mail Paul at paul2887@ykwc.net.

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Fri, 09 May 08 00:00:00 -0700

If property gets foreclosed, all money buyer put into home may be lost

Ilyce Glink
Co-written by Samuel J. Tamkin
Inman News

Q: I am purchasing a home with a seller-financed contract. The seller still has a mortgage through the bank. I received a notice in the mail addressed to the seller that he is behind in payments and to contact them to avoid foreclosure. I left him a phone message regarding this notice, but have not had a response.

It's been two months, and now a notice was left on my door from a field inspector for the mortgage company. It appears the house is in foreclosure. Should I stop making my payments to him, since I am completely current, or should I file some type of lawsuit? Please tell me what to do.

A: Run to an attorney as fast as possible. It appears your seller is taking your money but has stopped paying his lender. If the lender forecloses on the property you may stand to lose everything you put down so far.

When you buy real estate on contract, you need to make sure any lender on the property receives prompt payment of any amounts owed under the mortgage, that the insurance on the home is paid and that the real estate taxes are paid on time. Failure to have any of these taken care of can be a disaster for both the contract seller and the contract buyer.

Your purchase contract may have some language to guide you in what you should do. You may be able to make your payments to the lender instead of making payment to the seller. But if the property is in foreclosure, you first need to find out how many months your seller is behind on the mortgage. It may be worth it to you to pay what is owed to protect your own interests in the property.

You really need a lot more information and will need to do some investigation. If you know what your seller pays on his mortgage is less than your payment to him, you might be able to make those payments. If his payments are way higher than your payments to him, you may be in a difficult spot.

There are different scenarios and you need to sit down with an attorney with as much information as you can get to try to see where you stand. You may come out OK if you caught this early enough. If your seller owes months and months of payments to the lender, you may lose the house and may end up losing what you have paid to date on the home.

Depending on the circumstances, you may be able to negotiate with the lender and if you are prepared to buy the home now, you may be able to exercise your rights under the installment contract and close on the house early.

Because installment contracts can have varying terms and provisions, it is difficult to tell you what path you should take. But an experienced attorney with extensive knowledge of real estate and lender practices is the right start.

Q: I own a condo unit. I paid my association fee late by one day so I was charged the late fee of $50 called for in the bylaws. The following month I paid all payments "on time" but forgot to pay the $50 fee.

Basically the only thing unpaid was the $50 late fee, but I was still charged $50 every month after the first month. I read and reread the governing documents and there is only the statement about a $50 late fee if the payment is late but says nothing else at all concerning fines for missing a "late fee." Can they charge a late fee for an unpaid late fee when all regular payments are on time?

A: You have certainly fallen into the late-fee trap. A payment will be considered paid on time when it is paid in full. When you were late on that first payment, your account had an obligation due equal to the amount of your monthly payment plus $50. The following month you paid your monthly payment, but your account was still short by $50. Because the account was short and not paid in full, you did not pay the full amount owed on time.

In some circumstances, you can get the association to waive that second late fee and you certainly should try. They would not be obligated to waive the second fee, but they might.

Because of the amount ($50), it may not be worth hiring an attorney to spend a lot of time reading up on your state laws regarding condominiums and late fees and how and under what circumstances they can be assessed. You could look up the laws on the Internet.

Keep in mind that credit-card companies have been handling their accounts this way for years. If you charge $1,000 in the first month you have the card and don't pay it in full, the credit-card company will charge you interest on all of the purchases you made from day one. If you charge $1,000 the second month and add the amount you owed on the prior month, you will continue to pay interest on the entire bill until you net the account to zero and start over.

What you need to do is to pay down your condominium bill in full so that the account falls to zero.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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Thu, 08 May 08 00:00:00 -0700

Common-area facilities seen as more of a privilege than a right

Robert Griswold
Inman News

Q: I live in an apartment building where the landlord has washers and dryers in the common area for the tenants to use. Unfortunately, the machines (all of them!) are routinely broken. Can I withhold my rent? Can I deduct the cost if I have the machines repaired?

A: No, I would not suggest that you withhold rent. While allowed in some states for habitability issues within your own rental unit, I have never heard of a court upholding withholding rent for the unavailability of a common-area amenity such as a washer or dryer. That doesn't mean that it is proper for the landlord to allow them to be in a constant state of disrepair.

I would also advise against attempting to have the machines repaired yourself and then deducting the cost from your rent unless you receive specific legal advice from a local tenant-landlord legal expert advising that this would be a good idea.

Withholding rent or attempting to use "repair and deduct" laws (if any in your area) is not something that should be done lightly, and you could find that you are in an eviction action for nonpayment of rent. While you would present a defense that you were unable to use the common-area washers and dryers due to the landlord's failure to properly maintain them, many courts may not feel that is a justifiable reason to not pay your rent in full unless there is specific language in your lease or rental agreement assuring you that part of your tenancy includes the use of such equipment.

This is not like a refrigerator or other appliances provided by the landlord within your rental unit; these are common-area washers and dryers that are merely an amenity that the owner provides as a courtesy to the tenants.

I suggest that you send a letter signed by you and other tenants expressing your serious concern over the continued disrepair of the machines. Many times landlords are frustrated, as there may be a problem with excessive theft or vandalism. Ironically, a single break-in to coin-operated laundry equipment can result in damage of several hundred dollars while the actual loss of coins may be only a few dollars. A landlord's frustration in these circumstances is understandable and unfortunately it is the law-abiding tenants that suffer.

In this case, try to work together to develop a solution to make the laundry equipment more secure. Even eliminating the coin-slide equipment and offering to pay a slightly higher monthly rent might be an alternative that benefits everyone. Of course, the landlords continued failure to address tenants' concerns will lead to the best tenants leaving the property to live where their tenancy is appreciated and the landlord and tenants work together to solve problems.

Q: I have lived in an apartment for several months with no problems. Recently, the manager passed out "Tenant Rules," which delineate 22 items, and many of them are very harsh. I am totally shocked by these new rules, as many are very different from the rental agreement I originally signed. They are demanding that I sign them, including my initials at each of the 22 items. I am devastated and do not want to move. Can they do this?

A: Yes, the owner or manager has the right to change the house rules or guidelines upon proper legal notice. Most leases or rental agreements even include a clause that indicates that the landlord may make changes in the rules. A properly delivered legal notice changing the terms of your agreement would take effect at either the expiration of your current lease should you continue to live there or after 30 days if you have a month-to-month rental agreement.

Naturally, you should carefully review each "new rule" and make sure that it does not violate any law or discriminate against a protected class. For example, a rule indicating that "children may not ride bicycles on the property" would be inappropriate and may be considered a violation of federal fair-housing laws. However, a rule stating "no one may ride bicycles on the property" generally would be enforceable because it doesn't not seek to control the behavior of anyone based on age or other protected status.

This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of "Property Management for Dummies" and co-author of "Real Estate Investing for Dummies."

E-mail your questions to Rental Q&A at rgriswold.inman@retodayradio.com.

Questions should be brief and cannot be answered individually.

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Thu, 08 May 08 00:00:00 -0700

Main worry is likely over what happens if couple defaults on loan

Benny Kass
Inman News

Q: My husband wants to put my name on the deed to his house. Because he obtained the mortgage a long time before our marriage, we have been told by the mortgage company that the only way my name can be added is by refinancing. Is there any other way to add my name to the title? We are prepared to pay off the mortgage if -- and only if -- I can be on the title, too.

My husband is planning to retire sometime next year. He has health problems and his pension will be significantly lower than his current salary. I am already retired. Does it make sense to pay off the mortgage?

A: Your lender is wrong. Although as a courtesy you may want to tell them that you intend to be added to title, you really don't have to do this. It should be easy to have your name added to the title. All you have to do is have your husband sign a deed conveying the property from himself (as party of the first part) to you and himself (as party of the second part).

You should discuss this with a lawyer because in some jurisdictions you will also need a "spousal affidavit" whereby you each certify that you are married to the other. Because you are married, you should not have to pay any recordation or transfer tax, just a nominal filing fee to have the deed recorded.

You also want to make sure that you understand the different ways that title can be held. Discuss this with the lawyer who will be assisting you because there are significant legal and financial repercussions depending on how title is held.

I suspect that the mortgage company based its requirement that you refinance on two grounds. I'll address both of them:

1. The original lender's security would be affected: I don't consider this reasonable grounds for the requirement, because the original lender is fully secured, whether or not you are put on the title.

When your husband bought the house, the deed to the property was recorded among the land records, and then the deed of trust (the mortgage document) was recorded. If the deed adding your name to the property is recorded, it will be a lower priority than the deed of trust. So, should your husband default on the mortgage payments, the lender -- who is in first place on the land records -- can foreclose on the property. The lender would have to provide you (and anyone else in the chain of title) notice of the pending foreclosure action. But the only ways that you could stop the sale would be to pay off the loan or file for bankruptcy court protection.

2. This change would trigger the "due-on-sale" clause: I don't consider this reasonable, either, because in your situation this clause won't come into play.

Most mortgage documents contain a due-on-sale clause. This means that should the property owner transfer all or part of the property to another party, the lender reserves the right to call in the loan.

In the 1980s, when interest rates spiked up to 18 percent, many buyers were unable to qualify for mortgage loans. So home sellers who had older, low-interest loans worked out arrangements whereby the home buyer would take title to the property and pay the seller the monthly mortgage payments that the seller owed to his lender. The seller would then make the payments.

It was a win-win situation for buyer and seller. The buyer would be able to take title and assume a low-rate mortgage, while the seller would be able to unload the house. And as long as the lender was getting the monthly payment, it would not be concerned.

Nonetheless, lenders were concerned. First, they did not know the financial situation of the buyers, and were worried that there might be defaults.

Second, the lenders were losing money. Instead of making loans at 14 to 18 percent, they were receiving monthly payments on older 6 or 7 percent loans.

So the due-on-sale clause became standard. Typically, it reads: "If all or any part of the property or an interest therein is sold, transferred (transfer to include but be not limited to any lease containing a purchase option, lease for more than three years, land installment contract or contract for Deed) or further encumbered by borrowers without lender's prior written consent, lender may at lender's option declare all the sums secured by this Deed of Trust immediately due and payable."

Such clauses were the subject of numerous lawsuits, but courts generally sided with the lenders. For a while, confusion remained about when the clause could be enforced.

Many lenders maintained that they had to enforce the clause if, for example, a couple transferred their property for estate planning purposes to a revocable (living) trust, or a husband gave the house to his wife pursuant to a divorce.

In 1982, Congress enacted a law (the Federal Depository Regulations Institutions Act, commonly referred to as the Garn-St. Germain Act) that included language prohibiting lenders with loans on residential real property containing less than five dwelling units from exercising the due-on-sale clause in a number of circumstances:

• When the homeowner takes out a second deed of trust.

• When the property is transferred by operation of law on the death of a joint tenant or tenant by the entirety.

• When a homeowner leases the property for less than three years and the lease did not contain an option to purchase.

• When there is a transfer to a relative resulting from the death of a borrower.

• When there is a transfer from one spouse to another because of a divorce decree or a legal separation agreement.

• When there is a transfer into an inter vivos (living) trust in which the borrower is and remains a beneficiary.

• When there is a transfer where the spouse or children of the borrower become an owner of the property.

This last provision of the law specifically applies to your situation. Your lender can't exercise the due-on-sale clause just because your husband adds your name. (This law covers almost all loans; there are some limited circumstances, such as loans from a private party, that might not be covered.)

It makes sense legally and financially for you to go on the title with your husband. You should make the arrangements as soon as possible.

Does it make sense to pay off the mortgage? That's a personal decision that only you and your husband can make, after you talk with your financial advisers.

My personal opinion: Keep the loan and put your money in a safe, insured investment. You don't want to be house-rich and cash-poor. Your income will start to decline, so why not have cash in reserve should you need it?

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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Thu, 08 May 08 00:00:00 -0700

Rent it Right

Janet Portman
Inman News

Q: I've lived for years in a spacious studio apartment and now find it necessary to hire a live-in aide. I'd like to move to a two-bedroom, but I can't afford it. Can I expect my landlord to offer me the two-bedroom at the same rate I'm paying now, because I'm disabled? He's refusing, and he's also saying that having two people in my studio violates his occupancy policy. Do I have any legal answers to either of these positions? --Patricia U.

A: Your ability to press your case as a disabled person will depend on whether you can establish that you are disabled within the legal definition. If your doctor or other care provider will say that you are substantially limited in one or more major life activities, you'll satisfy that requirement. If it's obvious that you meet that standard, or if you can show that you receive federal assistance based on your condition, you don't even have to get that documentation.

When you ask for an accommodation, such as adding a resident to your apartment or moving to a larger unit without a rent increase, your landlord must consider it and, if it's reasonable and doesn't unduly burden his business, grant it. You'll need to show that the live-in aide is necessary in order for you to live safely -- again, this may not be too difficult, depending on your situation. But now the work begins. Your landlord's resistance may be based on a claim that your requests pose an "undue burden" on his business. Let's see how the issues might develop:

• Adding your aide to your studio. Landlords are entitled to limit the number of occupants in a rental in order to avoid overcrowding. The federal rule of thumb is to allow two persons per bedroom (some states allow more people). Unfortunately, the federal standard doesn't address studios, but that doesn't mean that the landlord can proclaim a "one person per studio" rule and necessarily get away with it. Many studios can and do safely accommodate two persons. If yours is large enough to satisfy the minimum standards in the building codes, you'll be well on your way to making your case.

• Offering a two-bedroom unit at studio rates. You're on largely uncharted legal water here. Even if you ask for a one-bedroom, you're going to be up against your landlord's claim that his business cannot reasonably sustain the loss of rent, measured as the difference between your studio rate and the rate for the larger unit. A judge would likely look at the landlord's situation and determine how significant that loss would be. For example, a big apartment firm or a wealthy owner whose rental holdings generate large profits will be better able to absorb the loss than a sole proprietor who owns and lives on a small rental property, barely making ends meet. For that landlord, the loss could be significant and "unreasonable" under the law.

Before heading into a possible confrontation with your landlord, consider getting some advice and assistance. Many fair housing and disability rights groups will speak with both of you and attempt to help you reach an acceptable solution. Your landlord certainly doesn't want a lawsuit, and neither do you.

Q: I own an apartment building that is next to a vacant lot -- well, not so vacant anymore. A construction crew, complete with earth-moving equipment, has just shown up, and I've learned that a multi-unit apartment building is about to be built. My tenants are very upset at the prospect of the noise and dirt that will surely ensue. Any suggestions on how I can deal with this? --Amber A.

A: Though your tenants may be upset about the commotion and dust, they can hardly look to you to prevent the construction. But unfortunately, even though you can't stop the project, if the disruption becomes intolerable, they may have grounds to break their leases and move. They're entitled to the "quiet enjoyment" of their rented homes, and if that peace and quiet is unacceptably violated, even if you can't prevent it, they can consider the lease to be over and move out.

For this reason alone, you need to take steps to lessen the impact of the goings-on next door. Talk with the owner and the general contractor and insist on some protections, such as a dust barrier, regular watering of the site, daily debris removal and neatening up, and restrictions on where workers will park.

Unfortunately, you've lost your bargaining chip -- had you known that the project was in the works, and had you attended planning commission hearings, you could have pointed out that these side effects would hurt your business. You could have asked the commission to issue the builder's permit on the condition that he abide by the good-neighbor practices mentioned above, which are common. At this juncture, you can request cooperation and, if desperate, threaten to sue if you lose tenants as the result of unreasonable construction practices, but the builders may not take your threat seriously. The next-door owner, however, may wisely realize that because you will be his neighbor, it's a good idea to begin relations on a positive note.

You can also work with your tenants to lessen the impact of the earth-moving and building. Consider offering tenants one or two sessions with a housekeeping service, to compensate them for dealing with the additional dirt; or offer "dinner and a movie" as a way to thank tenants for their patience. Spending a little money now is well worth avoiding vacancies later (most landlords lose two months' rent every time they go through turnover).

Q: When we signed our lease about a year ago, the property manager told us that if we wanted to install a satellite dish, we should ask permission, and they would give it. The lease expired, and we stayed on, renting month to month. We asked for permission to have a satellite dish installed and the landlord insisted that we pay an additional $500 security deposit. I went to the FCC Web site and read the "OTARD" (over-the-air-reception-device) rules, which say that installation restrictions cannot unreasonably increase the cost of installation, maintenance or use. Would an additional security deposit of $500 amount to "unreasonably increasing" the cost? We have paid a security deposit of one month's rent when we moved in, and that should cover any damage done by the installation (or removal) of the dish. --Sandi M.

A: Good for you for going to the FCC to find out for yourself whether this extra charge is permitted under the federal regulations. A little more poking around on the FCC page devoted to satellite dishes would have given you the ammunition you need to object to this charge. That page cautions landlords that restrictions on installation may be alright if done for safety or to protect a historic site (paying an additional deposit is a restriction, because you can't go ahead until you pay up). But it's up to the landlord to prove that conditions imposed for safety or preservation are necessary.

From the sounds of things, your landlord is going to have a hard time justifying the $500 additional deposit. No one is claiming that your apartment is on the list of historic buildings, so that leaves safety as a possible basis. As long as the device is mounted securely and in a place where you have a right to place it (only in your rented space), there's little reason to fear that it will fall and injure someone. Your landlord may specify how the device should be mounted (by insisting on sturdy brackets, and placed away from fire escapes), but as long as the satellite-dish provider agrees to follow reasonable guidelines, there's no basis for assuming that the dish will pose more of a threat to safety than, say, a flagpole or a clothesline.

Your landlord may respond that mounting the dish raises the possibility of property damage, not safety, because the installers will be placing a bracket on the wall that will come off when you leave. This justification won't work given the FCC rule, because only safety and historic preservation can justify a restriction on installation. Any damage that results when you remove the dish can be paid for out of your security deposit, as you acknowledge.

The FCC has dealt with restrictions like this before, and they've posted their decisions in cases where they've become involved. In the MacDonald case, they invalidated a mere $5 "application fee" as unreasonable.

This answer wouldn't be complete without a warning that you may find your landlord trying an end run. Because you're month-to-month, your landlord can change the terms and conditions of your rental agreement (including raising the deposit) with proper notice, which is 30 days in most states. If your state sets maximum deposit limits and you're already at that point, you've got nothing to fear (unless, of course, the landlord also raises the rent). But if your deposit is under the limit, or your state simply doesn't regulate deposit limits, your landlord can increase the deposit with proper notice. If that happens, and you decline to pay the increase on the grounds that it's a roundabout way to restrict your use of a satellite dish, you could find yourself facing an eviction lawsuit for failing to pay.

Before heading into an eviction lawsuit, consider enlisting the FCC's help -- you can apply to the FCC for a ruling on who's right (the information on how to ask is on the FCC Web site). If you get nowhere with the FCC, the landlord won't budge, and you find yourself about to answer to an eviction lawsuit, be very sure that the joys of limitless TV are worth the risk of losing your tenancy (hopefully, any state court judge would consult the same FCC materials mentioned above and see through the landlord's ruse).

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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Thu, 08 May 08 00:00:00 -0700

After multiple loan rejections, couple forced to make tough decision

Ilyce Glink
Inman News

Q: We are looking to consolidate our debt. Our mortgage lender turned us down for a home equity line of credit (HELOC), so what are our other options? We have been in our home for only 18 months so there is not much equity.

And, we have tried approval for other loans from the same lender but were denied. Should we try other lenders?

A: No. You're done for the moment. Every time you apply for credit and are denied, you hurt your credit history and your credit score goes down. The lower your credit score, the less likely you will be approved by another lender.

If you've been turned down for a loan, you're entitled to see a copy of your credit history and credit score to find out why they've turned you down. In your case, however, it sounds as though you're trying to get blood from a stone.

If you don't have any equity in your property, you cannot refinance in order to consolidate debt. Mortgage lenders are getting picky about how much cash you can borrow against your equity. These days, they're not doing 100 percent loans, or anywhere close to that. If you're in a declining market, where home prices are falling, they might not refinance you if you have less than 5 percent or even 10 percent equity in your home.

Since you're out of refinancing options for the time being, if you want to get your debt under control, you'll have to do it the old-fashioned way: Stop spending and find a way to bring in more income each month, even if it means taking a second or third job.

Q: I have two primary homes but would like to buy another. A friend wants to live in one of my primary homes and pay me rent.

My question is: How do I structure this in order to deduct taxes/interest on all three homes? I was thinking about setting up a sole-proprietorship on my current home that's to be leased out to my friend. Also, if the homeowner association does not allow tenants, can I get in trouble by law if I rent the property out?

A: No one can have two "primary" homes. The word "primary" means first. The home in which you live most of the time is considered your primary residence. The other house you own is your second home, or perhaps a vacation home.

The IRS currently permits you to deduct the interest you pay on up to $1 million in mortgages and $100,000 in home-equity loans on your primary and secondary residence. There are additional restrictions on these limits and these amounts are for married couples. Likewise, real estate taxes paid on a primary and secondary residence are generally deductible.

So, now you want to buy a third "primary" home. There is no provision in the IRS code for deducting the interest and taxes on a third "primary" residence. In fact, it sounds like you are about to start being an investor in real estate. If your friend starts to pay you rent, you can claim that property as an investment property. You'll be able to write off the expenses of owning the property (mortgage interest, insurance, taxes, maintenance, etc., along with other investment benefits) against the income you receive from your tenant.

The problem you may run into is with your homeowner association. If the HOA does not allow rentals, and you rent out your home, you run the risk of being fined by the HOA, or worse. They could sue you for violating HOA rules. You don't want to go there.

What I suggest you do is sit down with a knowledgeable real estate attorney who can discuss these issues with you in detail and provide some sort of workable structure for what you're trying to do. For more details on tax deductions, please go to IRS.gov and read Publication 936, Home Mortgage Interest Deduction, and Tax Topic 505, Interest Expense. You may also find Publication 530, Tax Information for First-Time Homeowners, of interest as well.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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Wed, 07 May 08 00:00:00 -0700

How to find right model for the 'weekend warrior'

Bill and Kevin Burnett
Inman News

A few weeks ago we wrote about how Kevin helped a customer at the Home Depot find the right bit to drill a hole in ceramic tile. As often happens, the answer raised another question from one of our readers, Dave, who wrote:

"Since you mentioned drill-buying in this week's column, do you think a Makita 12-volt cordless drill would handle most small to medium home projects? Is going up to 14.4 volts excessive for occasional use?"

With Father's Day on the horizon, Dave's question led us to consider the place the cordless drill might have in Dad's home toolbox. From our perspective, there are certain tools that every homeowner should have. A medium-weight hammer (16 ounces), a combination screwdriver with Phillips and flat-head bits, a crescent wrench, a pipe wrench and a tape measure are all must-haves.

As for power tools, if we were limited to just one, the choice would be a cordless drill.

The cordless drill motor is the quintessential multitasker. Depending on the attachment, it can be a screwdriver, a drill or a paint mixer. Cordless drills are convenient and simple to operate. They are also relatively inexpensive.

To answer Dave's question, the 12-volt Makita will do just fine for most small to medium projects. Although 14.4 volts is not excessive, it's likely to cost more and be a bit heavier. Whichever way Dave goes, the drill he chooses should be equipped with variable speeds and a keyless chuck.

Bill recently purchased a cordless drill. Our brother, Bryan did, too, and Kevin's been thinking about it. In choosing which one to buy, consider the intended use, the frequency of use, the weight of the tool and the cost. Bill found a 14.4-volt Craftsman that came with two batteries and a charger on sale for about $50. Bryan went for a 12-volt DeWalt, also with a spare battery and charger. He paid around $130. Who got the best deal? Only time will tell. Kevin will probably just get a new battery for his 9.6-volt Makita. It's served him well over the years and has enough power for what he wants to do. And that's the bottom line.

Most professionals go for more power. That usually means a minimum of 18 volts. Pros use their tools daily and demand performance and consistency. The price tag for the professional models is upward of $180 -- a bit pricey for home use, in our view. The weekend warrior doesn't require that much horsepower; 10 to 14.4 volts should do just fine.

As a general rule, the more volts in the battery, the heavier the tool. A little weight may not seem like much, but if you heft it about for any length of time, it can tire you out. The best way to choose a cordless drill is to test-drive several. Go to the home center and hold them. Try to imagine working overhead or in a tight place. Will it be comfortable?

Also, consider the new, lightweight batteries. Drills with lithium ion batteries are much lighter than drills equipped with their nickel cadmium cousins. Kevin recently test-drove the 10.8-volt Pocket Driver by Bosch. Its lightness and short profile make it easy to manipulate in tight spaces. The drill, with two batteries and a charger, retails for around $130.

The Pocket Driver seemed a tad underpowered, although it drove a 3-inch deck screw.

Bottom line: When shopping for a cordless drill, consider the frequency and the ease of use and weigh that against the cost. Variable speed, a keyless chuck and an extra battery are musts.

On a different note, last week we answered a question from a reader who replaced the fluorescent lighting in her kitchen with three recessed cans. She complained of not enough light after the remodel. We suggested that she consider more cans and/or track lighting for general and task lighting to make her kitchen more comfortable.

While, as one reader put it, Kevin can do anything he wants to at his home in Idaho, it's a different story in well-regulated California. This type of remodel is governed by Title 24, Part 6 of the California Code of Regulations, which allows the California Energy Commission to promulgate energy-efficiency standards. For kitchens, Title 24 mandates that at least half of the installed wattage in kitchen lighting fixtures must be high-efficiency, and the ones that are not must be switched separately.

For a more detailed overview, look at an excerpt from the "2005 Residential Compliance Manual" available at: www.energy.ca.gov/2005publications/CEC-400-2005-005/chapters_4q/6_Lighting.pdf.

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Wed, 07 May 08 00:00:00 -0700

Part 2: How to choose right loan, lender

Ilyce Glink
Inman News

(This is Part 2 of a two-part series. Read Part 1, "Best loan in today's market: fixed or adjustable?")

A new study suggests that one of the reasons many subprime loans have failed is because of very weak underwriting.

"Underwriting" is the process by which a lender decides whether a borrower is a good risk. It involves looking carefully at the paperwork provided by the borrower, including a signed loan application, bank account statements, paycheck stubs, tax returns, profit and loss statements (if the borrower is self-employed), and a review of the appraisal of the property obtained by the bank.

The underwriting process also includes a process called "verifications." The loan officer is supposed to call your bank and verify how much cash you have in your account. He or she is also supposed to call your employer to verify your employment history and income information. If the facts you've put down in your application can't be verified, the loan officer is supposed to reject your loan application.

This isn't what happened in the subprime market meltdown. In some cases during the past several years, if a borrower's information couldn't be verified, the loan became a "stated-income" or "no-doc" loan. The borrower simply paid a higher interest rate and fees, and limited or no verifications were performed.

As a borrower, you want the lender to be sure you're qualified to borrow the amount you have in mind. You want to know exactly how much you'll owe each month, and for how long.

Underwriting the loan is arguably the most important thing a mortgage lender can do, and we've all seen the results of poor underwriting: a high rate of foreclosures and defaults.

When choosing a good mortgage lender, whether you choose a mortgage broker or a mortgage banker, you'll want someone who can do the job right. Finding a lender who will take the time to make sure you understand the different loan programs being offered, and will help you decide which loan best meets your needs is key to having a smooth closing.

How do you find a good lender? As with finding a good real estate agent, start by garnering recommendations from your friends, family and work colleagues. If you are working with a real estate attorney, he or she should have the names of loan officers who do a good job for their clients. Your real estate agent, if he or she is a pro, will have a list of names of mortgage lenders the company does business with.

Beware of real estate agents who only proffer the name of only one mortgage broker or lender, particularly if that lender is an in-house mortgage broker. The in-house lender may not be a bad lender, but you need to make sure you find the best lender for your circumstances and lending needs and not the lender that may yield the greatest benefit to the real estate agent's company.

You should also include a credit union, if you belong to one or can join one. Credit unions typically offer some of the least expensive loan programs, whether you're looking for a mortgage or a car loan.

Once you compile your list, you should do some basic due diligence to make sure that the loan officer and mortgage company is in good standing in your state, and that there are no outstanding complaints against them through the Better Business Bureau.

Next, start calling the loan officers to chat about their offices, how long they've been in the business, how many mortgages they're currently working on, and your own situation.

(By now you should have in hand a current copy of your credit history and credit score, which you can buy for $14.95 at MyFico.com or even less if you obtain a free copy of your credit history through www.annualcreditreport.com. Ask the loan officer to assume that you have this particular credit score for the purposes of your initial consultation, so your credit history isn't taped unnecessarily.)

You can ask each lender to give you a best price offer for the loan program in which you're interested. So, if you want a quote on a 30-year fixed-rate loan and you're putting down 10 percent, ask for that price quote. If you haven't quite decided between a 30-year fixed-rate mortgage and a 5/1 adjustable-rate mortgage (ARM), then ask for both. Be sure to ask for a detailed list of fees that will be charged for the loan.

These "other" fees can differ greatly between lenders. While some fees may be the same from one lender to the other, some lenders add additional fees to their services. Whereas one lender may have $800 of additional fees going to the lender, another may have fees that may be double that for the same loan and the same interest rate.

At the end of the conversation, you should feel comfortable with the loan officer, and the loan program he or she has offered. If you get a funny feeling that maybe something isn't quite right, (perhaps the loan officer is too eager to get your business?), then it's time to do some more research.

What about online lenders? Mortgage companies have collectively spent hundreds of millions of dollars creating fancy Web sites designed to attract borrowers. There's nothing wrong with doing some research online and perhaps even applying for a loan online.

But you'd want to know that the company you're doing business with is real.

If you're choosing a lender like Bank of America, Citi, SunTrust or Countrywide, you won't necessarily get a cheaper price by applying online. But it will take away some of the opportunity to have a personal experience, which I think is important in this, the single biggest purchase of your life.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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Wed, 07 May 08 00:00:00 -0700

Flexible down-payment programs help many seal the deal

Tom Kelly
Inman News

The baby boomer generation continues to drive the search for second homes, not just in the United States but in Mexico and throughout Latin America as well.

According to a new survey from the National Association of Realtors, vacation- and investment-home sales declined with the overall market in 2007, but still accounted for 33 percent of all existing- and new-home sales.

Boomers, born between 1946 and 1964, number approximately 77.8 million people in the United States alone. Many of them are returning to Mexico, rediscovering their Spring Break haunts, and charting a way to buy and vacation now and retire later in the sun. Every year, they are being joined by more and more Canadians, Europeans and Asians -- many of whom place a premium on their return on enjoyment.

Sales to Americans have slowed in Mexico -- mirroring a pattern in the United States -- yet many of the "fly-in" destinations are experiencing steady sales, thanks mostly to the international boomer profile.

According to Barbara Caplan, boomer marketing specialist in the research firm Yankelovich, five trends that define boomers are youthfulness, individuality, community, awareness of technology, and a home-family core.

"Boomers aren't redefining age. They're redefining youth," Caplan said.

Baby boomers -- the healthiest, wealthiest and largest segment ever seen on the North American landscape -- have coupled with discriminating retirees to form a huge target for Mexican developers all seeking to effectively deliver the different possibilities of Mexico's diverse landscape.

It's the different possibilities -- the desire to provide a wide variety of options -- that has proved successful for marketers and salespersons. A prime example is MexicoAlive, a Puerto Vallarta-based marketing company operated by Mexico City native Benjamin Beja that strives to offer consumers affordable, well-located, attractive condominiums starting at $145,000 along with elegant waterfront residences with price tags well above $1 million on the Bay of Banderas, one of Mexico's most popular tourist destinations.

The down-payment programs at two developments are extremely flexible, especially for investors. While the minimum down payment is 20 percent, MexicoAlive will accept $9,000 at signing and then the difference in monthly payments, interest free, until the buildings open. For example, if a buyer decides on a $140,000 unit, the 20 percent down payment would equal $28,000. After the $9,000 at signing, the buyer would make payments of approximately $1,000 for 17 months. When the building opens, the buyer would have long-term financing in place or pay cash for the unit.

"I had a friend who was wondering where all the affordable new condominiums had gone in the Nuevo Vallarta area," Beja said. "That got me thinking that we needed to provide all buyers a greater array of housing opportunities."

Beja has been a world traveler, visiting more than 100 countries. He attended the prestigious National University (UNAM) where he received highest honors when graduating in 1991 with a degree in law. A master's in business administration from Harvard University followed postgraduate studies in Japan.

Like many Mexican real estate companies, MexicoAlive hosts "Discovery Weekends" to promote residential projects and educate visitors on the nuances of buying and living in Mexico. Potential buyers spend three days understanding the process of how to hold title south of the border while soaking in the Puerto Vallarta sun, culture, food and drink. There is no "hard selling," which has proven to be a key to the company's success. Many buyers and real estate agents who attend have spread the word about the casual atmosphere and have returned with other interested friends and customers. The company averages 40 visitors for a Discovery Weekend and $3.5 million in sales. It plans to expand the concept to a dozen other Mexican destinations.

"People don't like making decisions when somebody is pushing them," said Shawn Fechter, a Tacoma, Wash., native and director of international sales at MexicoAlive. "We want people to have a great time, learn something about the country and go home with a better idea of why we think Mexico is so wonderful.

"Sure, we'd love it if they made an offer on one of our properties, but we are certainly not going to grind on them to do so. At the end of the day, we want them to be absolutely satisfied with the time they had with us."

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