Real Estate in Steamboat

Leonard and Jennie Preciado are tenants in common with a niece, Elizabeth R. Wilde, in two adjoining properties. A house originally stood on one property, but it was torn down after Wilde’s father, who lived in it until 1984, passed on and Wilde inherited his three-tenths interest in the parcels.

On Sept. 9, 2002, Leonard Preciado offered his niece $11,605 in writing for her interest in the parcels. But he never paid her the money.

Purchase Bob Bruss reports online.

In this lawsuit, the Preciados sued Wilde for quiet title based on adverse possession for the required number of years. At the trial, Wilde testified she paid the property taxes until 1992 when Leonard began paying them. She also said she visited the properties “a couple of times a year” and was never excluded by the Preciados.

Although Leonard planted crops on one-third of the property for personal consumption, and erected a fence in 1960 to keep a horse on part of the property, Wilde testified she was never told not to enter the property when she wanted to do so.

If you were the judge would you convey title by adverse possession to Leonard and Jennie Preciado for the three-tenths interest owned by Elizabeth R. Wilde?

The judge said no!

When a tenant-in-common co-owner seeks to claim title by adverse possession against a fellow co-owner, the claimant must meet the adverse possession title tests, the judge began.

These tests require open, notorious, hostile, continuous and exclusive use, plus payment of the property taxes, for the number of years required by state law, he continued.

These rules are the same whether claiming adverse title against a property owner, or a co-owner of a jointly owned property, he noted.

“In short, one tenant in common cannot by mere exclusive possession acquire the title of his co-tenant,” the judge explained. The 2002 offer to buy Wilde’s interest in the property shows lack of hostility or adverse possession, he emphasized.

Adverse possession attempts by one co-owner against another co-owner are very rare, the judge noted. To be entitled to claim such title, he remarked, the adverse possessor co-owner must prove the other co-owner has been kept out of the property for the required number of years, he commented.

“Leonard admitted he never excluded Wilde from the property. He never restricted her access, or informed her he was challenging her ownership,” so the Preciados failed to prove “ouster” of Wilde and their adverse possession claim fails, the judge ruled.

Based on the 2006 California Court of Appeal decision in Preciado v. Wilde, 42 Cal.Rptr.3d 792.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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Copyright 2006 Inman News

Should reverse mortgages become an official option for helping to solve a state’s long-term-care challenges?

Some states have already begun the research. For example, Washington state’s Long-Term Care Task Force is hosting a series of community meetings aimed at exploring new funding solutions to the escalating health-care issue created by the rapidly accelerating growth of the state’s senior population.

Dr. Barbara Stucki, a Bend, Ore., researcher and consultant who recently completed a study on reverse mortgages for the National Council on the Aging, told the task force that one potential approach could be to create a system that more effectively manages long-term-care funding for community-based options. One component of the model would be for the state to offer incentives to encourage greater use of reverse mortgages among impaired elders.

Stucki, former senior policy analyst for the American Council of Life Insurance and AARP employee, is the project manager and lead author of National Blueprint for Increasing the Use of Reverse Mortgages for Long-Term Care.

“I think one of the main benefits of reverse mortgages is that it offers a concept of resilience,” Stucki told the task force. “If a person is living on a tightrope with only a small safety net underneath, then maybe the reverse mortgage makes the tightrope a bridge to something better.”

These incentives could be targeted to seniors who are at greater risk for needing Medicaid and could include:

• Paying for some or all of the up-front loan costs, and/or servicing fees;

• Bundling reverse mortgages with social services such as care assessment to help borrowers use their funds effectively for aging in place — that is, at home;

• Making it easier for reverse mortgage borrowers to participate in established community-based programs;

• Providing back-end protection to impoverishment through a program modeled on an existing long-term-care partnership program.

Stucki said incentives could be linked to the federally insured Home Equity Conversion Mortgage, which makes up approximately 90 percent of all reverse mortgages in the United States. Or, incentives could be incorporated into a state-designed and -run reverse mortgage program for long-term care. These efforts could open new possibilities for a more coordinated approach that can reduce the risk of institutionalization, compliment Medicaid, and enhance quality of life for older adults around the country, Stucki said.

“Everyone has a stake in the future of long-term care, and we want everyone to have a voice in designing that future,” said Dawn Morrell, task force chair. According to Morrell, the number of senior citizens in Washington will double over the next 20 years, and this will create major challenges in funding high-quality, long-term care.

“We’ve been very fortunate that our state is a national leader in having high-quality home care programs and healthy seniors, and this has helped to keep costs down,” said Morrell. “But with the rapid growth in the number of senior citizens and people with disabilities, designing a future system involves challenges that we need to plan for now.”

Minnesota is the only state now offering a reduction in fees if a reverse mortgage is used to implement a specific long-term-care plan.

Reverse mortgage borrowers make no monthly payments on their mortgage during its term. The loan comes due when the borrower permanently moves out of his or her home. Programs vary, yet the more popular plans offer both an initial lump sum for immediate needs and a line of credit that borrowers can access at any time.

Seniors can “outlive” the value of their home without being forced to move. The homeowner cannot be displaced and forced to sell the home to pay off the mortgage, even if the principal balance grows to exceed the value of the property. If the value of the house exceeds what is owed at the time of the homeowner’s death, the rest goes to the estate.

To qualify, consumers must be at least 62 years of age and own their own home. The home does not have to be paid off entirely, but the greater the equity, the greater the reverse loan amount. Age, location and loan type also factor in the reverse mortgage amount.

Opponents of reverse mortgages argue that the loans deplete a homeowner’s estate and their children’s inheritance. Proponents say the children would most likely have pay for their parents’ care from the proceeds of the home sale. And, by allowing the parents to stay in the home, some of the fees and spent home equity could be recovered by home appreciation.

Tom Kelly’s new book “Cashing In on a Second Home in Mexico: How to Buy, Sell and Profit from Property South of the Border” was written with Mitch Creekmore, senior vice president of Houston-based Stewart International. The book is available in retail stores, on Amazon.com and on www.tomkelly.com.

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Copyright 2006 Tom Kelly

Q: In a previous column, you suggested that a homeowner use an orbital hand sander to refinish his floors. Wouldn’t using an orbital go against the grain of the wood and adversely affect the look of the finished floor? I have a similar small floor project to do and I want to be certain to use the correct sander.

A: If you use the proper procedure and the right sandpaper, your floor will turn out as smooth and shiny as glass.

Refinishing a small area of floor yields the same result as doing a large one, but the tools are different and the labor is lighter.

On large jobs, three tools are used to prepare the old hardwood floor for a new finish. A large drum sander cuts a wide swath on each path it takes down the field of the floor. An orbital edging sander is used to sand the sides of the floor close to the walls where the drum sander cannot reach. Finally, a sharp paint scraper is used to remove the old finish from inside corners where neither the drum sander nor the orbital sander can reach.

Increasingly fine grades of sandpaper are used to achieve a smooth surface suitable for refinishing.

The drum sander and the orbital edger are available at local rental centers. But these tools are unwieldy. They can easily get away from you. It doesn’t take much to gouge an unsightly chunk out of a floor.

The job is also very dusty, so clear the room of whatever you can and be prepared for some major cleaning when the job is done.

We have done this work ourselves with mediocre to acceptable results. We’ve also paid a pro to do the work. Our advice: For a big job, hire a pro.

But a small job like yours is another matter.

Hand sanders work just fine. Using one will take a little longer, but there will be less dust and you won’t gouge the floor.

If you buy only one sander for the job, a handheld orbital is the way to go. If you happen to have a 3- or 4-inch belt sander, use that for the field — it will make things go a lot quicker. But you’ll still need an orbital sander to get at the edges.

Don’t be concerned about sanding marks. If you go slow and use increasingly finer-grit sandpaper, you will come out with a mark-free job.

There are two levels of floor refinishing — stripping the finish or preparing the existing finish for a recoat. If you want to recoat, use the orbital sander only, even if you own a belt sander. The job will go quickly. Use No. 220 sander paper to scuff the finish and give it “tooth.” This ensures that the new coat of finish will adhere.

To remove the old finish down to the bare wood, start sanding with No. 60 grit and go to No. 100, then to No. 150 and finally to No. 220 grit. Use the belt sander in the field if you have it. It’ll make the job go quicker.

One final suggestion: Invest in a good pair of kneepads.

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Copyright 2006 Bill and Kevin Burnett

Don’t buy or sell a condominium, co-op or townhouse without first reading Ken Roth’s revealing new book, “Everything You Need to Know Before Buying a Co-op, Condo, or Townhouse.” Written by an experienced Florida real estate attorney and condo investor, this important handbook exposes the good and bad of these specialized properties.

Not only is this book enjoyable, easy reading, but the author’s many personal experiences explain how to avoid potential pitfalls. Roth, who lives and practices law in south Florida, highlights the differences between co-ops, condos and townhouses, their drawbacks and their advantages.

Purchase Bob Bruss reports online.

Whether you are thinking of buying as a personal residence, or you are a speculating investor looking for a “quick flip” profit, the author explains how to protect yourself, especially when purchasing a new condo from a professional developer. Roth emphasizes what is negotiable in such purchases and what is non-negotiable when dealing with new construction.

Along the way, the author discusses what makes a profitable condo purchase, such as location, view and amenities, and how to avoid paying too much. The book’s final chapter ties everything together and shares how to sell your condo for maximum sales price.

I found especially interesting the author’s criteria for when it pays to renovate just before selling. His rule is don’t renovate unless the improvements will increase the unit’s marketability compared to competitive units on the market for sale.

The most valuable parts of the book are when Roth, after explaining the facts, provides his personal viewpoints based on many years of owning multiple condos and his law practice experiences representing clients. Such information is priceless when determining what to look for and what to avoid when buying a condominium.

Heavy emphasis is placed on the role of the board of directors who manage the homeowner’s associations. Many condo buyers are unaware when they purchase they become members of a mini-democracy and they must submit to the decisions of the governing board made up of fellow owners. As a condo owner, I especially related to Roth’s description of the “condo commando” member who wants to take charge of virtually every condo homeowner’s association.

Chapter topics include “Preparing for the Search”; “Comparing Properties”; “Buying Directly from a Developer”; “Buying a Resale”; “Welcome to the Association: Dealing with the Board of Directors”; “Understanding the Paperwork”; “Financing Your Purchase”; “Living in Your Condominium, Co-op or Townhouse”; and “Selling the Property.” The book concludes with a 90-question, multiple-choice quiz about the book’s contents.

By far, this is the best “how to buy a condominium” book I’ve read. It is ultra-complete, explaining both the legal and practical aspects, as well as the pros and cons of condo ownership. The many personal examples add realism to the contents, along with the featured paragraphs called key point, read and heed, teaching point, and keep in mind. On my scale of one to 10, this outstanding book rates an off-the-chart 12.

“Everything You Need to Know Before Buying a Co-op, Condo, Or Townhouse,” by Ken Roth (AMACOM Publishing, New York; 2006; $18.95; 197 pages), Available in stock or by special order at local bookstores, public libraries and www.Amazon.com.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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Copyright 2006 Inman News

DEAR BOB: My aunt recently passed away suddenly. She owned a house and a small bank account. We were supposed to open a living trust for her, but never got around to it. Of course, now it’s too late. She didn’t have any children, but is survived by two sisters and one brother. She always indicated the house would go to one of the sisters who didn’t own a home. But there was no will. My aunt’s name was the only name on the deed. I figure we have to go into that nasty Probate Court you often discuss. What are the steps to proceed? –Colin F.

DEAR COLIN: I am sorry to learn of that sad situation. Because your aunt died without a will, she died “intestate.” That means the state law where she was a resident determines who will inherit her assets, including the house she wanted to go to that sister.

Purchase Bob Bruss reports online.

Unfortunately, unless the other heirs agree the house should go to the sister, if the three siblings are the closest surviving relatives, they will probably inherit the estate equally under the state law of intestate succession.

Whoever wants to be appointed the estate administrator by the local probate court where your aunt lived should contact a probate attorney in that town to start the proceedings. Unless your aunt left a very small estate that is exempt from probate, the court proceedings will cost money and delay distribution of the estate. Of course, a living trust would have avoided such costs and delays.

WITH POOR CREDIT, IS IT POSSIBLE TO BUY A HOME?

DEAR BOB: Thanks for your recent information about buying a home for nothing down. However, is it possible to buy a home for nothing down with poor credit? –Brian W.

DEAR BRIAN: If you have a job with steady income, you probably can obtain a “subprime loan.” But the interest rate will be high, currently 9 percent or higher in today’s money market.

But maybe your credit isn’t so bad. To check your FICO (Fair Isaac Corp.) score, go to www.myfico.com. After correcting any credit report errors, then shop for mortgage approval before shopping for a home.

Major mortgage lenders such as Wells Fargo offer subprime home loans, as do many independent “no name” lenders who originate mortgages primarily through local mortgage brokers.

CAN PROPERTY BE REZONED OUT OF USE?

DEAR BOB: I have been in the real estate business more than 50 years. How can one group rezone a business or residence out of use and then say it is a “non-conforming use?” Is there any type of homeowner’s insurance policy that has coverage for such a loss? –Dick B.

DEAR DICK: There is no vested right to the current zoning for a property. Properties are rezoned every day by city councils and county officials as demands for various uses change. Homeowner’s insurance does not offer zoning change coverage.

However, before a property can be rezoned there must be public hearings.

Current property uses are usually “grandfathered,” either permanently or for a number of years. However, if more than 50 percent of such a non-conforming use property is damaged or destroyed, such as by a fire, the building usually cannot be rebuilt and it must conform to the new zoning. For full details, please consult a local real estate attorney.

The new Robert Bruss special report, “Pros and Cons of Today’s Five Best Real Estate Profit Opportunities,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Inman News

Dear Barry,

When we purchased our house, the home inspection report was professional in appearance but not very accurate in its findings. In fact, five important defects were not disclosed.

1. No one told us that the roof leaks. We asked about a ceiling patch on the day of the home inspection, but the seller said this had nothing to do with a leak. That patch turned out to be exactly where the leaking occurs.

2. The inspector charged an additional $50 to inspect the spa. Now we find that the spa leaks and is inoperative.

3. The dishwasher drain squirted water all over the countertop. The home inspector said this was normal, but we had to have the dishwasher replaced.

4. The kitchen vent hood cannot be used because you get shocked when you touch it.

5. One of the windows leaks when it rains.

Shouldn’t these defects have been reported by our home inspector? –Ellie

Dear Ellie,

There are wide-ranging disparities in the relative abilities of home inspectors to discover defects. A buyer should find the most experienced inspector rather than hiring just anyone. Real estate agents usually know who the most thorough inspectors are. Some recommend accordingly; some do not.

Regarding the five defects you listed, your inspector was at fault in some but not all of these instances.

1. In most (but not all) cases, roof leaks can usually be anticipated on the basis of observable roof defects. The question here should be, “Were there visible roof defects that were not disclosed by the home inspector?” If so, the inspector may be liable for those repairs. However, if the sellers were not honest about the cause of the ceiling patch, they were in violation of state disclosure laws and are even more culpable than the inspector.

2. If the inspector charged an additional fee for the spa, he should have operated it and checked for visible defects. If the unit was leaking at the time, that condition should have been disclosed. If the inspector failed to report a visible defect, he should be liable for repairs.

3. If the dishwasher squirted water onto the counter, the problem was a clogged hose between the airgap and the sink drain. The inspector should not have reported this as being “normal.” However, unclogging a drain hose is a minor repair. If someone convinced you to buy a new dishwasher on the basis of a clogged hose, you were misled.

4. If the range hood had an electrical problem causing shock to the user, that condition would only be noticed if someone touched the fixture while simultaneously touching a grounded object, such as the range. It is possible that the inspector was not touching a grounded object when he tested the hood (assuming that he tested it). In this case, it is possible that the inspector missed the defect without being guilty of negligence.

5. Home inspectors routinely inspect windows sills for evidence of past leakage. If the sills at your windows show signs of previous moisture and this was not disclosed by your inspector, then he was probably negligent in this aspect of the inspection and should be liable for that problem.

When defects of these kinds are discovered after the purchase, it is important that you notify the inspector immediately and request that he reinspect the problem areas. Failure to do this can relieve the inspector of liability in some cases. Once a problem is repaired, the evidence of negligence no longer exists.

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

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Copyright 2006 Barry Stone

DEAR BOB: Before my father died this year, he deeded his house into his living trust, of which my sister and I are successor trustees. His will stipulates that all his property and assets be divided equally amongst his four children (me, my sister and two brothers). We are getting the house ready to sell and expect to net more than $400,000. His original purchase price was $36,000, with no major improvements since then. Because he was single at the time of his death, does his estate owe tax on the profit exceeding $250,000? –Randall G.

DEAR RANDALL: No. Unless your late father left a net estate exceeding the current $2 million federal estate-tax exemption, no federal estate tax will be due. The $250,000 principal residence sale tax exemption of Internal Revenue Code 121 applies only to home sales during the seller’s lifetime.

Purchase Bob Bruss reports online.

However, you said your dad’s will leaves his assets to the four siblings. But his will has nothing to do with his living trust, which should specify who receives the living-trust assets after his demise.

Depending on the state law where your dad was a resident, there might be an inheritance tax on the heirs. Fortunately, only a few states still have old-fashioned inheritance taxes on heirs, but there are usually generous exemptions for close-relative heirs, such as spouse, children and parents.

Congratulations to your late father for wisely transferring title into his living trust so the home can be sold and the proceeds distributed without any probate court delays or extra costs. For more details, please consult a probate attorney in the state where your father was a resident.

NO NEED FOR A REVERSE MORTGAGE UNTIL YOU WANT THE MONEY

DEAR BOB: My husband and I (ages 73 and 83) have a lot of equity tied up in our home of 40 years. Because we will probably need money in the near future for living expenses, I’ve been trying to convince my husband to look into a reverse mortgage. But he tells me your articles advise not obtaining one unless the homeowners plan to stay in their home at least five years. Therefore, he is reluctant to consider a reverse mortgage because we don’t need the money yet. My idea is to take out a reverse mortgage now, deposit 25 percent in a liquid account to draw on if needed and invest 75 percent in an insured account with high interest. Is this a good plan? –Lorna K.

DEAR LORNA: No. If you don’t need the reverse mortgage money yet, I see no reason to obtain one now and start accruing interest on money you really don’t need. However, this is a good time to shop among reverse mortgage lenders to compare the FHA, Fannie Mae and Financial Freedom Plans. You can choose to receive lump sum, lifetime income, credit line (except in Texas), or any combination of payments.

If you want to arrange a reverse mortgage now, the most popular choice credit line alternative makes funds available when you need them in the future, such as for a new roof or a trip around the world.

However, although interest doesn’t accrue until you start using the money, not using the available money is an expensive choice because your up-front loan fee costs start accruing interest whether you use any funds or not. More details are in my special report, “The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.

DON’T BE INTIMIATED BY THREATENING MORTGAGE BROKER

DEAR BOB: My husband and I were seriously considering refinancing our home loan. The mortgage broker asked if we wanted to “lock in the rate,” and my husband said “yes.” The very next day, after much thought, we realized the closing costs were too high and it isn’t smart to proceed because we plan to move within a year. I immediately phoned the mortgage broker and told him not to proceed (I confirmed this by e-mail too). The broker continued to phone and left messages that turned nasty when he said a “denied letter” was going on our credit report because we withdrew our application. But we never signed anything and we never finalized the loan product we wanted. But a “good faith estimate” statement was mailed to us. Can this mortgage broker make our credit score lower? –Stephanie N.

DEAR STEPHANIE: No. If you didn’t submit a signed loan application and didn’t give the mortgage broker permission to proceed, he had no legal right to access your credit reports. Congratulations on backing out of that refinance if you plan to sell within 12 months. It would be a total waste of costs for you to refinance now.

That mortgage broker is trying to intimidate you. Even if you had applied in writing for a mortgage that was denied, it wouldn’t show up on your credit reports other than as a credit inquiry.

If that bad mortgage broker gives you any further hassle, you should report the matter to the state regulator of mortgage brokers. Be sure to check your credit reports in about 30 days at www.myfico.com to verify your FICO score and to be sure there are no errors on your credit reports.

NO WAY TO AVOID TAX SELLING RENTAL HOUSE TO PAY DOWN HOME LOAN

DEAR BOB: My wife and I own two rental houses. Our goal is to reduce the mortgage balance on our principal residence. Is there any way we can sell the two rental houses and use the cash received to pay down our home loan without owing capital gains tax on our sale profits? –Mark J.

DEAR MARK: Sorry, there is no way to sell your rental houses and avoid paying capital gain tax on your profit although you want to use the cash to pay down your home mortgage balance. Fortunately, the federal long-term capital gain tax is currently only a 15 percent maximum, plus any applicable state tax where the rental property is located. For more details, please consult your tax adviser.

OCCUPANY TIME ALONE DOESN’T DETERMINE PRIMARY RESIDENCE

DEAR BOB: We own two homes where we spend about six months every year in each one. We want to sell our Florida home. But we file our income tax returns from our other home, vote there, etc. Must we change our legal domicile to Florida and file income tax returns from Florida in the year before we sell so we can claim up to $500,000 tax-free profits? –Diane W.

DEAR DIANE: Internal Revenue Code 121 says you qualify for up to $250,000 (up to $500,000 for a married couple filing a joint tax return) tax-free principal residence sale profits if you own and occupy the home at least 24 of the 60 months before its sale.

As you discovered, both your homes meet the occupancy test since you spend about six months every year living in each one. But occupancy time alone doesn’t determine your principal residence.

However, if you don’t vote, hold driver’s licenses, register your automobile, file income tax returns, have bank accounts, etc., in Florida and you are audited by the IRS, your Florida home will probably be determined not to be your principal residence.

Just filing your income tax returns from Florida in the year of the sale and the previous year might not be sufficient, especially if you didn’t record a Florida homestead. Check with your tax adviser for full details.

HOME LISTING AGENT’S $695 FEE, PLUS SALES COMMISSION, IS OUTRAGEOUS

DEAR BOB: We signed a listing contract to sell our home. While going through our papers, we found we were missing the listing agreement. We went to the broker’s office to get the missing paper and found it contains a $695 “transaction fee” plus the sales commission. We do not believe we signed the agreement with that fee on it. Nothing about this fee was mentioned until we saw it on the listing agreement. Do we have any recourse? –Virginia F.

DEAR VIRGINIA: Shame on your listing agent for (1) not calling your attention to that extremely high $695 unnecessary transaction “junk” fee, on top of your sales commission, before you signed the listing and (2) not giving you a copy of the listing at the time you signed it.

Most states require the seller immediately be given a copy of the listing. You might want to report the matter to the state real estate commissioner for investigation and possible licensee discipline.

If I were in your shoes, I would be so disgusted with that listing agent I would immediately cancel the listing for misrepresentation.

The new Robert Bruss special report, “Pros and Cons of Today’s Five Best Real Estate Profit Opportunities,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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Copyright 2006 Inman News

No one likes to admit they bought the wrong house. But, it happens.

Decades ago, one couple who live in the Oakland Hills in Northern California bought their first home because they fell in love with the setting. They were in competition with another buyer and had to make a snap decision. Soon after moving in, they realized that the house had a dysfunctional floor plan. There was no comfortable place to sit down for a meal; the kitchen was small and there was no dining room.

A year and a half later, they sold the first house and bought another a few blocks away that had both an eat-in kitchen and a formal dining area. However, this house was too small and had only one bathroom.

Two years later, they moved again. They got it right the third time when they bought a house that suited their long-term housing needs. This was an expensive way to learn what they needed in a home. The fees associated with buying three times and selling twice within less than four years amounted to more than $100,000, adjusted for inflation.

It could have been worse. There was significant home price appreciation during the time that this couple bought and sold. So, they realized a profit on the sales, even after deducting the transaction fees. This would not have been the case if they’d bought and sold several times when the real estate market was either flat or declining.

The current housing market is in transition. The rate of home price appreciation has declined from the robust pace of a year ago. Although prices are holding up well in many areas, prices could dip in housing markets that are over-built or are subject to an economic down turn.

With relatively low interest rates and more inventory to choose from in many areas, this could be a good time to buy if you find the right property. But, if you buy the wrong house in the current market, you could actually lose money if you want or need to sell within the next several years. HOUSE HUNTING TIP: Here are a few guidelines to help make sure you buy the right home the first time:

Don’t let yourself feel pressured into buying because interest rates are rising, or because you’re tired of where you’re currently living. Bad home purchase decisions are often made under pressure.

Many listings, particularly in the San Francisco Bay area, are staged for sale. Don’t be distracted by a good decorating job. You’re buying the house or condo, not the furnishings. Force yourself to look past the staging to make sure that it offers you the amenities you need, like adequate storage space or a good yard for children.

Avoid reactionary buying. The couple in the above example was so intent on improving their dining experience that they failed to take into account that they also needed two bathrooms and more living space for the house to work long-term.

Before making a commitment to buy, make a list of the features that your current home lacks. This will help you generate a comprehensive wish list that doesn’t overlook something critical.

For example, if you entertain a lot, you’ll want a home with generous public spaces. If you’re a serious cook, the kitchen amenities will be a priority. However, if you cook little and have parties catered, a fabulous kitchen may not be as important.

THE CLOSING: Compromising is a part of the home-buying process. The perfect house doesn’t exist — not at any price. Just make sure your compromises don’t leave you wanting to move again soon.

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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Copyright 2006 Dian Hymer

(This is Part 2 of a two-part series. Read Part 1.)

Last week, I made the point that more than 90 percent of home mortgage transactions involved a two-stage process. The first stage, the development of posted prices that are delivered to loan officers and mortgage brokers, is bias-free. The unequal treatment of minorities occurs in stage 2, where posted prices are converted into the final prices paid by borrowers. A sizeable number of loan officers and brokers charge what the market will bear, and minorities end up paying more because they are more vulnerable.

Lenders may commit many sins, but I don’t believe that discrimination against minorities is one of them. Wholesale lenders have virtually no control over the markups charged by brokers. While loan officers working for retail lenders are employees, lenders cannot eliminate their pricing discretion or control how it is used. They would love to, but any lender that tried it would lose its loan officers and the loans they bring in.

Community groups don’t like my analysis because it takes lenders off the hook. Brokers and loan officers are a much less attractive target for them than lenders. A recent study by the Center for Responsible Lending (CRL) concedes that posted prices are free of bias, but claims that lenders influence the final prices in indirect ways that can be discriminatory. In my opinion, none of their arguments withstand close scrutiny. The longer version of this article on my Web site will have a detailed analysis of their arguments.

Community groups also don’t like the idea that loan officers and brokers are out to skin everyone but are more successful with minorities. This conclusion can be interpreted to mean that the victims are partially responsible for their own mistreatment. In my view, this interpretation is sometimes unavoidable. Borrowers are victimized primarily because they are ill informed, and given that the information that would protect them is widely available, they bear some responsibility for not finding and using it.

In the community group vision of the mortgage market, lenders are the villains and minorities the victims. Their proposed remedies largely involve government increasing the burdens and responsibilities imposed on lenders. For example, community groups favor making lenders legally responsible for the suitability of the mortgages they provide in meeting the needs of borrowers. I am opposed to such a rule, for reasons discussed in another column.

I wish the community groups did a better job of advising their constituents about how to avoid trouble. Their advice is mainly directed at how to identify the bad guys, which is the wrong approach. There are too many bad guys, and they are too good at disguising their true nature.

The right approach is to identify the good guys and ignore the rest, the same approach used by savvy pickers of wild mushrooms. They only pick the ones they know are good. Picking the mushrooms that aren’t bad requires an ability to identify all the bad ones, which is more time-consuming and much riskier.

Minorities (and others) can avoid discrimination by selecting distribution channels where pricing discretion is either absent or controllable by the borrower. Pricing discretion is absent in Internet-based lending because loan officers don’t capture the customer and therefore don’t have the clout to dictate their terms of employment.

Internet-based lending offers other borrower protections as well. These include more complete information on lender fees and third-party fees, and the ability of shoppers to monitor their price from day to day until they lock it. On my Web site, I list and rank the best of the Internet-based lenders, including two that qualify as Upfront Mortgage Lenders.

Another way to avoid discrimination is to negotiate an all-in fee with a mortgage broker, the fee to include any payments received by the broker from the lender. While most brokers don’t work that way, preferring to keep their markup their own business, most of them will if the borrower insists on it. (Upfront Mortgage Brokers, who are listed on my site, work this way as a matter of course). The borrower has the clout to dictate the terms of his engagement with the broker, if only he realizes it.

If the CRL and other community groups guided borrowers to lending channels where they would not be exploited, these channels could become the dominant delivery systems, and the channels where predators operate would shrink. This would require nothing of government, whose track record in protecting mortgage borrowers is very poor.

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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Copyright 2006 Jack Guttentag

The 10-year T-note is again falling toward 5 percent, and has taken low-fee mortgage rates to 6.75 percent.

Newspapers today say that “mortgage rates rose” this week, but this factoid is based on Freddie Mac’s bone-headed method of early-week survey and delayed (Thursday) release. Rates had risen in nervous anticipation of Federal Reserve Chair Ben Bernanke’s Wednesday testimony to Congress, but fell instantly — before he began to speak — on release of his prepared remarks.  

Bernanke’s communication skills are improving: the testimony was as bland and even-handed as could be. However, the heart of his testimony, and the strong reaction in the bond and stock market, were odd. Bernanke, now repeatedly referring to a “moderating” economy, offered a forecast of GDP growth to decline from “3.5-3.25 percent in 2006 to 3.25-3 percent in 2007,” and core inflation to decline from “2.5-2.25 percent in 2006 to 2.25-2 percent in 2007.”

Oddity number one: a centerline decline in GDP growth of .25 percent from 2006 to 2007 is too small to measure, the insignificant over-the-weekend change in the waistline of a binge eater on a diet.

Number two: how would a .25 percent GDP moderation reverse the obvious inflation problem at hand? Bernanke seems supremely confident that if oil stabilizes here, inflation will gradually abate without economic sacrifice, and stock and bond markets gleefully agreed.

Number three: Bernanke indicated no particular angst that core inflation has crawled out of its 2 percent box. When one senator asked him his reaction to inflation above the 2 percent target, he snapped, “We have no target.”

I think you get a post-testimony bond-buying surge like this only if the market believes that the economy is going to moderate a hell of a lot more than Bernanke’s .25 percent, and that if the Fed goes to 5.5 percent on Aug. 8 it will result in deeper moderation — ideally, a recession.

Now, there’s nothing really odd about that line of thought. It is, after all, the standard, end-of-Fed-cycle, bond-market dream of Christmas. And, in the short run, the bond market is always more worried about the Fed than inflation. If the Fed sounds as tough is done, it’s safe to buy bonds.

The deepest peculiarity here is the absence of caution in the market, especially the bond market. The worst moment for bonds in a hundred years was the 1970s, during which the Fed tolerated the gradually rising inflation pushed by energy costs, refusing to inflict the economic pain necessary to keep inflation in the box. Inflation ultimately spun out of control altogether.

Today we pay attention to “core” rates of inflation, excluding energy and food costs, because of the presumed up- and down-side volatility of those prices. However, overall CPI rose 4.3 percent in the last year, and I don’t see any reason for optimism about offsetting, down-side volatility near ahead (or far ahead…China’s imports of oil surged 15.3 percent in the first quarter). In the last year, the average return on a 10-year T-note was about 4.8 percent; an investor’s after-inflation, real return was perhaps a half-percent.

Why would the marketplace accept such a miserable return? The classic answer is found above in the expectation that the economy is not in a moderating process, but about to hit a wall. If so, OK for the mortgage biz, and another chance approacheth for adjustable-rate borrowers to refinance their mistakes.

The answer to the trading-desk counter-question — what are you going to do if you’re wrong? — is unhappy. This market is exceedingly vulnerable to growth or inflation surprises, or an unraveling of the unnatural, foreign-based buying of long debt at non-economic yields.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

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Copyright 2006 Lou Barnes