Real Estate in Steamboat

DEAR BOB: About a year ago, my elderly mother deeded to meher home and two rental properties I manage for her. Her attorney handled thequitclaim deeds and the recordings. Mother died in October 2006. When I talkedto my mother’s tax accountant he said, “It’s too bad your mother deededthe titles to you. If you had inherited those properties, you would have a newstepped-up basis of market value and you would owe practically zero tax whenyou sell them shortly after her death.” Is this true I don’t get a newstepped-up basis? –Ellen H.

DEAR ELLEN: Yes. Unfortunately, you didn’t inherit thoseproperties. You received the titles as pre-death gifts. As the donee, you tookover your donor mother’s probably very low adjusted cost basis for theproperties.

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That means, when you sell them, you will owe a large capitalgains tax. Unfortunately, your tax accountant is correct.

This situation shows why it is often best, especially when aparent anticipates dying soon, not to deed real estate to a potential heir. Theobvious reason is then the prospective heir won’t receive a new stepped-upbasis to market value on the date of death.

NO GUARANTEE A VACANT LAND BUYER CAN GET BUILDING PERMIT

DEAR BOB: I am considering buying a vacant lot on which Iwant to build a home. What assurances can I receive before the purchase thatthe building permits and site plans will be approved by the local authorities?I do not want to be stuck with a lot on which I cannot build. –Pat E.

DEAR PAT: A buyer of vacant land has no assurances abuilding permit will be issued, even when the proposed plans exactly meet thezoning and other land-use rules. Depending on the city or county, I’ve seenfrustrated developers and landowners stalled for years when neighbors object orvariances are required.

For this reason, savvy raw-land buyers can often pay amodest price, typically 1 percent to 3 percent of the purchase price, for a12-month option to buy the land at a fixed price. That ties up the property andgives the buyer time to apply for the necessary permits. If they can’t beobtained, all it cost the potential buyer was the forfeited option money.

HOW TO MAKE A TAX-DEFERRED TRADE FOR DREAM HOME AND PAY NOTAX

DEAR BOB: I own two rental properties. Let’s call them A andB. I have never lived in either one. Nor do I intend to. Let’s say I sell A andB on the same day and do an Internal Revenue Code 1031 tax-deferred Starkerexchange by identifying and purchasing property C. Assume I rent property C forthree years and then move in to make it my principal residence for two years.Then I sell property C. If the total capital gains on A, B and C are less than$500,000 (I am married and my wife would live with me in property C for atleast two years), can I sell property C without owing any tax? –Tim McW.

DEAR TIM: Yes. But you must hold title to property C atleast 60 months because it was acquired in a tax-deferred IRC 1031 exchange. Itdoes not become eligible for the IRC 121 $500,000 principal-residence-saleexemption until you have owned it at least five years, of which at least 24months it was your principal residence.

At the time of its acquisition, of course, it must be a”like kind” rental property, and the trade must qualify as atax-deferred IRC 1031 trade up.

Of course, be sure your sales of properties A and B complywith the IRC 1031(a)(3) Starker tax-deferred exchange rules. That means thesales proceeds must be held by a qualified third-party intermediary so younever have “constructive receipt” of the sales proceeds. For details,please consult a tax adviser who is familiar with Starker tax-deferredexchanges.

The new Robert Bruss special report, “2007 Realty TaxTips-Eight Chapters of Tax Savings for Homeowners and Realty Investors,”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 columnare welcome at either address.

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

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Copyright 2007 Inman News

Plaintiff Brenda Pickern is a visually impaired andmobility-impaired woman who depends on an electric wheelchair fortransportation. Pier 1 Imports Inc. operates its store leased from the SiegmundWeinstock Family Trust.

The store is separated from the street by a long strip ofland containing a public sidewalk and a 10-foot-wide grassy berm. There is noaccess ramp connecting the sidewalk to the store’s parking lot. Both the publicsidewalk and the grassy strip are owned and maintained by the city.

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Pickern cannot traverse the grassy strip in her wheelchairto reach the store. Instead, she must proceed down the sidewalk to one of twomain mall entrances or to one of several access ramps connecting the sidewalkto the mall parking lot.

The plaintiff sued Pier 1 Imports for violation of theAmericans with Disabilities Act (ADA). She alleged the store and its landlordfailed to remove architectural barriers, including building a ramp from thestore over the grassy area to the parking area.

The attorney for the store and the landlord replied there isno obligation to build an access ramp over the city-owned grassy area to makethe store more easily accessible from the parking lot. Pickern argued ADArequires such access in existing facilities where such removal is readilyachievable.

The defendant store and landlord emphasized the city controlsthe grassy area and ADA prohibits access discrimination only by people who own,lease or operate a place of public accommodation.

If you were the judge would you require Pier 1 and itslandlord to build a handicap-access ramp over the city-owned grassy area toprovide better access?

The judge said no!

Title III of the ADA requires property owners and tenants ofcommercial places of public accommodation to remove architectural barrierswhere such removal is readily achievable, the judge began. However, in thissituation the landlord and tenant do not manage the strip of grass, mow it ormaintain it in any manner, he continued.

There is no requirement in ADA that private entities seekpermission to alter public property to accommodate the handicapped, the judgeexplained. Therefore, Pier 1 and its landlord have no obligation under ADA toprovide an access ramp over the city-owned grassy area for Pickern to moreeasily reach the store, the judge ruled.

Based on the U.S. Court of Appeals decision in Pickern v.Pier 1 Imports (U.S.) Inc., 457 Fed.3d 963.

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

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Copyright 2007 Inman News

Q: Myhusband and I installed a pressure-treated deck about 15 years ago. We did notknow then what we know now about the chemicals and carcinogens that were usedin the manufacturing process. We installed a second redwood deck on a backportion of the house about eight years ago. We’re now interested in tearing outthe pressure-treated deck and replacing it with redwood for one consistent lookand maintenance plan. Our questions are:

1. Isthere any risk involved to people removing a pressure-treated deck? Shouldworkers wear protective gloves or masks?

2. Becausepressure-treated lumber is toxic and non-biodegradable, where is an appropriateplace to dump the deck pieces once they are removed?

3. Haveyou heard any studies or read any anecdotes about anyone (pets included)getting sick from living with a pressure-treated deck? I ask because our dogsoften chew and lick toys and bones on that deck.

A: Morethan 70 years ago, Karl Wolman invented a system to infuse wood withpreservatives. Wood is placed in a large cylindrical tank, and the tank isdepressurized to remove the air. Then chemical preservatives are pumped intothe tank under high pressure, forcing the liquid preservative deep into thewood. Incisions are often cut in the wood to allow the preservative topenetrate deeper.

The resultis a wood product that will not rot or decay for more than 20 years, even underthe most extreme conditions.

The mostcommon preservative used to treat wood was chromated copper arsenate, or CCA.The arsenate part of the formula refers to arsenic, an extremely toxicchemical. Concerns over safety have led to the voluntary discontinuation of themanufacture of CCA-treated wood for residential use by the industry, althoughCCA will continue to be used in some industrial applications.

In 2004the use of CCA for residential use began to be stopped. Two alternativepreservatives will take the place of CCA over the next several years. They areamine copper quat (ACQ) and copper azole (CA).

As withCCA, copper is the dominant ingredient in these preservatives. According to theForest Products Laboratory of the Department of Agriculture, there is littlepractical difference between CCA and these alternatives.

However,ACQ and CA are more expensive, so the amount of preservative infused into woodwill differ between “in-ground” and “above-ground”applications. Lumber will be marked for each application. Use it according tothese guidelines.

Foradditional information visit the Forest Service’s Forest Products Web site, www.fpl.fs.fed.us.

Here areour answers to your questions, but before we begin, let us calm what might be aconcern. Existing decks made of pressure-treated lumber pose no danger. Likeasbestos, if you leave them alone, no problem.

To bedoubly safe, though, be advised that CCA contained in the surface residue oftreated boards is water soluble. Some of thepreservative can leach from the wood when it gets wet. Application of apenetrating oil stain or sealer can encapsulate the residue and alleviate thisproblem.

Now toyour questions. Workers who remove your deck should wear gloves, long-sleevedshirts and long pants. Wear a dust mask to avoid inhalation of any of thepreservative-laden particulates. Wear safety glasses or goggles. Finally, washwork clothes separately from other laundry to avoid cross contamination.

As todisposal, do not burn the wood or mulch it. Also, try to capture any sawdustand debris resulting from the demolition and dispose of that also.

In 2004the California Legislature passed Assembly Bill 1343 governing disposal oftreated wood waste. Under this law, pressure-treated lumber may be disposed ofin a hazardous-material landfill or in a composite-lined portion of a municipallandfill that meets specific requirements. Contact your local landfill todetermine whether there are any restrictions to dumping your deck there.

Finally,we haven’t heard of any toxic effects on pets from playing on pressure-treateddecks. However, CCA residue on the surface of treated boards is water soluble,so excessive licking of the wood itself could transfer the toxins to your pet.

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Copyright 2007 Bill and Kevin Burnett

While U.S.mortgage lenders are heading south of the border to finance real estate inMexico and Central America, the push to penetrate the Canadian mortgage marketis considerably cooler — even with the 2010 Olympic Games in Vancouver justaround the corner. 

Retireesand aging baby boomers “from the states” are drawn to Canada for itswonderful skiing, health care, bargain medicine, terrific sailing and cleanair, but the numbers of second-home buyers and older full-time residents havenot been as attractive to lenders as the pool of thousands of snow birds whohead south.

Americanscan borrow from Canadian banks and vice versa. But trying to finance Canadianproperty with U.S. funds becomes difficult. Location, security in the propertyand the ability to enforce simply make the package unattractive to most U.S.lenders. GMAC, one of the more interested international mortgage participants, recentlyintroduced a 30-year, fixed-rate loan in Mexico, but officials say they are”not that close” with a Canadian product.

If you arethinking about borrowing in Canada to buy a condo so you can enjoy mountainviews and the skiing, don’t expect to see the loan options available that arecommon in the United States. Most Canadian conventional loans are written witha 5-year term. There are some 7- and 10-year options available but the mostpopular loans right now are 6-month, 1-year, 3-year and 5-year loans(comparable to our adjustables and known as “open”), each typicallyamortized over a period of 25 years.

“Open”does not mean the borrower’s monthly payments adjust as the monthly marketfluctuates; it means the borrower can prepay the loan at any time. Borrowerspay more for an open loan. Fixed-rate loan rules allow for prepayment only oncea year. When a loan reaches its term, the lender usually renews it.

Shorterloan terms encourage borrowers to consider paying off loans as soon aspossible, giving the consumer more of a stake in the property. This acceleratedequity makes more sense to Canadians than it does to U.S. taxpayers becauseCanadians are not able to deduct home-loan interest from their taxes. For someAmerican consumers, the mortgage-interest deduction is the only major write-offavailable.

Manyinvestment advisors say that folks looking to purchase property abroad — forinvestment or a principal residence — often refinance or take out ahome-equity loan on a property in the United States and pay cash for the”offshore” home. That way, all financing questions are eliminated andthe interest on the home-equity loan or refinance often is tax deductible.

If you arelooking at the Canadian property solely as an investment, research thecapital-gains ramifications if you expect to execute a tax-deferred exchange.You may be able to rent the getaway — especially if it’s in a popular locationsuch as Whistler where snow skiers can be seen on the mountain-top glaciernearly 12 months a year — but it will not qualify as a “replacementproperty.”

Withinvestment property in the United States, you can defer your capital gain ifyou buy a “like kind” property of equal or greater value than the oneyou sold, provided you identify it within 45 days and purchase the replacementproperty within 180 days from the day you sold the first property. The InternalRevenue Service says any property outside of this country is not “likekind” so no capital gains taxes can be deferred.

Americansface two large issues when investing in real estate abroad. First, you have theappreciation or depreciation of the real estate itself — or the “propertyside” of the decision. You also have the currency risk when you sell theproperty and bring the money back into this country. If the Canadian dollarslides, you run the risk of losing money on that investment. However, if theCanadian dollar improves against the U.S. dollar, your investment suddenlyrises significantly.

While aU.S. dollar is not worth as much in Canada as it was the past several years,Canadian recreational real estate is appreciating. Not only has theVancouver-Whistler corridor been booming, but European investors areencouraging their clients to consider the eastern provinces of Newfoundland,Prince Edward Island, Nova Scotia, New Brunswick, Quebec and Ontario asrecreational investments.

However,you won’t find a lot of U.S. lenders waiting to lend you the money to buy.

TomKelly’s new book, “Cashing In on a Second Home in Mexico: How to Buy, Rentand Profit from Property South of the Border,” was written with MitchCreekmore, senior vice president of Houston-based Stewart International. Thebook is available in retail stores, on Amazon.com and on tomkelly.com. Tom canbe reached at news@tomkelly.com.

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Copyright 2007 Tom Kelly

If you own your home (or want to) and/or investment realestate but don’t fully under its tax benefits, “Selling Real EstateWithout Paying Taxes, Second Edition” by attorney Richard T. Williamsonshows how to maximize your tax advantages. Emphasis is primarily on avoiding taxeswhen selling real estate, but the author also emphasizes the importance of thenoncash depreciation deduction for owners of investment buildings.

This book is for homeowners and investors who need more thanbasic tax information about avoiding tax on home sales and tax-deferredexchanges. Williamson provides superb explanations of how to use privateannuity trusts, charitable remainder trusts, and even tax-free IRA (individualretirement account) investments to accomplish financial goals while avoidingtaxes and planning for retirement.

Purchase Bob Bruss reports online.

Investors who are tired of property management but want tocontinue enjoying the real estate income and tax advantages will be especiallyinterested in the brief chapter explaining how to make a tax-deferred tradeinto a management-free tenant-in-common (TIC) investment property.

This well-organized book provides simple explanations ofsometimes-complicated tax concepts, such as the tax-deferred-exchange rules andthe $250,000 and $500,000 sales-exemption rules for primary residences. Withoutgetting technical, the author helps readers understand these importanttax-avoidance rules.

Williamson has a knack for simplifying tax concepts,especially installment sales tax deferrals and private annuity trusts so thereader will know if the concept is suitable and if a tax adviser should beconsulted. His explanation of private annuity trusts is the best I’ve seen.

It’s hard to get excited about saving tax dollars, butWilliamson comes close. By the use of many brief examples, he explains how taxsavings can result from wise tax planning. Although the book is not a legaltreatise, where necessary the author lists tax court decisions, IRS RevenueRulings and other key resources real estate owners may need to show to theirtax advisers.

When a tax-saving concept has serious disadvantages toconsider, the author explains them and, sometimes, how to avoid adverseconsequences. For example, when he explains charitable remainder trusts forhomeowners and investors who want to donate their real estate to a charity butstill enjoy the lifetime benefits, Williamson doesn’t hesitate to mention theirrevocability disadvantage and how to overcome it.

Chapter topics include “What are Your Objectives?”"How to Estimate Your Capital Gains Taxes”; “The Benefits ofDepreciation”; “Benefiting from a Stepped-Up Basis”;”Understanding All the Advantages of the Primary ResidenceExclusion”; “Investment Property Taxation-Investor Versus DealerStatus”; “Starker 1031 Tax-Deferred Exchanges”;”Tenant-in-Common Exchanges”; “Installment Sales”;”Combining a 1031 Exchange with an Installment Sale”; “PrivateAnnuity Trusts”; “Charitable Remainder Trusts”; and”Tax-Free Real Estate Investing in an IRA.”

This book for homeowners and investors shows how to maximizetheir tax advantages, primarily when the property is sold. It makes the taxrules easily understandable by nonlawyers and nonaccountants. On my scale ofone to 10, this superb book rates a solid 10.

“Selling Real Estate Without Paying Taxes, SecondEdition,” by Richard T. Williamson, Esq. (Kaplan Publishing, Chicago),2007, $21.95, 195 pages; available in stock or by special order at localbookstores, public libraries and www.Amazon.com.

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

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Copyright 2007 Inman News

DEAR BOB:I recently bought a house. The seller and/or hisreal estate agent took all the three sets of washers and dryers in this largehouse before I got the keys. I think the washers and dryers are fixtures, notto be removed by the seller or the agent. What can I do about this? –Lea W.

DEAR LEA: Any moveable appliance that is not permanentlyattached to the structure, such as by bolts or built-in like a dishwasher, isnot a fixture and remains personal property.

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Unless the sales contract clearly said the washers anddryers were to remain in the house, the seller was entitled to remove thatpersonal property along with the furniture.

The law of fixtures can sometimes be difficult to apply(although not in your situation). For example, I’ve seen large built-inrefrigerators with panel doors that match the kitchen cabinets. As a lawyer, Icould argue such a refrigerator is a built-in appliance fixture automaticallyincluded in the sales price. However, if the refrigerator easily slides outwithout damage to the structure, then it is arguably personal propertybelonging to the seller.

Experienced real estate agents make certain the salescontract specifies any personal property or questionable fixtures the buyerwants included in the sales price. Unless listed, and usually conveyed by abill of sale, such items remain personal property, which the seller can remove.For more details, please consult a local real estate attorney.

CAN MEMBERS ATTEND HOMEOWNER ASSOCIATION MEETINGS?

DEAR BOB: About six months ago, I bought a very upscalecondominium. My neighbors are the nicest people and I love associating withthem. However, the condo homeowner association is considering a specialassessment to re-carpet the hallways and refurbish the main entrance. Althoughthe replacement reserves appear to be very adequate to take care of thisexpense, which I agree is needed on our 15-year-old building, the board ofdirectors proposes assessing each owner $1,500 to $2,500, depending on the sizeof his/her condo. What irritates my neighbors and me is we are not allowed toattend the monthly board meetings. We are allowed only to write letters to thedirectors and attend the annual meeting. Is this legal? –Corla S.

DEAR CORLA: The best-managed homeowner associations allowany member to attend the monthly meetings of the board of directors. However,occasionally the meeting must be closed, such as to discuss personnel matterslike hiring or firing an employee. Of course, if your association has a largemembership, rules must be adopted to provide orderly meetings.

For many years I have owned a condo where the monthlymeetings are open to the members. Few members show up, but I always read themeeting minutes sent to every member a few days later to see who was there andwhat happened at the meeting.

If a controversial issue arises, the board invites membercomments by letter and holds the matter over for a decision at the nextmeeting.

At the conclusion of each monthly board meeting, after thewritten agenda has been completed, the board asks for any comments orsuggestions from the member attendees. This prevents the meeting from gettingoff to a bad start or getting bogged down during the business meeting.

NO DEPRECIATION RECAPTURE UNLESS INVESTOR SELLS

DEAR BOB: I am preparing for my annual visit with myaccountant to discuss my tax situation on my investment properties, which Ihave owned for many years. I was trying to verify at what tax rate I will betaxed for the depreciation I’ve deducted over the years. What is yourperspective on this matter? Is the tax rate 15 percent or 25 percent? –AllynP.

DEAR ALLYN: Unless you sell your investment property onwhich you have been deducting depreciation, there is no need to be concernedabout depreciation “recapture tax.”

However, if you are selling a depreciable property you haveowned since before 1997, then the situation gets a bit complicated. In 1997,Congress enacted the special 25 percent depreciation recapture tax rate ondepreciation deducted after May of that year. But different rules apply todepreciation deducted before that date. However, ordinary federal capital gainsare currently taxed at a maximum 15 percent tax rate.

The new Robert Bruss special report, “2007 Realty TaxTips: Eight Chapters of Tax Savings for Homeowners and Realty Investors,”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 columnare welcome at either address.

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

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Copyright 2007 Inman News

Dear Barry,

When I bought my home, the home inspector recommendedthat I have a radon test for an additional $100. My agent, who also attendedthe inspection, said there had not been any high radon levels in the area andthat the additional fee was a waste of money. So I didn’t get a radon test.After closing escrow, I bought a radon test kit at the hardware store anddiscovered that the radon in my home is three times the level recommended bythe Environmental Protection Agency. Is my agent liable for his misleadingadvice? –Mickey

Dear Mickey,

Prudent real estate agents know better than to adviseclients on matters that exceed their professional expertise. Unfortunately,there are numerous examples of agents crossing this critical line. Some adviseagainst engineering and soils reports, against research of building permits, oragainst even having a home inspection. Those who give such advice misrepresentthe interests of their clients, while exposing themselves to serious levels ofliability. For an agent to discourage the specific aspects of the discoveryprocess is not only risky, it is unethical.

Radon is a radioactive gas that is emitted from the soil andthat may become concentrated in a home. It is often a very localizedoccurrence, rather than being typical of an entire neighborhood. In some cases,radon can reach high levels in one house, while being negligible at the homenext door. This fact is not likely to be known by many real estate agents,which is why agents should withhold uninformed advice to the contrary. From anethics standpoint, your agent bears some liability. Legally, oralrecommendations are difficult to prove, although you could test the matter inSmall Claims Court. If you do this, the amount in question would be the cost ofinstalling a radon mitigation system, usually between $1,000 and $2,500.

Dear Barry,

I’m planning to modify the interior of my condo and wantto know if I need a permit. The project involves the construction of additionalwalls to make a bedroom and closet. I’ve hired a licensed engineer to draw upmy structural plans, and I intend to do the work according to hisspecifications. What risks do I face if the work is done without a permit?–Scott

Dear Scott,

When you alter a building without a permit, you shouldconsider the issue of disclosure when you eventually sell the property. By law,you must inform buyers of all significant defects, and that would include workdone without permits. In that case, a buyer might insist that you obtain anas-built permit. The building department could then require full restoration ofthe living space to its original condition or removal of drywall to enableinspection of the added framing and electrical wiring.

Since you’ve already done the hardest part of projectpreparation — having plans engineered and drawn — why not go the extra stepand have everything done “according to Hoyle.” Remember, the codemandates the taking of a permit. Therefore, work that is not permitted cannot,by definition, be said to comply with code, regardless of how perfectly it isexecuted.

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

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Copyright 2007 Barry Stone

Lastweek’s long-term rates spent another week in relative stability: mortgagesabout 6.25 percent, held by the 10-year T-note near 4.7 percent.

However,this stability is an illusion. I think the Wall Street end of the mortgagebusiness is entering an episode of distress at this moment, and we will seepricing and availability do some strange things in the next week or two.

Theeconomic situation got a fright check on Wednesday when CPI rose .2 percent andthe core rate jumped .3 percent — that after months of well-behaved .1 percentgains. CPI is the least reliable of all the measures of inflation, and there isno sign of trouble from any of the other ones, but the whole rate structure isbuilt on belief that inflation will moderate in the year ahead. Fear comeseasily.

The upwardtilt in rates was offset by a soggy stock market, a consumer-dampening run ofoil prices above $60, saber-rattling by Sen. John McCain and Vice PresidentDick Cheney (at Iran), and by the mortgage developments below.

The mostsecret and lucrative operations on Wall Street, weighted for volume, is theprocess of securitizing and derivatizing mortgages. Nothing leaks, not untilmarkets yank off the covers. They are off, now.

The moneyworld has since 2005 watched for a blowing bubble in housing above all othereconomic possibilities, but it’s been watching the wrong thing. Close, butwrong. Housing is in a long-term correction, still looking for bottom, but thecorrection is orderly. Foreclosure rates are likely to rise clear through 2008,but there is no evidence of recession-inducing spillover into the economy as awhole — dampening growth but not drowning it.

The partymost vulnerable to the retreat of housing exuberance is not housing, it’s themortgage profiteers, at this moment the Wall Street co-dependents even more sothan their Main Street lender-accomplices.

Since the1980s the ultimate source of mortgage credit has been the Street, at firstbecause of its ability to handle interest-rate risk. “Handle” is thecivilian term for hacking up mortgage-backed securities into derivativesecurities and spreading the interest-rate risk all over the world. In roughly2000 the Street figured out how to handle credit risk, and the junk mortgagewas born. Usedta hafta go see the neighborhood kneecapper.

Junk isvery, very lucrative. However, as a kindly man explained to me near the end ofmy brief career as a junk-bond salesman, “Mr. Barnes, there is adifference between junk and trash.”

Everyfinancial reporter and news outlet has for a month been all over the demise ofthe subprime mortgage, the accent on foreclosures. In the mortgage market,everybody has been blaming everybody: it’s only the 2006 originations, it’sonly the bad actors … big guys stuffing faulty paper back down the throats oflittle guys until they fold, giant guys taking big losses (HSBC $10 billion sofar), but not giant losses.

As ofFriday there are not enough buyers of subprime risk to cover loans recentlyclosed or in process. In panicky conditions, no buyers at any price. Subprimeloans this week from time to time may be unobtainable until their rates movehigh enough and credit standards tighten enough. Trash, like other things,rolls downhill: Alt-A loans are closer to junk than trash, but highloan-to-value-ratio Alt-A loans are still trash. By next week there will be fewbuyers of Alt-A risk, and that market may lock up just like subprime.

A suddenwithdrawal of mortgage credit is a new hazard to vulnerable housing markets,but I think (hope) the damage will no more than prolong the correction. Oneleading reason: the price of good, mainstream loans may well improve in thisrapidly flapping flight to quality.

LouBarnes is a mortgage broker and nationally syndicated columnist based inBoulder, Colo. He can be reached at lbarnes@boulderwest.com.

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Copyright 2007 Lou Barnes

DEAR BOB: My husband has a terminal illness. I wonder howlong I have after he passes away to take advantage of his $250,000 principal-residence-saletax exemption. We have owned our home for 30 years and have no mortgage but alot of equity, thanks to market-value appreciation. I want to stay in the homefor a while, but I don’t want to miss out on his exemption. –Geri D.

DEAR GERI: Please don’t rush to sell your home after yourhusband passes on. Making quick decisions after the death of a loved one isoften a major mistake.

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If you sell your home in the tax year of your husband’sdeath, you can still use the $500,000 principal-residence-sale tax exemptionfor a married couple, thanks to Internal Revenue Code 121. That’s presuming youboth met the 24-out-of-last-60-month occupancy requirement and title is held inat least one spouse’s name.

You should be aware that if he leaves his half of the houseto you, as I presume he will, you then receive a new stepped-up basis on yourinheritance. In a common-law state, this would be a 50 percent stepped-upbasis. But in community-property states with the names of both spouses on thetitle, then a new 100 percent stepped-up basis to market value on the date ofdeath applies.

Thanks to the generous stepped-up-basis tax rules, you cansee why there is no need to hurry to sell the home in the year of yourhusband’s death. For full details, please consult your tax adviser.

WHAT IS A SHORT SALE?

DEAR BOB: What is meant by the real estate term “shortsale”? –Rich F.

DEAR RICH: A short sale means the mortgage is in default andthe lender agrees to accept a sales price below the amount that is owed on themortgage as payment in full.

This situation usually occurs when a home has declined inmarket value or the home was overfinanced for more than it is worth. Forexample, suppose a mortgage in default has a $200,000 balance, but the fairmarket value of the house is only $180,000. If the lender agrees in advance toaccept a $180,000 short sale as full payment, then the title can be deliveredto a buyer who agrees to pay $180,000.

However, the defaulting borrower will have $20,000 oftaxable debt relief income, as shown on the lender’s IRS 1099 form sent to theborrower and the IRS. Lenders who agree to short sales insist that borrowersnot receive any cash from a short sale. For more details, please consult themortgage lender.

BIG DRAWBACK OF HOME EQUITY LOANS FOR SENIOR CITIZENS

DEAR BOB: How can you recommend a reverse mortgage insteadof a home equity line of credit for a senior citizen homeowner? As a loanofficer, I am often frustrated with your advice. I run my lines of credit formy clients at almost zero commission to myself. With fees of only about $175including the appraisal, there isn’t room for much commission. Reversemortgages should be outlawed. I will never do that type of mortgage for myclients. Reverse mortgages require mortgage insurance. The commissions I’veseen are about four points. I am appalled. Seniors who have equity in theirhomes should do a cash-out refinance and have a financial advisor manage theirmoney. This is the most cost-effective loan. And they get to keep their house.–Jamie B.

DEAR JAMIE: I am shocked a loan officer like you doesn’tfully understand reverse-mortgage benefits. If a senior citizen has little orno income, how can they afford the payments on a home equity loan or arefinanced mortgage?

I suggest you fully study the benefits of reverse mortgagesbefore you close your mind. Refinancing a mortgage and turning the proceedsover to a financial advisor makes no sense (except for you, who will receive aloan origination fee). How will the senior citizen homeowner make the mortgagepayments?

Senior citizen reverse mortgages require no monthlypayments. Yes, the up-front fees can be stiff. For that reason, a reversemortgage should not be obtained unless the senior plans to stay in the home atleast five years. All reverse mortgage lenders now require counseling so theborrower fully understands the details.

How else can senior homeowners obtain the money they needfrom their home equity without having to make monthly payments? Contrary toyour mistaken remark, the senior citizen with a reverse mortgage keeps his/herhome.

The reverse mortgage is repaid when the homeowner sells,moves out or dies. Details are in my special report, “The Whole TruthAbout Reverse Mortgages for Senior Citizen Homeowners,” available for $5from Robert Bruss, 251 Park Road, Burlingame, CA 94010, or by credit card at1-800-736-1736 or instant Internet delivery at www.BobBruss.com.

POWER-OF-ATTORNEY FORM DOESN’T ALWAYS WORK

DEAR BOB: About five years ago, when my 83-year-old dadstarted “declining,” his attorney suggested his giving me a power ofattorney. The form was witnessed and notarized. He has now been living in anassisted-living facility for six months and there is no chance he will everreturn to his house. So I put it on the market and sold it. However, the titleinsurance company refuses to honor my power-of-attorney form. The title officersays she must verify my father really wants to sell his house and is not avictim of elder abuse. Since dad often doesn’t even recognize me when I come tovisit him, there is no way he can understand I need to sell his house to payfor his care in an upscale assisted-living facility. Meanwhile, the house buyerbacked out. What should I do? –Harlan R.

DEAR HARLAN: Talk to an attorney about having a conservatorappointed to represent your father’s best interests. Unfortunately, titleinsurance companies have seen too much elder abuse and they have to be cautiousabout accepting a power of attorney.

There are many valid uses for a power-of-attorney form, suchas when a person is unable to attend the closing settlement for a home sale.

Every time I’ve seen a power of attorney used for a homesale, the title officer always phones the individual to be certain (a) he orshe is alive, (b) understands the transaction, and (c) has authorized theattorney-in-fact to sign the documents.

CORRECT TITLE FOR “FLIPPING” BOOK

DEAR BOB: Some time ago you recommended a book”Flipping Properties for Dummies” by Ralph Roberts. I have searchedAmazon.com and my local bookstore but the only book they can find is”Flipping Houses for Dummies” by Ralph Roberts. Is this the correcttitle? –Mic D.

DEAR MIC: Yes. The correct title is “Flipping Housesfor Dummies” by Ralph Roberts. It is an excellent book, which I highlyrecommend.

HOW TO HANDLE HOME TRANSFER TAXES AND RECORDING FEES

DEAR BOB: My wife and I purchased a renovated condominiumlast April. The settlement terms include our paying a city transfer tax andrecording fees. We weren’t too pleased about that, but decided to proceed withthe purchase and are very happy. Are these expenses tax deductible likeproperty taxes? –Bahram R.

DEAR BAHRAM: No. Transfer taxes and recording fees, whetherpaid by the buyer or seller, are not tax-deductible.

As the buyer, you should add these costs to your purchaseprice adjusted cost basis for your condo. The result will be reduction of yourcapital gain when you eventually sell the condo.

If the seller had paid those costs, the seller couldsubtract them as sales expenses, similar to the realty sales commission, fromthe gross sales price, thus reducing the seller’s taxable profit. For fulldetails, please consult your tax adviser.

SOMETHING IS SERIOUSLY WRONG IF HOUSE HASN’T SOLD IN A YEAR

DEAR BOB: I have a house I have been trying to sell foralmost a year. It’s not selling. What should I do? I am alone and running outof money. –Wanda R.

DEAR WANDA: The most frequent reason a home doesn’t sell isit’s overpriced. Or perhaps it is not being effectively marketed. If your houseis not listed with your area’s most successful real estate agent, you aremaking a big mistake.

When a house has been listed with a realty agent for a yearand it is still unsold, that one-year listing was obviously far too long. Amaximum 90-day listing term is suggested instead to keep the listing agentworking hard to get the house sold in 90 days.

Before listing with a realty agent, please interview atleast three successful local agents. Each agent interviewed should prepare awritten CMA (comparative market analysis). This form shows recent sales pricesof similar nearby homes, asking prices of neighborhood homes like yours (yourcompetition), and asking prices of recently expired comparable listings.

The CMA also shows each agent’s opinion of your home’smarket value. Ask each agent you interview why, in their opinion, your homehasn’t sold. Then, after checking each agent’s references of recent sellers,list your home for 90 days with the best agent for your situation.

The new Robert Bruss special report, “2007 Realty TaxTips: Eight Chapters of Tax Savings for Homeowners and Investors,” is nowavailable for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010, or bycredit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this columnare 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 2007 Inman News

Buying a fixer-upper home can certainly be profitable. But if you’re not careful, it can also lead to a financial misstep. Here are tips to keep you on the right track.

Many first-time buyers are attracted to fixers as a way to buy a home in a choice neighborhood that would otherwise be unaffordable. A successful fixer turnaround requires time, money and expertise. If you’re a first-timer who works full time, is short of funds, and has little or no previous contracting experience, you should reconsider this strategy.

Regardless of whether you’re a first-time or seasoned home buyer, you should seriously consider if you’re well suited to the task before you buy. Remodeling is challenging and disruptive. It can end up taking longer and costing more than anticipated. Many relationships have crumbled during renovation projects.

Buyers who are convinced that buying and renovating a distressed property will be a personally and financially rewarding endeavor need to make sure that the property they buy is worth the price they pay. Overpaying for a fixer can jeopardize your equity. In fact, if you overpay and then overimprove for the market, you can end up with negative equity.

Beware of overpaying for fixer properties in hot markets with limited inventory. Some buyers get caught up in the frenzy of a bidding war and pay more than they should because they perceive an opportunity to make even more money.

HOUSE HUNTING TIP: Gambling on appreciation is risky. It’s impossible to perfectly time the market. If oil prices were to suddenly skyrocket, sending interest rates higher, a rip-roaring market could be brought to a halt. To decrease the risk factor, make sure you pay no more than fair market value, regardless of how fast you think market values will climb.

In a slower market, a listing that has been on the market for awhile might be a good buy if the seller’s ready to negotiate. But, if a fixer has been on the market for some time with no offers, ask yourself if it’s a good deal at the price if no one else wants it.

Find out why the property hasn’t sold. Is it the price, current market conditions or the condition of the property? If it’s the latter, make sure that you have a keen understanding of the property’s condition and the cost to correct defects before you buy.

Some fixers need expensive infrastructure improvements, like a new drainage system or a foundation retrofit. These improvements, while necessary, won’t return 100 percent of the cost when you sell. If you buy a home that needs system upgrades, make sure that you will be able to offset the costs you won’t recoup with cosmetic enhancements that will return more than you invest. Cosmetic fixers provide the greatest opportunity in terms of return on your investment.

If possible, get multiple estimates for significant work during the inspection contingency time period. In most cases, fixed-price contracts are a good idea if you are working with minimal funds. Time and material bids could run less than a fixed-price bid. However, they could also run over what you’ve budgeted

Budget carefully and then add at least 10-15 percent for cost overruns due to delays, increases in the costs of materials, changes and additions. Save all reports and receipts for work done. Use licensed contractors for significant work and take out permits when required. Do it yourselfers with no prior building experience should limit their participation to less complicated projects such as painting and yard cleanup.

THE CLOSING: Save copies of old reports and documentation of defects you’ve repaired and improvements you’ve made. They will be useful when you sell.

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

Copyright 2007 Dian Hymer