Real Estate in Steamboat

Whether you are a home buyer or seller during the peak 2007 spring home sales season of April through June, you will probably encounter the term “as-is” sale. Just as used-car dealers sell thousands of automobiles “as is” without any warranty or representations, houses and condominiums are sold using the same term.

But an “as is” home sale is different. Thanks to state laws and court decisions, a real estate “as is” sale is far more complicated than the sale of an “as is” used car.

PurchaseBob Bruss reports online.

An automobile “as is” sale means “buyer beware.” However, the best way to describe a real estate “as is” sale means “trust, but verify,” as the late President Reagan said many times when referring to political situations.

WHAT IS AN “AS IS” HOME SALE? Simply stated, an “as is” home sale means the seller must disclose to the buyer all known defects, but the seller will not pay for any repairs.

Does an “as is” home sale mean the seller doesn’t have to disclose known defects and can conceal them, as the seller of a used car might do? The answer is “definitely not.”

Although two or three states still seem to follow the old common-law rule of “caveat emptor” (let the buyer beware), the modern law today in most states has evolved to “Let the home seller beware of the buyer and the buyer’s lawyer.”

In other words, even “as is” home sellers must reveal to the buyer all material defects of which they are aware. But “as is” sellers do not have to make any warranties or representations, and need not pay for any repairs to correct material defects.

WHY MANY HOMES ARE SOLD “AS IS.” The reason many older homes are sold “as is” is because the seller doesn’t want to pay for any repairs.

For example, if I were selling my house “as is” today, I would have to disclose the wood garage door is slightly warped and doesn’t close tightly. As an astute buyer, you would surely observe this 1-inch gap at one corner. But the automatic door opener functions well and does its job. I would leave it up to the buyer to decide if he or she wants to install an expensive new garage door, but I’m not going to waste money repairing or replacing the still-good existing door.

There are at least four major reasons some home sellers want to sell “as is”: (1) the seller doesn’t have the money to correct the disclosed defects and prefers to let the buyer fix the problems; (2) the buyer is likely to renovate an older “fix up” house so the seller would be wasting money on minor repairs; (3) the seller has owned the house many years and doesn’t insist on earning top dollar; and (4) the seller doesn’t want the hassle and inconvenience of fixing the problem.

Possible additional reasons for “as is” home sales include the seller (1) recently acquired the residence by inheritance or purchase and is reselling for a quick profit; (2) hasn’t lived in the property and is not aware of its problems; and (3) doesn’t want any responsibility for fixing problems that might occur after the sale closes.

HOME WARRANTY POLICIES OFFER LITTLE PROTECTION. When purchasing an “as is” house, buyers should not be lulled into a sense of security if the seller offers a one-year home warranty policy as a sales incentive. Such policies have many exclusions and offer little real protection against serious home defects.

Home warranty companies are “pros” at using the pre-existing-condition exclusion. Although they are eager to accept the seller’s or realty agent’s policy cost of $400 or more, these companies are notorious for refusing to repair or replace items by claiming the defect existed at the time of the home sale but was not yet manifest. Buyers who collect anything from a home warranty company should consider themselves very fortunate.

HOW “AS IS” HOME BUYERS CAN PROTECT THEMSELVES. Knowing the key reasons many home sellers elect to sell “as is,” home buyers can benefit from such sales if they know how to protect themselves. Rather than reject such a home sale, usually advertised “as is” in the local MLS (multiple listing service), savvy buyers welcome such profit opportunities.

The best way for a buyer to protect against an unscrupulous seller who “forgot” to disclose a serious but known home defect is for the buyer to include a professional inspection contingency clause in the purchase offer.

Buyers of every house and condominium should include such an inspection clause making the purchase offer contingent on the buyer’s approval of their professional home inspector’s report. That means, after the home seller accepts the buyer’s purchase offer, the buyer hires a professional inspector and then approves or disapproves their written report.

Home buyers should be wary of inspectors recommended by the real estate agent. Such an inspector might be known as “easy” and not a “deal killer.” Ask such inspectors recommended by a realty agent about their experience, background and professional memberships.

An excellent credential is an experienced independent inspector who belongs to one of the professional home inspections organizations. Personally, I recommend members of the American Society of Home Inspectors (ASHI) because of their tough membership requirements. Local ASHI members can be found at www.ashi.com or 1-800-743-ASHI.

WHEN “AS IS” MEANS A BARGAIN PURCHASE. As explained, there are many legitimate reasons for selling a house or condo “as is” after all known defects are disclosed so the buyer can consider them when making a purchase offer.

Many home sellers are not fully aware of their home’s defects. For example, years ago I bought a run-down, fixer-upper, “as is” house that obviously needed work. It had been listed for sale at least six months. The seller was an estate. Noticing many defects, I made a very “lowball” purchase offer, thinking it would be rejected. To my shock, it was accepted.

But my offer included a professional inspection contingency clause. I accompanied my professional inspector, as home buyers should always do. He discovered several problems of which I was not aware. We discussed them and he estimated the approximate repair costs (ethical home inspectors are not in the repair business but they usually know if a problem is expensive or inexpensive to fix).

When I received the complete written inspection report a few days later, I showed it to the listing agent. He asked me point blank “OK. How much of a repair credit do you want?” Based on my inspector’s very rough estimate, I said $25,000. Later that day, the estate representative agreed to a $25,000 repair credit, which more than covered my fix-up costs.

“AS IS” HOME-BUYER ALTERNATIVES. Even when buying an “as is” home where the seller fully discloses all known defects, as in my home purchase explained above, a professional inspector will often discover unexpected serious defects. When that happens, the buyer has several alternatives.

One is to cancel the purchase and obtain an immediate full refund of the buyer’s good faith deposit. But a better alternative is to use the professional home inspector’s written report to re-open negotiations to obtain a repair credit for the estimated cost of correcting the unexpected problems.

Especially in a slow “buyer’s market,” many home sellers are so glad to receive any purchase offer they will gladly agree to credit the buyer with the estimated repair cost.

A repair credit is usually better than a price reduction because the mortgage amount is usually not affected. Another advantage of a repair credit is the buyer can shop around after the sale closes and often reduce the actual repair cost.

SUMMARY: Just because a house or condo is offered for sale “as is” does not mean it should automatically be rejected. But buyers should be very cautious of “as is” sales, realizing the seller might not have disclosed all known defects.

However, savvy buyers insist on a written disclosure of all known defects and a purchase offer contingency clause for the buyer’s approval of a professional home inspector’s written report. For more details on “as is” home sales, please contact a local real estate attorney.

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

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Copyright 2007 Inman News

Q: We’re having some serious problems with the windows inour new house. They sweat, let dust blow in, freeze up, and are drafty — eventhe picture windows. In cold weather, water is running down the windows, andthey won’t open. Our heating bill went from $30 dollars in December to $295 inJanuary. The contractor has been out a couple of times, and I also had arepresentative from the window company come out. They are trying to tell methat this is “normal new-home moisture” and that the house needs afew more months to dry out. We paid for upgraded windows, and we’re alsoworried because the one-year warranty on the house is about to expire. Now thecontractor won’t return my calls. What else can I do? –Stan Y., via e-mail

A: Firstof all, given the extent of the moisture problems your house is having, I wouldfind it very hard to believe that it’s because the house has not “driedout,” especially after a year.

You havedone the right thing by getting the window reps out there, but I doubt you willget much satisfaction on that end. If you are also satisfied that you have doneall you can to contact the contractor and that he is ducking your calls at thispoint, the next thing to do is the one thing I am always reluctant to advise –contact an attorney that deals with construction defects. Have the attorneystart by sending the contractor a registered letter. In the letter, explainbriefly but clearly what the problems are and how long they have been going on.Give him a specific deadline for remedying the situation, and tell himspecifically what your next steps will be. Those steps would typically be toinitiate an action against him with the state contractor’s board, and then fromthere possibly some type of civil litigation.

The letterserves several purposes. It will put him on notice that you are deadly seriousabout the problem and about your resolve to take further action. Moreimportantly, it will help establish a paper trail that clearly shows theseproblems started well before the end of your 1-year warranty problem, so yourclaim for damages and repairs should survive the warranty’s ending.

Pleaseunderstand that I am not an attorney, and I cannot give you any legal advice.Your attorney can assist you with the specific wording and content of theletter, as well as with any further actions you should consider.

Q: I need to repair the siding on my home, and mycontractor gave me two options — repair my existing T 1-11 or replace thesiding with new material. He suggested HardiPlank, which I like because of thewarranty. However, my neighbor said that the nails on that material will rust,and it’s not a good idea to use it. What is your recommendation? –Lucy B., viae-mail

A:Virtually any nail can rust under the right circumstances. However, I havenever heard of rusted nails being a problem specifically related to HardiPlank,and I would have to question where your neighbor got that information. Ifrusting is a particular concern in your area due to high moisture levels, youmight want to talk with your contractor about using stainless-steel nailsinstead of the standard galvanized ones. Other than that, I have always foundHardiPlank to be an excellent product, and I would have no problemsrecommending it.

Q: I live in a condo complex that was converted in 1979from an apartment building built in 1968. In the last couple of years, a numberof plumbing changes have been made to the building, including adding asprinkler system and installing washers in many of the units. Now the sound ofwater in the pipes is getting progressively louder, and I am concerned thatperhaps the old pipes are not adequate for the increased load. What would yousuggest? –Peggy A., via e-mail

A: Thetype of noise you describe could be coming from a couple of different things,including an increase in water pressure from the city or the changes in waterflow that you mention resulted from the recent remodeling. Increasing thevolume or the pressure of the water flow through a pipe that is too small tohandle it or that is inadequately supported can definitely cause additionalnoise.

Youmention that this is a condo, so I would start with the condo association. Askfor more details about the remodeling, and ask to speak with the plumbingcontractor doing the work so you can share your concerns. Next, since theaddition of a sprinkler system and laundry areas requires a plumbing permit, Iwould also contact your local building department for more details aboutexactly what is being done to the units and how the water is being distributed.Finally, you could check with your water utility office at the city and see ifthey have increased the water pressure to your building recently.

Remodelingand repair questions? E-mail Paul at paul2887@hughes.net.

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Copyright 2007 Inman News

The otherday, as my car juddered over constellations of potholes, past tenuouslymaintained schools and bus stops done up in graffiti, I got to wondering. TheCalifornia county where I live has some of the highest taxes in the nation. Oursales tax is 8.75 percent. It costs $4 to cross the San Francisco-Oakland BayBridge. Yearly property taxes can easily reach five figures — and no, I’m notincluding pennies.

Yet inreturn for the torrent of tax money our government takes in, Californians haveroads rated among the very worst in America, libraries that close for part ofthe week due to lack of funding, and a public school system that one respectedresearch group has ranked 47th of the 50 states.

Where, Iwondered, is all this tax money going? As I dived to a stop at yet anotherill-timed red light with no cross traffic in sight for miles, the answer cameto me from above.

Trafficsignals.

Apparentlythere’s never a shortage of funds to pay for huge, complex and frequentlysuperfluous arrays of traffic signals. They sprout like gigantic weeds alongroadways large and small, occasionally actually making an intersection safer,but more often just obstructing traffic by reflexively “regulating”some half-abandoned side street that would be just as well off — possiblybetter off — with a plain old stop sign.

Clearly,an intersection unfettered by signals is a terrifying prospect to trafficengineers, and not just in California. So, after erecting jungles of signalpoles on every street corner of every jerkwater town in America, the trafficengineers moved on to the suburbs with glee, slavering at all those miles ofroads waiting to be put in harness.

Today it’sa rare suburban boulevard that hasn’t got a huge tangle of signals arching overit every few hundred feet, with redundent stacks of lamps addressing each andevery lane and then some. Either we motorists are so dense that it takes fivered lights to tell us what one used to, or else traffic engineers just can’tget enough of all that neat hardware.

Despitetheir numbing ubiquity, though, far too many traffic signals remain utterlybrainless, mindlessly regulating traffic flow by time instead of by context. Inthis age of computing miracles, vast numbers of signals aren’t even smartenough to know that nobody’s coming.

We’ve allbeen in thrall to red and green lights for so long that we’ve come to accepttheir hurky-jerky senselessness as a normal part of driving.

Yetthere’s no immutable law that demands traffic signals on every street corner inAmerica, much less signals that can’t think straight. It’s happened in partbecause many cities and towns have come to regard elaborate signal installationsas a sort of badge of urbanity, rather than as a useful tool that can besenselessly overemployed.

And itsurely hasn’t hurt that they offer traffic engineers virtually infinite jobsecurity.

Given thiskind of bureaucratic inertia, it seems inevitable that every pair ofintersecting ruts in America will eventually be fitted with a full complementof traffic and pedestrian signals. Then we can all be stopped at a red lightsomewhere in East Podunk with our engines idling, while nobody’s coming theother way.

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Copyright 2007 Arrol Gellner

Upward pressure continues on long-term rates: the 10-year T-note at 4.65 percent has jumped the March range, and mortgages are at risk to lose the 6.25 percent level.

The economy has slowed to growth near 2 percent, but shows no sign of serious impact from the housing recession. This morning, personal income and spending each rose by .6 percent in February. Construction spending, expected to drop, instead rose .3 percent.

Weekly applications for mortgages are holding in a steady band. If a mortgage credit crunch were beginning to bite, we would see a decline by now. Refinance apps are running stronger than would be explained by interest-rate-advantage models, indicating that large numbers of ARM borrowers are successfully escaping their upward resets.

The corporate sector is showing some stress: earnings are falling, many estimates calling for mid- to low-single-digit growth, a small fraction of performance in the last several years. Capital expenditures are unexpectedly weak, orders for durable goods in a sustained decline. However, balance sheets are strong, and after a long run the downshift could be no more than a cyclical wobble.

The consumer is king: If spending and job growth continue (the payroll numbers next Friday are crucial), then GDP growth will continue. At a subdued rate, but given the Fed’s hope for gradually declining inflation, the ideal outcome.

If growth and inflation behave, fine. However, what if inflation does not “gradually decline,” as in Fed forecasts since summer 2006? Will the Fed have the courage to choose inflation-fighting over GDP preservation?

The immediate answer is not so hot: long-term rates broke upward during Federal Reserve Chair Ben Bernanke’s Wednesday testimony to Congress.

Former Fed Chairs Greenspan and Volcker are all-time tough acts to follow, but were tough guys. Greenspan was tempered by 30 years on stage and in back-office presidential administration combat before taking his seat in The Chair, and Volcker learned to break ribs in an equally long span of New York City banking. Both men were at home in the no-prisoners world of markets.

Bernanke is very bright, and an economist with few peers, but there is no power in his presence: he looks like a furry escapee from the cast of “Wind in the Willows.” Determined and firm, but bookish, diminutive and easily startled.

He may have monetary policy exactly right, and may have the courage when the time comes to sacrifice the economy to keep inflation in the box. That time will certainly come, as it does for all Fed chairs. However, whenever Bernanke talks about the subject, he appears to believe that he can have it both ways.

When asked to clarify last week’s post-meeting statement — did it mean neutral or still biased-to-tighten — he said it meant “flexibility,” and a groan rose from every bond-trading desk in the land. Then, in an off-hand, don’t-bother-me way, announced that there will be no more “advance guidance” after Fed meetings, no statement of bias or neutrality. That change deserved formality.

In response to senatorial questions about Fed regulatory efforts in mortgageland, Bernanke gave vague, harassed answers, insisting that the Fed is on the job, apparently unaware that the industry has completely ignored the Fed’s formal guidance of last September, tightening underwriting standards for “exotic” loans.

The worst of it … Last month, Greenspan suggested that the economic expansion was long in the tooth, nearing the end of its natural lifespan. Some say the Chairman emeritus should cool it, but Bernanke couldn’t leave it alone, saying, “The data does not support” a finite life span for economic expansion.

Bond people are terrified by central bankers who believe their skill can produce infinite expansion with controlled inflation, and so long-bond yields rose.

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 2007 Lou Barnes

DEAR BOB: I own some land purchased in 1943 for $50,000. It is now worth about $600,000. How can I sell it and keep federal and state taxes to a minimum? I have three adult children and two grandchildren. –Sabena M.

DEAR SABENA: There is only one way to fully avoid tax on the sale of property held for investment, such as your land. That method is an Internal Revenue Code 1031 tax-deferred exchange for another investment or business property of equal or greater cost and equity.

PurchaseBob Bruss reports online.

For example, you could trade for one or more rental houses, office building, apartment building, warehouse, shopping center or land. But you cannot make an IRC 1031 trade for a personal residence.

Another alternative would be to make an installment sale to spread out your capital gain tax over as many years as you wish. That means you would receive a cash down payment from the buyer, perhaps 10 percent to 25 percent, and carry back an installment-sale mortgage for the balance of the sales price.

There are many installment-sale advantages, such as creating retirement income for you. Part of each principal payment will be taxed as long-term capital gain and, of course, the interest income is taxed as ordinary income.

If you want to provide for your children and grandchildren, you can specify in your will or living trust they are to receive the installment-sale mortgage after you die. Every time they receive a monthly payment from the land buyer they will silently say “thank you.” For details on tax-deferred-exchange and installment-sale benefits, please consult your tax adviser.

DOES MORTGAGE LENDER GET THE HOUSE WHEN BORROWER DIES?

DEAR BOB: If a homeowner dies before the mortgage is paid off and if there is no insurance money to pay off the mortgage, does the house go to the mortgage company? What happens to the equity? –Paula T.

DEAR PAULA: When a homeowner dies, the property title passes according to the terms of the deceased’s written will or revocable living trust. That heir then usually either takes over the existing mortgage payments or sells the property and pays the mortgage in full.

In other words, the heir benefits from the remaining equity. The mortgage lender does not own the house after the owner dies. The lender is entitled only to the amount of the mortgage balance.

Of course, if the mortgage payments are not kept current by the estate or the heir, then the lender could foreclose for nonpayment. For further details, please consult a local real estate attorney.

NO NEED TO UPDATE OWNER’S TITLE INSURANCE POLICY

DEAR BOB: I am confused about our original owner’s title insurance policy. We paid off our home mortgage in full after owning the house for about 18 years. Do we need to have a new updated title insurance policy issued to us to be sure there are no title clouds after we purchased the property? What if the original title insurance company is no longer in business? –Don M.

DEAR DON: There is usually no need to update your owner’s title insurance policy after paying off your mortgage in full. However, as a courtesy to you as a customer, many title insurance companies will check your title to be certain the mortgage lender properly recorded either a satisfaction of mortgage or a deed of reconveyance.

If your original title insurance company has gone out of business, chances are it merged with another title insurer. Your state insurance commissioner’s office can usually tell you the title insurer that is now responsible for your owner’s title policy, which will be in effect as long as you or your heirs own the property.

A second resource is the American Land Title Association in Washington, D.C. They can usually refer you to the title insurer that took over the insurance obligation on your existing owner’s title insurance policy.

The new Robert Bruss special report, “Everything You Need to Know About Reverse Mortgage Pros and Cons for Senior Citizen Homeowners,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 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 2007 Inman News

Question: I am a homeowner and look for your column regularly.I have a garage in-law (a legally converted garage that is a rental unit) thatis very cute and cozy. I have a married couple renting at the time, and theyhave been here nearly a year. Without going through all the gruesome details,”Dumb” and “Dumber” overstuffed my washer and dryer untilthey finally wore them out and now are out of order. It is very expensive toget them repaired and very expensive to replace. I have taken off $15 per monthfrom their rent, and no longer include the washer and dryer in their rentalagreement. When they move can I keep their security deposit for busting theappliances? They also warped the bathroom floor by flooding the shower, as theydid not have the sense to pull the shower curtain inside the shower stall. Thatcost me $300 to get repaired. I don’t think I should be stuck with thisexpense.

Propertymanager Griswold replies:

I wouldsay that you could charge them for legitimate damages. The warped bathroomfloor from failing to properly use the shower curtain is clearly theirresponsibility. Actually, you are quite fortunate that they didn’t have anenvironmental claim alleging mold or other health condition, as water hittingthe drywall and the floor can result in conditions that are conducive to thepropagation and growth of organic substances including mildew and mold if thetenant fails to promptly and properly dry the wet areas.

Theappliance replacement could also be charged back to the tenant if you can getan independent written verification from the repair people indicating that thewasher and dryer were misused. If they simply wore out from too many cycles(not misused or overstuffed but that they simply did laundry several times perday) then I think you may have trouble charging them the repair costs ifchallenged, as such use could be construed by a Small Claims Court judge orcommissioner as “normal wear and tear.” Having the”independent” opinion of the service repairperson would give you theproof that you need. Regardless, I would suggest that you be prepared toprovide copies of the receipts for the repair costs to justify the securitydeposit deductions.

Question: I belong to an organization in our communitythat tries to help those with financial or other needs. We have a woman whosepartner decided to leave her and her two children, and now she is responsiblefor an apartment lease that she cannot afford. Is there any way she can get outof the lease, which doesn’t expire for another eight months?

Propertymanager Griswold replies:

Contactthe landlord and explain the situation and see if he/she will voluntarily agreeto an early termination of the lease for the stated reasons. They are notlegally obligated to allow this but may be compassionate under thecircumstances. It is not in the landlord’s best interest to have a tenant thatadmittedly cannot afford the rent. You might also be able to offer assistanceto the landlord in locating a new tenant by telling members of yourorganization about the vacant apartment. A positive attitude and pleasantmanner are often the best attributes when trying to deal with unfortunatecircumstances where you are seeking the cooperation of the landlord. Despiterumors to the contrary, most landlords are extremely compassionate and caringpeople.

Thiscolumn on issues confronting tenants and landlords is written by propertymanager Robert Griswold, author of “Property Management for Dummies”and co-author of “Real Estate Investing for Dummies,” and San Diegoattorneys Steven R. Kellman, director of the Tenant’s Legal Center, and JamesMcKinley, principal in a law firm representing landlords.

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

Questionsshould be brief and cannot be answered individually.

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

Copyright 2007 Inman News

On Jan. 31, 2007, we published an article entitled, “Fraud kills $75 million hotel deal/Buyer sued for allegedly ‘manipulating’ agreement,” in which we reported on legal proceedings pending in California state court. It has come to our attention that the article has been misread as suggesting that the allegations made by the plaintiffs in that case regarding the alleged actions of Los Angeles businessmen Richard Alter and Eddie Chan are true or have been established to be true, which is not correct. To be clear, to the extent the article discusses the “facts of the case,” it repeats the plaintiffs’ complaint allegations, which have not been proven or endorsed by any court. Indeed, it should be noted that the California Court of Appeal, in the published decision referenced in the article, held that an evidentiary hearing was necessary to determine the true facts, reversing the trial court’s decision and remanding the case back to the trial court to conduct such evidentiary hearing.

We apologize to the individuals in the article for any confusion our article may have caused.

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Copyright 2007 Inman News

In 2003, AMCAL Multi-Housing Inc. acquired property to construct 300 affordable housing units and retail uses. During negotiations, AMCAL hired an environmental consulting firm, which determined the previous owner, Pacific Clay Products Inc., and its predecessors owned and operated a clay product and ceramic manufacturing facility on the property since 1896.

Pacific Clay’s operations included extensive lead-glazing and kiln-firing activities, known for causing lead contamination.

PurchaseBob Bruss reports online.

When Pacific Clay vacated the property in 1953, it “left buried at the property a network of kilns, airways, drainage channels, connecting tunnels and other subsurface structures containing large quantities of putty-like, lead-laden waste materials that were so extensive that much of the soils in proximity to the buried structures also had high levels of lead contamination.”

Despite this information, AMCAL purchased the property. In early 2004, while demolishing the former buildings on the site, AMCAL discovered the buried kilns, tunnels, pottery shards, waste materials and lead-contaminated materials.

After reporting the discovery to local and state officials, AMCAL cleaned up the hazardous waste at a cost of $6 million. AMCAL then sued Pacific Clay Products under the federal Comprehensive, Environmental Response, Compensation and Liability Act (CERCLA) for reimbursement.

But Pacific Clay denied liability. The defendant argued the U.S. Supreme Court in 2004 ruled a “potentially responsible party” cannot seek payment for clean-up costs from other such parties when acting voluntarily. Pacific Clay argued AMCAL was not required by state or local government agencies to perform the clean-up so it cannot seek reimbursement from Pacific Clay.

If you were the judge would you rule AMCAL can obtain reimbursement from hazardous waste polluter Pacific Clay?

The judge said no!

AMCAL was a potentially responsible party under CERCLA, the judge began, but the redevelopers did not have an implied claim to recover voluntary clean-up costs from Pacific Clay. The reason was AMCAL was not ordered by the federal or state government to remove the hazardous wastes, he emphasized.

AMCAL was not a bona fide purchaser without notice because, before purchase, it hired an environmental consulting firm that disclosed the potential hazardous waste, the judge explained. Therefore, although AMCAL is in the business of redeveloping properties, it had no right to recover its remediation costs because there was no state or federal order to remove the hazardous wastes, the judge ruled.

Based on the U.S. District Court decision in AMCAL Multi-Housing Inc. v. Pacific Clay Products, 457 Fed.Supp.2d 1016.

(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

DEAR BOB: I am a mortgage broker. One of my borrowers owns two properties. The first one is his primary residence. The other is a rental house. He intends to refinance and take maximum cash out from the investment property. Since he can’t afford to make mortgage payments on both properties, he plans to default on the rental house by foreclosure. Is this a good or bad idea? What happens to the cash he gets from the refinance? –Julie H.

DEAR JULIE: Can you spell f-r-a-u-d? If you knowingly participate in that fraudulent scheme, as a mortgage lender, you should lose your job and mortgage broker’s license.

PurchaseBob Bruss reports online.

The borrower’s credit will be ruined by the foreclosure and your reputation will be badly tarnished for participating because you knew he planned to default.

Depending on the type of loan, especially FHA and VA, and the state where the property is located, the borrower could be liable to the mortgage lender for any deficiency judgment if the lender suffers a net loss from the foreclosure. I suggest you stay far, far away from that dishonest borrower who has no intent of repaying the loan.

BORROWING ON A LIFE ESTATE IS VIRTUALLY IMPOSSIBLE

DEAR BOB: Twenty-one years ago I was willed a “life estate” in a two-family home where I live in one unit. I am responsible for payment of the property taxes, repairs and insurance. Now I am 79 years old, on a limited income, but in very good health. There are some costly repairs to be made to the building. Can I borrow $25,000 secured by the property, which is worth about $400,000? The property taxes are so high now I had to cancel the property insurance. The lawyer-executor for the estate died four years ago. The two remaindermen live out of state and are in poor health. What can I do? –Gloria S.

DEAR GLORIA: If you have good credit, you might be able to obtain a $25,000 unsecured personal loan at your bank to pay for those repairs. However, since you don’t own the property, you can’t obtain a regular mortgage or a reverse mortgage.

I am not aware of any lender who will make a loan secured by a life estate. The reason is there is no way to foreclose on a life estate when you die or fail to make the payments.

If the two remainder persons discover you have let the fire insurance policy lapse, they could terminate your life estate because failure to insure is “waste” of the property. Should the building be damaged by fire, you would be liable for the repair costs but you are probably “judgment proof” without any assets.

SALE OF PRINCIPAL RESIDENCE AND RENTAL PROPERTY IS REALLY TWO SALES

DEAR BOB: I own 14 acres with two houses on the property. One is my principal residence. The other is a rental house. I have owned the property about 40 years and have lived in my residence for 12 years. A CPA told me the land and both houses qualify for the $250,000 principal-residence-sale tax exemption. But the IRS says my profit on the sale of the rental house will be taxable. Who is right? –Ronald M.

DEAR RONALD: The IRS is correct. Presuming both houses are on one lot or parcel, you will be making one sale with two different tax results.

Your profit from the sale of your principal residence and a reasonable amount of adjoining land qualifies for the Internal Revenue Code 121 principal-residence-sale exemption up to $250,000 (up to $500,000 for a qualified married couple filing a joint tax return). That presumes you owned and occupied it as your primary home at least 24 of the last 60 months before its sale.

However, your profit on the sale of the rental house will be taxable as a long-term capital gain. For tax purposes, a professional appraiser can allocate the sales price between the amount received for the principal residence and the rental house. I suggest you consult a new tax adviser because that CPA gave you incorrect information.

The new Robert Bruss special report, “Everything You Need to Know About Reverse Mortgage Pros and Cons for Senior Citizen Homeowners,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 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 2007 Inman News

Q: I am planning a kitchen remodel. Based on all the bids, I have short-listed two contractors. One is a licensed general contractor who has given me good references; the other is an unlicensed one who says he will get the job done by himself and his family members. His bid, for the exact same materials that I want him to buy from my chosen wholesale suppliers, is almost 30 percent less than the licensed contractor’s. The unlicensed guy has given me good references as well.

If Iemploy the licensed guy, he is willing to do all the permit work himself andhas given me a full quote including those costs. The unlicensed guy says I canget the homeowner-builder permit myself, and he will ensure full building-codecompliance and that the work passes inspections.

If I gowith the cheaper alternative of the unlicensed guy, apart from the risk that Iam taking for his lack of liability, and the fact that he is not bonded, am Ibreaking any California law?

Also,the law says a contractor undertaking work for more than $500 has to have acontractor’s license. Is this something only the contractor has to comply withor am I precluded by law from employing an unlicensed contractor? The totalcost of the project, as you can imagine, is way over $500.

A: Weapplaud your efforts to save a buck or two, but we just can’t recommend thatyou hire the unlicensed contractor. The parade of potential horribles is justtoo long.

It maywell be that the unlicensed guy is a fully capable, honest and upstandingtradesman, and has done a number of projects in your town, but the job you’rehaving done is way too large to entrust to someone who has not put forth theeffort and the money required to be licensed.

While alicense does not guarantee the quality of work, or whether it will be done in atimely manner, it does give the homeowner recourse if something goes wrong.

Licensing,bonding and insurance requirements are in place to protect the consumer. Italso is evidence that the contractor at least knows enough about business andbuilding practice to pass the state exam.

In termsof legal liability, we don’t think you’ll be tossed in the pokey or fined thecost of the kitchen if you hire the unlicensed guy. We don’t know if you arebreaking any state or local laws if you chose to do so, but he sure is.

Recentlythe Contractor State License Board has been cracking down on unlicensedcontractors, conducting stings, issuing citations and dragging these guys intocourt, where they face substantial fines.

When ahomeowner hires an unlicensed tradesman to work on a home, he becomes anemployer and the tradesman becomes the employee. In essence, the homeowner isthe contractor with all the ramifications that brings. This arrangement bringsinto play not only the “master-servant” relationship arena of tortlaw but also implicates insurance issues such as liability and workerscompensation.

It’slikely you would be responsible not only for the work the unlicensed persondoes but for any damage he may cause to your property or to the property ofothers, and (this is huge) for any injuries he or his “familymembers” might suffer on your job. We don’t know if you’ve had the opportunityto view a hospital bill lately, but a semi-major injury could cost you morethan the price of the kitchen remodel.

You mightrespond, “Yeah, but my homeowners insurance will cover it.” We canonly imagine that your insurer would be none to happy (and possibly denycoverage) when they discover that you are trying to shift liability to themwhen you hire an unlicensed tradesman who got hurt on a job that required astate-licensed contractor.

Securingthe permit for the job, while well within your capability, is asomewhat-complicated process. Expect plenty of questions from the buildingdepartment. Owner-builder permits are in place to allow do-it-yourselfers toget the job done themselves, perhaps with the assistance of a specialtytradesman such as an electrician or a plumber.

Weencourage people to take this route when they are willing to take up the toolsand get the job done. But when a homeowner is hiring out all the work, theowner-builder permit process is not meant to be a means to circumvent the statecontractor license laws.

We couldgo on, but suffice it to say that we recommend you go with the licensed guy.The risks are too great and the scope of the work is too large to do otherwise.

If youdecide to go against this advice, we recommend that you fully inform yourselfof the risks. Contact your insurance carrier first, explain what you areconsidering and determine whether you have coverage in the event of a claim.Next, contact your lawyer and seek counsel as to the potential exposure you mayhave if something goes drastically wrong.

We’d liketo take this opportunity to say a word to you unlicensed tradesmen out there,busting your tails to try to make a living. Did you know that if a customertries to stiff you on a contract and you are unlicensed you have no legalrecourse in a court of law?

If you area good craftsman and plan on staying in business, get a license. The effort youput into studying for the test will pay you back several fold, and the fewhundred dollars you spend is a minor expense, especially if you get busted forcontracting without a license.

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

Copyright 2007 Bill and Kevin Burnett