Real Estate in Steamboat

Some homes take longer to sell than others, adding anxiety to sellers who absolutely have to get a transaction closed within a specific period of time. And, when it rains, it pours.

For example, I recently got a call from a former college classmate who had taken a new job in a different state. After his home sat on the market for months, he finally struck a deal with a potential buyer. For weeks the deal appeared to be headed to closing, and the seller, feeling confident with the buyer’s borrowing power, had even made a down payment on another home. The seller became upset, however, when the buyer walked away from the deal because the buyer would not agree to a “soft prepay” loan provision offered by a national lender.

A “soft prepayment penalty” or “soft prepay” loan is a requirement some lenders now are demanding to help curtail borrowers from quickly refinancing their loans as soon as interest rates drop. The “soft” limitation allows the borrower to prepay the loan without penalty only if the home is sold. However, if the loan is refinanced during a specific period of time, typically three to five years, the borrower faces a prepayment penalty that could amount to thousands of dollars.

If you have a home that’s been sitting on the market and you truly need to sell and move on, you could include in your advertising materials that you would be willing to offer seller financing for a specific period of time provided you receive a sizeable down payment. The down payment would supply you the cash to get into your new home, and the monthly payments made by the buyer could offset the payments of your new home. You also get to better gauge your moving time, and the buyer avoids loan costs.

“Carrying back” all or a portion of the proceeds can make a lot of sense. Most of the time, seller financing works well for both sides, but both sides — especially the seller — should be prepared to handle the deal much like a small business. While the buyer can simply mail you a check every month, it’s up to you to craft the ground rules.

If you participate in any sort of seller financing, make sure to build in safety features that protect your investment and sanity. In fact, it’s not a bad idea to copy many of the loan requirements a local bank would insist upon — especially if you will be out of the country most of the year.

Here are some seller-financing tips to consider:

• Consider a third-party collection account. You can split the cost with the buyer, and the service is well worth the money. It provides you with complete tax statements (seller must submit principal and interest amounts to the buyer-payer annually). The account receives and deposits monthly payments — especially valuable if you have to go out of town unexpectedly.

Seller financing is not for everyone. But not everyone is faced with the deadline of 30 days to be in a new job in a different state.

Tom Kelly’s new book, “Cashing In on a Second Home in Mexico: How to Buy, Rent 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 tomkelly.com. Tom can be reached at news@tomkelly.com.

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Copyright 2007 Tom Kelly

DEAR BOB: A year ago my husband died unexpectedly at age 55. He did not have a will or any life insurance. We lived in our home more than 25 years and have a large amount of equity in it, but I am thinking of relocating to a lower-cost area. Title to our home is in both names as joint tenants with right of survivorship. Should I hire a lawyer to transfer the title to my name alone and will I have to go through probate court? –Annie G.

DEAR ANNIE: In most states, all that is necessary for a survivor to clear the joint tenancy title is to record (1) a certified copy of the deceased joint tenant’s death certificate, and (2) an affidavit of survivorship.

PurchaseBob Bruss reports online.

A phone call to the local recorder of deeds will inform you if any additional paperwork is necessary. Most surviving joint tenants don’t need to hire an attorney to do this simple title work.

The probate court usually will not be involved. After you hold the title to your home in your name alone as the surviving joint tenant, then you are ready to sell the home if you decide to do so.

IF TENANT IS LATE WITH THE RENT, START AN EVICTION

DEAR BOB: I own a commercial property that is leased to a used-car dealer. He is always chronically late paying the monthly rent. He ignores the 10 percent late fee. A friend told me if I take my tenant to court, the judge probably won’t evict him. I have an offer from a reliable car-dealer tenant who wants to lease the lot. What should I do? –John B.

DEAR JOHN: I suggest you hire a landlord-tenant attorney in the community who is experienced with commercial evictions. The next time your tenant is late paying the rent, phone the attorney and tell him to start eviction. This is not a do-it-yourself project, especially with a commercial tenant who will probably hire an attorney.

The general procedure is to serve the tenant with a notice to “pay rent or quit.” If he doesn’t pay rent by the deadline, don’t accept any late or partial rent. Then proceed with an unlawful detainer eviction. Forget about collecting any late fees because many judges refuse to enforce them. But you can get rid of that troublesome tenant even if he has a lease.

YOU CAN’T OUTLIVE A SENIOR CITIZEN REVERSE MORTGAGE

DEAR BOB: My wife and I are in our mid-70s. We have investigated a reverse mortgage, which would provide lifetime income. Also, in case of an emergency, we can obtain a lump sum, such as to replace the roof, although it would reduce our monthly income. Both my wife and I come from families with “long livers.” Her parents died in their 90s and mine lasted almost as long. What happens if we live into our 90s? Will our reverse-mortgage money eventually run out? –Kenneth W.

DEAR KENNETH: No. You cannot outlive a reverse mortgage even if you and/or your wife live to 120.

However, by then there probably won’t be any equity left in your home. But who cares? You can enjoy the tax-free, lifetime reverse-mortgage income as long as you continue living in your home.

More details are in my new special report, “Everything You Need to Know About Reverse Mortgage Pros and Cons for Senior Citizen Homeowners,” 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

Only serious real estate investors, brokers, sales agents and homeowners will read “Beyond the Bubble” by Michael C. Thomsett and Joshua Kahr. This is a serious thinking-person’s book explaining so-called local “real estate bubbles” and how individuals can profit from them.

The “media,” such as some newspaper writers, TV and radio commentators and other book authors, have loosely used the term “real estate bubble” to refer to escalated prices that may or may not be justified by sustainable demand.

PurchaseBob Bruss reports online.

This new book explains, after emphasizing that all real estate is very local (rather than statewide or national), the major considerations that cause property values to rise rapidly beyond normal market-value appreciation. Glaring examples of recent real estate bubbles becoming hyperinflated and then rapidly declining, such as South Florida, are showcased.

Co-author professor Kahr brings his academic real estate talents to the book by explaining the theories and details of so-called real estate bubbles. But co-author Thomsett contributes a more practical real-world approach to profiting from real estate bubble opportunities and avoiding their pitfalls. Together, they make a superb writing team.

The theme of the book is “greed drives economic bubbles,” applying to real estate speculators who create an artificial demand; the bubble feeds itself until it cannot grow any larger and then it bursts.

The recent South Florida speculative pre-construction condominium bubble is a classic example where speculators drove up demand without any intent to occupy or even rent the condos after completion. They hoped to profitably re-sell before construction was completed. But thousands of units came on the resale market at the same time and buyers disappeared, causing the bubble to burst.

Throughout the book, Thomsett and Kahr explain how to spot a real estate bubble. One of those signals, they emphasize, is the spread between the asking price for a property and its ultimate sales price. In a healthy economy, they say the spread is 5 percent or less. However, when there is a growing real estate bubble, there is a “buying frenzy” causing buyers to bid more than the seller’s asking price.

But the authors caution the spread between asking and sales prices is based on averages. Then they explain averages are misleading because they include sales below asking prices and those above asking prices, often in different neighborhoods. “The average is not the whole story of real estate valuation and trends,” the authors warn.

Although the book is far from a boring academic textbook, it is so well organized and documented it can be used in college real estate classes to show students the many unpredictable influences that affect real estate valuations.

The book’s last few chapters bring the sometimes confusing early chapters together by showing readers how they can profit from real estate bubbles. This is the most valuable part of the book because it emphasizes how the reader can spot local trends, apply the key factors explained in the book and predict what is likely to happen locally to real estate values for different types of properties.

Chapter topics include “The Nature of Real Estate Bubbles”; “Real Estate and the Rest of the Economy”; “The Regional Character of Real Estate”; “Stocks, Bonds, Real Estate, and Money”; “How Bubbles Happen”; “The Four Major Signs of Coming Change”; “Bubbles by Property Type”; “Be Your Own Market Analyst”; “How to Profit in Up-and-Down Real Estate Markets”; “How to Profit When the Bubble Pops”; and “Real Estate in Your Portfolio.”

Whether you are just getting started in real estate or you are an “old pro” who has amassed your real estate fortune, Thomsett and Kahr have written this book for you. It offers quality opinions and advice, based on facts, to show readers how to apply the principles explained to their local real estate markets. On my scale of one to 10, this well-researched, outstanding book rates a solid 10.

“Beyond the Bubble,” by Michael C. Thomsett and Joshua Kahr (AMACOM Publishing, New York), 2007, $16.95, 216 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 2007 Inman News

Dear Barry,

The home I’m planning to buy has a bizarre history. It was built about five years ago but was never completed. The owner fired the contractor and obtained a temporary occupancy permit that allowed him to live in the house while completing the work. The property was later foreclosed by the mortgage company and is now being sold by a trustee. The house has still not been approved by the city, and I’m told that there are many code violations. If I buy this home and more violations are found, who will be responsible for repairs? –Lisa

Dear Lisa,

The last thing you should do is to buy this home without knowing the full scope of noncompliance and what amount of time and money will be required to make it fully habitable. First, you should consult the local building department to learn as much as possible, from their perspective, what will be needed to bring the home into legal compliance. If possible, have a municipal inspector meet you at the site for a walkthrough evaluation.

Next, you should hire the most experienced home inspector available. A professional inspector will spend far more time than a municipal inspector and will check areas of the building where municipal inspectors seldom crawl or tread, such as in the attic or subarea.

Finally, get bids from licensed contractors to determine the total estimated costs of making repairs and corrections specified by the home inspector and building department.

Any purchase offer you make should be contingent upon the outcome of these fact-finding procedures. Failure to exercise these precautions could subject you to financial obligations of unpredictable magnitudes. Whatever you do, don’t buy a “pig in a poke.”

Dear Barry,

In a past article about choosing a home inspector, you advised asking an inspector for a sample report. You said that a well-written report should focus on defect disclosure, not on less-important data about the house. I’m wondering what constitutes “less-important data.” Could you please explain this further? –Elizabeth

Dear Elizabeth,

There are many details about a home that must be included in an inspection report if the inspector is to comply with professional standards. For example, various kinds of building materials must be specified. The report should state whether the exterior is made of wood, stucco, masonry, hardboard paneling, etc. Plumbing materials must also be specified: Are the water lines copper, galvanized steel, PVC or PEX? Are the drains pipes cast iron, ABS or PVC? Details about electrical wiring are also needed: Are the wires copper or aluminum? Are they Romex or in conduit? Disclosure is also necessary for types of roofing materials, interior wall coverings, floor surfaces, attic insulation, and so on.

All of this information is important, but it is seldom of particular interest or concern to home buyers. What they really want to know are the property defects, and they want the answers without having to wade through heaps of boilerplate verbiage about building materials. A well-designed report, therefore, contains all of the essential information but lets the defect disclosures stand apart visually. This is what constitutes “user friendly” in the realm of report writing and is an element missing from many home inspection report systems.

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

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Copyright 2007 Barry Stone

DEAR BOB: Please clarify. You often mention a married couple filing a joint income tax return can claim up to $500,000 principal-residence-sale tax-free profits, thanks to Internal Revenue Code 121. But what about two unmarried co-owners of a home who each meet the 24-out-of-last-60-months ownership and occupancy tests? Both are on the title. Can each claim a $250,000 exemption or do they have to split the exemption? –Mary O.

DEAR MARY: There is no limit to the number of co-owners who can claim the IRC 121 principal-residence-sale tax exemption up to $250,000 each. Theoretically, you could have three, four, five or six home sellers who each can claim up to $250,000 tax-free principal-residence sale profits if they each meet the 24-out-of-last-60-months ownership and occupancy tests in the same home.

PurchaseBob Bruss reports online.

The IRC 121 tests are applied individually to each co-owner so they need not have owned and occupied the residence at the same time. But each must be on the title for the required time.

This is slightly different than for a married couple where title to the principal residence can be held in the name of one spouse alone, as is quite common. However, for a married couple filing jointly to claim up to $500,000 principal-residence-sale tax exemption, each spouse must meet the 24-out-of-last-60-months occupancy test. Full details are available from your tax adviser.

INMATE FINDS LOOPHOLE TO AVOID TAX ON INHERITED PROPERTY

DEAR BOB: As you can see from my letter, I am currently a prison inmate. But I will be released next month. My father passed away in March 2004. His estate was just probated. I received $93,000 for my share from the sale of his house. But I was told I will have to pay capital gains tax on $107,000. My brother bought the house from me and my two sisters. How much capital gain tax will I have to pay? Are there any loopholes? –Lonnie P.

DEAR LONNIE: That’s a nice check you have waiting for you when you are released next month. Use it very wisely to get a “fresh start,” perhaps by investing in real estate, and avoid future mistakes.

Yes, there is a major “loophole” that many heirs overlook. When you inherited a share of the house (plus perhaps other assets) from your late father, you received those assets with a new “stepped-up basis” to market value on the date of his death.

You and your siblings should hire a professional appraiser to determine that 2004 market value because it is very important. The estate administrator might have had an appraisal made. If so, you can use that valuation.

Your taxable capital gain is only the increased value after the date-of-death “stepped-up basis.”

For example, suppose your individual stepped-up basis valuation share of the house was $75,000. Because you received $93,000, that means your capital gain share increased in value during the three years after the death by $18,000.

This $18,000 amount is taxable in this example at a maximum federal tax rate of 15 percent, plus any state tax. I have no idea where that $107,000 number originated. For full details, please consult your tax adviser.

TITLE INSURANCE ARBITRATION WAS A RIP-OFF

DEAR BOB: We had a very bad experience with our owner’s title insurance policy. Several months after we bought our home it was discovered we did not have clear title. The title company admitted they made a mistake and offered to pay a percent of the insurance claim. They wanted to go to arbitration. The arbitrator ruled we suffered no loss because the property went up in market value after our purchase. We were ordered to pay the title insurance company more than $8,000. It seems the arbitrator was clearly on the title insurer’s side. Do we have any recourse? –Neal C.

DEAR NEAL: Your situation shows the pitfalls of agreeing to arbitration because there is no right of court appeal from an arbitrator’s decision. In the future, if you foolishly agree to arbitration (perhaps involving a small amount), please remember the arbitrator probably works for your opponent frequently and is likely not to rule in your favor.

Contact the state insurance commissioner to file a complaint against that no-good title insurer who failed to pay a legitimate claim without hassle. After you bought your owner’s title insurance policy, you should never have to pay a dollar to protect your property title rights.

CAN HOMEOWNER ASSOCIATION PROHIBIT OUTDOOR CLOTHES DRYING?

DEAR BOB: I recently moved into a condominium where the homeowner association rules prohibit residents from air drying their laundry outside their units. Not only is air drying a great electricity savings, but we live in a patio home where few people see our clothes drying. Do we have any protection under energy conservation laws? –Norbert M.

DEAR NORBERT: Welcome to the mini-democracy world of condominiums and homeowner association rules. I am not aware of any state or federal law entitling you to air dry your clothes in violation of homeowner association rules.

Of course, if everyone hung their laundry out on their balconies and patios, your condo complex would soon look like a Hong Kong high-rise slum where everyone air dries their clothes.

If the homeowner association should decide to enforce the rule against you by levying a fine, you then would have the opportunity to contest the fine in local court.

PRE-DEATH PROPERTY GIFT COULD BE EXPENSIVE FOR DONEE

DEAR BOB: My wife and I own two rental properties acquired in an Internal Revenue Code 1031 tax-deferred exchange. One is a rental home. The other is a two-family rental duplex. We have owned each about seven years. Since we are getting up in years, we would like to transfer these properties to our children. If we do that, will we have to pay tax now or when they sell the properties? –Roland L.

DEAR ROLAND: Because the gifts will exceed the $12,000 annual gift exemption per donor per donee, you and your wife will have to file federal gift tax returns. However, no gift tax will be due if your total lifetime non-exempt gifts are less than $1 million each.

By making these lifetime property gifts, your adult children will be burdened by taking over your presumably low adjusted cost basis. When they eventually sell these properties, they will owe large capital gain taxes.

A better alternative is to let your adult children inherit the properties after you both pass on. Then they will receive them with a new “stepped-up basis” to market value on the date of death. For full details, please consult your tax adviser.

WHY JOINT TENANCY ISN’T AS GOOD AS A LIVING TRUST

DEAR BOB: You often suggest properties be held in a revocable living trust to avoid probate. We are an unmarried couple in our late 60s and own two properties together as joint tenants with right of survivorship. In our situation, should we set up a revocable living trust? –Dean T.

DEAR DEAN: The primary purpose of a revocable living trust and a joint tenancy is to avoid probate when one co-owner dies.

However, living trusts offer a major additional advantage if one co-owner becomes incapacitated, such as due to Alzheimer’s disease or a severe stroke. Then the successor trustee can manage the trust assets, even selling them if necessary. That advantage is not available with joint tenancy. For more details, please consult an attorney specializing in living trusts.

NO STEPPED-UP BASIS IF SPOUSE DIDN’T INHERIT ANYTHING

DEAR BOB: My wife died in 2006. We lived together in our house for 31 years. Although title was in my name alone, do I get a new stepped-up basis to market value? –Herb W.

DEAR HERB: No. The reason is you didn’t inherit anything. To be entitled to a stepped-up basis to market value on the date of death, you have to inherit the asset.

Now I hope you understand why I recommend married spouses hold their assets in both names, preferably in a living trust. For full details, please consult a local probate attorney.

CAN A REVERSE MORTGAGE BE REFINANCED?

DEAR BOB: My wife and I took out a reverse mortgage about four years ago. It provides us with extra monthly income so we can live very comfortably. Before that, we often could barely pay expenses without dipping into our meager savings. Recently, our reverse-mortgage company asked if we would like to “refinance” our reverse mortgage because our home has gone up in market value by about $125,000. However, we would have to pay the up-front fees all over again. Is this a good idea? We are now 83 and 77. –John and Ida W.

DEAR JOHN AND IDA: The answer depends how long you want to stay in your home. If your answer is at least five years, then it might be wise to refinance your reverse mortgage to increase your borrowing power since your home has appreciated in market value.

More reverse-mortgage details are in my new special report, “Everything You Need to Know About Reverse Mortgage Pros and Cons for Senior Citizen Homeowners,” 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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Copyright 2007 Inman News

Given therecent negative press about the state of the residential real estate market,it’s understandable that buyers would be reluctant to offer more than theasking price. Yet, some buyers are finding that a list-price offer is notenough. Multiple offers are making a comeback in some markets.

A couplefrom San Francisco, who had resolved to pay no more than the list price, is nowresigned to do so for the right property. They were surprised to find thatthere were multiple buyers seriously interested in each of the first threelistings they considered buying. The one they chose to offer on received threeoffers. The winning bid was for $10,000 more than they offered.

Exhaustedand disappointed from the experience, the San Francisco couple realized that ifthey wanted to buy a good house in their first-choice neighborhood, they wouldhave to be prepared to compete.

Somebuyers in this situation would decide to wait to buy until there are morelistings and fewer buyers. A downside of this approach is that waiting in amarket that’s short on inventory could mean paying a higher price later.

Althoughappreciation has been flat to negative in many areas of the country, there arepockets of the market — like the starter-home markets in Oakland and Berkeley,Calif., and Brooklyn, N.Y. — where there aren’t enough homes for sale tosatisfy the demand. This tends to put an upward pressure on prices.

HOUSEHUNTING TIP: Does it make sense to pay over the asking price in a market thatcould soften further? The answer depends on how much over asking you have topay and how long you plan to own the property.

Somesellers are still pricing their homes low to stimulate buyer interest. In thiscase, paying over the asking price may not mean paying over market value. Checkthe sale price of the most recent comparable sales in the area to determine ifpaying over asking is too much. Your real estate agent can help you with this.

Even if alisting is fairly priced, paying more might make sense depending on yourcircumstances. If the house will serve your long-term needs and you’reconfident that you won’t be moving for five or 10 years, paying an extra $10,000is probably worth it. However, if your future is uncertain, it could be riskyto pay more than the asking price.

A jobtransfer that forces you to sell in a soft market soon after buying, couldleave you in a precarious position — particularly if you financed the purchasewith a mortgage for 100 percent of the price. Unless you have financialassistance from your employer, you might have to pull money out of savings tocover your selling costs. If the value of your home has declined you might notbe able to sell for enough to pay back the mortgage.

Anotherfactor to consider before offering more than the list price is whether thehouse will appraise for your offer price. Typically, a lender’s mortgagecommitment is conditioned on an appraisal of the property that substantiatesthat the buyer is not overpaying. Most lenders require that the appraisalreport include three comparable listings from the neighborhood that sold withinthe past six months.

Due to thegeneral slowdown in the housing market, some lenders are tightening up on theirappraisal requirements. Recently, an appraiser who was appraising a property inOakland’s Upper Rockridge neighborhood was instructed by the lender to usecomparable sales from the last three, not the last six, months.

THECLOSING: To protect yourself, include an appraisal contingency in your purchaseoffer so that you won’t risk losing your deposit should you back out of thecontract because the property doesn’t appraise for the purchase price.

DianHymer is author of “House Hunting, The Take-Along Workbook for HomeBuyers” and “Starting Out, The Complete Home Buyer’s Guide,”Chronicle Books.

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Copyright 2007 Dian Hymer

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

Bad mortgage selection has become a major problem with the explosion in the volume of complicated interest-only mortgages (IOs) and option ARMs (OAs). These instruments are often marketed deceptively to borrowers who don’t understand them and are not prepared for the risks.

The first article in this series considered one proposed solution: making lenders liable for the suitability of all mortgages including IOs and OAs. I concluded that this idea would not work mainly because the responsibility would have to be delegated to loan officers and mortgage brokers (“loan providers”). Loan providers mainly sell loans, which is inconsistent with responsibility for enforcing a suitability rule.

A second approach to bad mortgage selection, advanced by federal regulators from five agencies, is to impose a new set of disclosure requirements on lenders. Instead of trying to amend existing requirements, which is badly needed, they would simply add the new requirements to the pile. The rationale for that is the need to get something out fast.

While the agencies have developed a set of suggested disclosures, lenders are free to develop their own. Realistically, however, all or virtually all lenders will adopt the suggestions because it is their best protection against liability.

The suggestions include descriptions of IOs and OAs, and several illustrative tables. They are actually quite good, but their only impact would be to raise lender costs. I doubt that they would save a single borrower from folly.

Existing disclosures are largely ignored by most borrowers, and the new disclosures will simply be added to the pile. Borrowers ignore disclosures because too many hit them at one time, much of it is useless garbage, and few borrowers can extract the useful nuggets from the garbage. So all get short shrift, which would also be the fate of the new disclosures.

Unless, that is, there is someone directly involved in the process who tells the borrower, “Read this one before you sign on, it is truly important.”

But there isn’t! The loan providers with whom borrowers deal have a financial incentive to do just the opposite. They sell IOs and OAs. Expecting them to promote disclosures that will raise questions and perhaps thwart a deal is like expecting an automobile salesman to call attention to low gas mileage or poor collision performance. The interagency group blinds itself to this reality by constantly referring to disclosures being provided by “institutions.”

In refinance deals particularly, loan providers are not going to do anything more than the law requires. In dealing with a home purchaser, they can often afford to be neutral because the borrower who doesn’t take one instrument will take another. But in the refinance market, IOs and OAs are usually sold as a way of reducing payments, and if disclosures pointing up risks and future costs make the payment reduction less attractive, the result may be no deal at all.

Given the way in which mortgages are sold, a new disclosure added to the morass of existing disclosures can be effective only if it hits mortgage shoppers between the eyes, and cannot be swept aside by loan officers and mortgage brokers. My proposal is the following very simple rule:

Whenever a shopper is quoted a monthly payment, he or she must also be shown the highest monthly payment possible on that loan and the month it would be reached, assuming the borrower always makes the minimum payment allowed.

This rule focuses on the primary motivation for taking IOs and OAs: the lower initial payment. By showing what can happen to the payment, it forces borrowers to acknowledge that the loans have a downside that should be considered. The rule would put borrowers on their guard, which is what a disclosure rule is designed to do.

Based on past experience, the lender and broker trade groups will find this proposal unacceptable — because it emphasizes the negative. They believe that mandatory disclosures should be “balanced,” showing the good news as well as the bad.

But potential borrowers are besieged with good news; they hear about the possibility of “borrowing $150,000 for just $500 a month” from TV, radio, newspapers, the Internet and their loan providers. To be effective, mandatory disclosure has to be negative because it is designed as a corrective to an onslaught of hype.

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 2007 Jack Guttentag

Are you or someone you know a senior citizen homeowner who is “house rich” but “cash poor?” If so, a reverse mortgage can solve the problem if the homeowner is at least 62, needs tax-free income with no monthly payments, and plans to stay in his or her house or condo at least five years.

WHAT IS A REVERSE MORTGAGE? Just the opposite of an amortized mortgage, which requires the borrower to make monthly payments over 15 to 30 years, a reverse mortgage pays money to the borrower whenever needed and requires no repayment until the homeowner sells the home, moves out for longer than 12 months or dies.

PurchaseBob Bruss reports online.

When one of those events occurs, the reverse-mortgage principal and accrued interest “matures” and becomes payable in full. If the homeowner dies, the heirs can sell the home, pay off the reverse mortgage and keep the remaining equity. Or, if the heirs want to retain the residence, they can obtain a new mortgage to pay off the reverse mortgage.

Contrary to widespread myth, the reverse-mortgage lender does not “own” the home. The lender can never force the senior citizen homeowner to sell or move out. The reason is reverse mortgages are “non-recourse” without any personal liability. Only the residence is responsible for eventual repayment, even if it loses market value or the borrower lives to be 110.

To qualify for a reverse mortgage, the homeowner must be at least 62. If any co-owner is younger than 62, the residence is not eligible unless the under-62 co-owner signs a quitclaim deed conveying his/her interest to the over-62 co-owner. When there are two co-owners, both aged 62 or older, reverse-mortgage eligibility is based on the age of the youngest co-owner.

Advanced age is an advantage when obtaining a reverse mortgage. The reason is the borrower’s life expectancy determines the amount the homeowner can receive. For example, due to a shorter life expectancy, an 80-year-old homeowner will qualify for larger reverse-mortgage payments than will a 62-year-young “whippersnapper.”

THREE TYPES OF REVERSE-MORTGAGE PAYMENTS. Reverse-mortgage borrowers have a choice of how to receive their money. The alternatives are (1) lifetime monthly income (called “tenure”); (2) a lump sum for any purpose (such as a new roof or a trip around the world); and/or (3) a credit line for future borrowing (except in Texas). Most reverse-mortgage borrowers select the credit line.

Or, the senior citizen homeowner can select any combination of these choices, such as one-half monthly payments, one-fourth lump sum and one-fourth credit line. Borrowers can change their choice at any time by notifying the loan servicer.

A REVERSE MORTGAGE MUST BE A FIRST MORTGAGE. Because a reverse mortgage has a growing balance, due to principal advances and accrued interest, it must be recorded as a first mortgage.

If the home has an existing first mortgage, it can be paid off with a reverse-mortgage lump sum. As a very general rule, if the existing first mortgage plus any other liens such as a home equity loan or an IRS tax lien exceed 40 percent of the home’s market value, the residence usually will not be eligible for a reverse mortgage.

Many senior citizen homeowners obtain reverse mortgages to pay off their existing mortgage balances. The happy result is they get rid of their monthly mortgage payments, thus increasing their monthly cash flow, since a reverse mortgage requires no monthly payments.

FOUR REVERSE-MORTGAGE ELIGIBILITY CRITERIA. The three major nationwide reverse-mortgage lenders are very different, but they all use the same eligibility criteria to determine how much cash the senior homeowner can obtain.

The criteria are: (a) the adjustable interest rate at the time the reverse mortgage is originated (all reverse mortgages use adjustable interest rates); (b) the age of the youngest homeowner (minimum age is 62); (c) the lender’s appraised market value of the home; and (d) the lender’s maximum mortgage limit.

The borrower’s income and credit rating don’t matter, but the homeowner must not be currently involved in a bankruptcy, and the residence must meet minimum standards.

THE THREE MAJOR NATIONWIDE REVERSE-MORTGAGE LENDERS. Each of the three major nationwide reverse-mortgage lenders offers very different programs.

The most popular, with approximately 90 percent of the market, is the FHA plan. However, the major FHA drawback is the low lending limits, which vary by county. Borrowers owning homes in expensive communities are often disappointed with FHA.

Higher lending limits, currently up to $417,000, are offered by the Fannie Mae “Home Keeper” reverse mortgage. But the cash available is often less than the FHA program.

However, Fannie Mae is the only lender offering a “reverse mortgage for home purchase” where the senior citizen home buyer won’t have any monthly payments.

Financial Freedom Plan (FFP) offers reverse mortgages with no maximum limit for their “jumbo cash account.” The result is owners of homes worth more than $500,000 can usually obtain the largest amount with an FFP reverse mortgage.

HOW TO DETERMINE HOW MUCH CASH YOU CAN OBTAIN. Because there are three major variables to consider — the homeowner’s age, the home’s fair market value, and the reverse-mortgage lender’s maximum lending limit — computing the available cash from each of the three major programs requires a computer.

The best Web site to estimate this amount is www.FinancialFreedom.com. Enter your ZIP code, birth date, approximate market value of your home, and total of any existing mortgages and/or other liens, such as a home equity loan. The calculator will then compare all three reverse-mortgage programs, and provide the maximum amount available from each, including “growth rates” for the FHA and FFP plans.

WHERE TO FIND LOCAL REVERSE-MORTGAGE REPRESENTATIVES. Most traditional mortgage lenders do not offer reverse mortgages because of the specialized knowledge required. Before a senior citizen homeowner can obtain one, all three major lenders require independent counseling so the borrower understands the reverse mortgage pros and cons.

The largest reverse-mortgage originators are Financial Freedom Plan (which offers all three major reverse-mortgage programs), Wells Fargo Mortgage, Seattle Mortgage and GMAC Mortgage.

The Web site of the National Reverse Mortgage Lenders Association (NRMLA), at www.ReverseMortgage.org, has lots of great information that answers typical reverse-mortgage questions. However, the NRMLA calculator is incomplete because it compares only the FHA and Fannie Mae programs. It does not include the more generous FFP program, although FFP is a member of NRMLA and subscribes to its code of ethics.

The NRMLA Web site includes state-by-state lists of local reverse-mortgage originators who subscribe to the NRMLA code of ethics. But a major list disadvantage is that only names and phone numbers, plus lender Web sites, are included so prospective borrowers don’t know if the representative is nearby or across the state.

REVERSE-MORTGAGE DISADVANTAGES. Reverse-mortgage tax-free cash sounds wonderful to senior citizen homeowners who have large home equities but not enough income. However, the reality is the homeowner will be borrowing on that equity.

Prospective heirs often discourage obtaining a reverse mortgage because the homeowner will be “spending” the heir’s home-equity inheritance. However, many potential heirs encourage their senior citizen parents to obtain a reverse mortgage so they can fully enjoy their “golden years” with financial comfort.

Some reverse-mortgage borrowers object to the substantial upfront loan fees. FHA and Fannie Mae “cap” these fees at about 2 percent of the amount borrowed, plus third-party charges for appraisal fees and lender’s title insurance. Because of these fees, which are quite reasonable when amortized over five or more years, it usually doesn’t pay to obtain a reverse mortgage if the homeowner plans to stay less than five years.

Reverse mortgages have no effect on Social Security or Medicare payments. However, senior homeowners receiving SSI (Supplemental Security Income), Medicaid (Medi-Cal in California) or other welfare payments should know those benefits can be reduced if the recipient does not spend their entire reverse-mortgage income each month.

More information is available in my new special report, “Everything You Need to Know About Reverse Mortgage Pros and Cons for Senior Citizen Homeowners,” 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.

(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

One of the quickest and easiest home makeovers you can do is to apply a fresh coat of paint to walls or woodwork. Painting lets you add color and a clean new look to any room, and it’s also one of the most common and straightforward projects for the do-it-yourselfer to undertake.

With any home-improvement project, good results with a minimum amount of hassle results from having the proper tools, and painting is certainly no different. Luckily, you can get a basic set of professional-quality painting tools for very little money, and properly cared for, they’ll last a lifetime.

• Brushes: There are hundreds of brushes available, but for the average do-it-yourself painter working with latex (water-thinned) paint, a set of two is all you need — a 1 1/2-inch-wide brush for trim, and a 3-inch brush for larger areas. A polyester/nylon blend is a good choice for latex, with either a straight or angled set of bristles, depending on your personal preference. For oil-based paints, varnishes and other solvent-thinned materials, you can add two China bristle brushes in the same sizes.

  The cost difference between inexpensive and professional-grade brushes is minimal, so only get the best when investing in paint brushes! They apply more paint faster and with smoother results, and if you keep them clean they’ll last you forever.

• Roller Setup: For painting walls, ceilings and other large surfaces, you’ll need a roller setup. Start with a 9-inch, heavy-duty roller frame — again, avoid the inexpensive ones — with a comfortable handle that is threaded at the bottom to accept a pole. Add a heavy-duty metal roller tray, and a bucket grid for rolling directly out of 5-gallon buckets. For smaller areas, you can also add a 3-inch roller frame. Select high-quality roller covers that are matched to the type of paint and the type of surface you’re working with.

• Extension Pole: To work faster and easier with your paint roller, you’ll want to add an extension pole for ceilings and high walls. The least expensive poles are fixed-length wood with a cheap metal threaded end, and are best left behind at the store. Instead, look for a metal or, preferably, a fiberglass pole that’s easily adjustable to different lengths.

• Drop cloths: If you are only doing one painting project, you can get away with a plastic drop cloth or two to cover floors and furniture. A better choice, however, is a canvas drop cloth, which is easier to walk on and lasts through dozens of paint jobs. Get one 3-by-12-foot cloth for hallways and smaller areas, and either a 9-by-12 or a 12-by-15 for larger areas. Canvas drop cloths are too heavy and rough for covering furniture, so add a box of thin painter’s plastic to your supplies and use that for covering everything except floors.

• Masking Machine: Use a masking machine once or twice, and you’ll wonder how you ever painted without one. Masking machines dispense masking paper and masking tape at the same time, and really speed up your prep work.

• Putty Knife and Scraper: For starters, you’ll want to have a 1- or 1 1/2-inch-wide putty knife with a stiff metal blade (don’t get plastic ones), and a second one with a flexible blade. You can add other sizes as the need arises. You’ll also want a paint scraper for scraping off old paint. Look for one with a strong, comfortable handle and a top-mounted knob that allows you to place extra pressure with your other hand while scraping. Scrapers with a U-shaped scraping blade are a good choice, allowing you four blades in one scraper.

• Clean-up Tools: Properly cleaned and maintained, all of your painting equipment will last for decades, so invest in a couple of basic cleaning tools. You’ll need a combination brush comb/roller scraper — with broad metal teeth on one side — for combing out paintbrushes and a concave surface on the other for scraping excess paint off roller covers. A roller spinner, a simple, hand-operated tool that spins and fluffs your roller covers after washing, will simplify cleaning and greatly extend the life of the covers. Add a couple of sponges with abrasive pads on one side for cleaning roller trays and other tools, along with a box of thick cotton rags.

• Storage Bin: Finally, grab an inexpensive plastic bin with a lid to store all your tools. All of your paint gear with the exception of the pole will fit in one bin, with room left over for a spackle, tape and other basic supplies. The bin will keep everything clean, protected, and all in one place the next time you get the urge to paint.

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

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

Copyright 2007 Inman News

Home buyers want more time, not more space. They don’t pine for more luxuries and more of the good life. They want time to enjoy what they have now. 

This was the central finding from focus groups convened by Builder magazine to develop the concept for its show house at the 2007 International Builders Show in Orlando, Fla., last month. 

Concluding that salvation for these woebegone, time-crunched homeowners lay in technology, Builder brought in the latest gizmos and gadgets for its InSnyc Home. But judging by the results, it appears that technology can save only so many hours, and we have already reached that point.

The time-saving devices in this 6,600-square-foot house would astound our great-great grandmothers who were keeping house 100 years ago, but today most households in America, including, I assume, the woebegone focus-group members, already own them — washer, dryer, dishwasher, gas or electric range, microwave oven, refrigerator and freezer.

To have more time to do the things they really want to do, the owners of this house will have to resort to the same solution that their great-great grandmothers did: hire help.

But the InSync Home does conclusively demonstrate that the latest in-home technology can smooth out the rough edges of your life and calm you down. For example, in this house you’ll never squabble over music choices with your spouse or children. The Colorado vNet integrated technology network can play six different playlists at the same time, and these can be accessed from 16 touch pads located throughout the house. The possible combinations for each playlist are endless — a central server can store as many as 1,250 albums. You can upload your own CDs and never again hassle with broken CD cases or sort through 50 cases to find the CD that was misplaced. And you’ll never be embarrassed if you don’t recognize a familiar sound — the touchpad screen displays the artist’s photo, track time, recording date and liner highlights.

At the end of the day when you’re falling asleep on your feet, you won’t have to go through the house turning off lights — they can also be controlled from the touch pad. 

And you’ll never have to fiddle with the shower to get it just right for your aching muscles. You can program six different water temperatures to match your mood as you are massaged by 22 spray nozzles.

Clearly, these gizmos and gadgets will make life here more pleasant. But I predict that the primary draw for prospective buyers will be the understated elegance of the traditional Mediterranean styling and the size. Designed by architect Mike Keesee and Interior Designer Don Saxon of Orlando, this six-bedroom, two-story house with multiple places to hang out is made for large-scale entertaining and good old-fashioned house parties. The traditional styling conveys a sense that it has been a gathering place for years.

With two full floors and plenty of public spaces indoors, as well as a 600-square-foot lanai (a covered verandah) that overlooks the large swimming pool area and a studio apartment over the three-car garage, there’s plenty of room for guests to spread out and engage in multiple activities at the same time. Just as important from the hosts’ point of view, they can periodically recharge their batteries in a master suite that’s so private they can be in it and not be aware that anyone else is in the house.

It’s the perfect set-up for a multiple-generation family that is scattered across the country and wants to spend time together every year renewing familial bonds. With everyone congregated in one spot, the parents, siblings and in-laws can catch up; the grandchildren can spend time with their aunts, uncles and grandparents; and the grandchildren can establish relationships with each other.

When the entire clan is there, the daily routine might find some of the adults in the first-floor family room, living room or the lanai, some younger kids in the swimming pool with their parents, and older children on the second floor in the game room playing pool or in the entertainment room with their Game Boys (playing on a 61-inch, rear-projection DLP unit will be a big draw). The girl cousins might be with the boys or playing by themselves in one of the second-floor bedrooms. When the grandparents get overwhelmed, they can retire to their master suite for a rejuvenating nap. If one of the adult children or in-laws gets similarly overwhelmed, there are plenty of spots they can get some needed downtime. Family members might pitch in to cook meals in the enormous and well-appointed kitchen, but it’s more likely that the buyers of this $4 million house will have full-time help.

The style of the house is very common in central Florida, but even a cursory look when you pull up in front tells you that this is not your typical Mediterranean McMansion. The red brick windows inject some whimsy; the historically accurate Corinthian capitals on the columned arcade provide ballast; and the cast bronze putti (a Cupid) in the water fountain by the front door tells you that some things in this house will be over the top. If you enter from the garage, you’re primed to expect the unusual by the travertine marble steps that lead into a rear foyer.  

The interior, in fact, has too many interesting and arresting details to list them all, but my notes on the master suite convey the general ambience here: 

Unusual: The floor of the home office is leather.

Over the top: The circular foyer to the master bedroom area has a domed ceiling with a painted mural of clouds and flying putti, similar to those found in Italian Renaissance palazzos.

Unexpected: A second foyer to the master bathroom with a barrel-vaulted ceiling.

Playful: A cast-brass, lizard-shaped toilet paper holder.

Indulgent: A fireplace next to the soaking tub.

Practical: Two small windows high up in the soaking tub niche solve the privacy issue but still bring in gobs of sunlight.

Surprising: A Kohler toilet that looks like a giant hat box when the lid is down.

Elegant: The tumbled marble bathroom floor with an inlaid circular medallion.

Big: The overall dimensions of the bathroom appear to be nearly the same as the living room’s 16 by 16 feet.

If there is any downside to the InSync Home, it is the absence of any intimate spaces where you could cozy up for a one-on-one conversation. The rooms are large and all the furniture is oversized. The huge kitchen will look empty without at least five or six people in it. The long dining table with its 10 oversized dining chairs is a perfect fit in the formal dining room, but a small party of four people would feel awkward. The table in the breakfast nook looked right only because its four chairs were huge. One person in an ordinary dining chair would feel lost.

I don’t think this will be a problem for the eventual owners of this house, however. Whoever buys it wants to be surrounded by friends and family. When only the missus and mister are there, they can eat out for dinner, skip lunch and have breakfast in bed.

Questions or queries? Katherine Salant can be contacted at www.katherinesalant.com.

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

Copyright 2007 Katherine Salant