Real Estate in Steamboat

(This is Part 2 of a five-part series. See Part 1.)

In the first article in this series, I pointed to the ending of house-price appreciation as the immediate cause of turmoil in the subprime market. The rise in delinquencies, defaults and foreclosures has been concentrated among appreciation-dependent mortgages — those that work for borrowers only if their properties appreciate. A large proportion but not all of such mortgages are subprime.

While it is understandable why borrowers became caught up in the belief that house prices always rise, lenders are supposed to know better. Why was the mortgage lending industry willing to make loans that were workable for the borrowers only if their properties appreciated?

Disaster Myopia: In 1986, with my colleague from Wharton, Richard Herring, I published an academic paper called “Disaster Myopia in International Banking.” The paper set out to explain the international banking crisis of the early ’80s, but on rereading it recently I realized that it also goes a long way toward explaining the current crisis in the subprime market.

The disaster myopia thesis is that if potential shocks that can cause major losses to lenders occur very infrequently, they will not be fully reflected in loan prices and conditions. If the market is competitive and some lenders are willing to discount the likelihood of a shock altogether, other lenders who might be inclined to be more cautious are forced to go along or lose market share.

In the mortgage market, disaster myopia meant basing mortgage prices and underwriting rules on the assumption that because house prices had risen for a very long period, they would continue to rise. The cessation of price increases was thus a shock for which lenders were no better prepared than borrowers.

Disaster myopia was especially prevalent among aggressive subprime lenders, who could make a lot of money in a very short time so long as house prices kept rising. Other subprime lenders who might not be disaster myopic were forced to operate as if they were in order to remain competitive.

Underwriting requirements in the subprime market are set by the investment banks that buy the loans and securitize them. While the investment banks may or may not have been disaster myopic, those who were willing to accommodate the more aggressive lenders did more business (so long as house prices were rising) than those who insisted on maintaining more restrictive underwriting rules.

Mortgage Market Shocks Spread Rapidly: Virtually all subprime mortgages are converted into mortgage-backed securities that are sold to investors. These securities are actively traded and are therefore under constant surveillance by investors, traders and rating agencies. Bad news about defaults surfaces quickly and is quickly reflected in lower market prices of securities. The value of loans in the pipeline — on the way to securitization but not there yet — also drop.

The rapidity with which the current crisis in the subprime market has spread marks a very important difference with the international banking crisis of the ’80s. The international banks kept virtually all the “bad” international loans in their own portfolios, and used various stratagems for keeping the original values on their books unchanged.

This avoided widespread failures, but it also shut down the market for new loans.

In the subprime crisis, in contrast, much lender blood has been spilled, but (as discussed next week) the market for new loans has remained open.

Failures of Subprime Lenders: As of May 1, 2007, National Mortgage News, a trade publication, counted 32 subprime lenders that had become “defunct” since early 2006. The immediate cause of most of these failures was the reduction in the market value of the loans in their pipelines — loans they had already purchased but not yet sold.

Lenders originate mortgages in preparation for sale mainly with borrowed funds — their capital is usually quite small. Most borrowed funds come from what are called “warehouse lenders,” mainly large commercial and investment banks that protect themselves by requiring that the unsold mortgages be posted as collateral. When the value of the collateral drops, the account becomes “undermargined” and the warehouse lender asks for more collateral. If the decline in the value of the mortgages exceeds the capital of the subprime lender, the latter will be unable to comply and probably will be forced to shut its operations.

A marked deterioration in the payment experience of subprime borrowers poses a second threat to the solvency of subprime lenders. Under their arrangements with investment banks, lenders are required to repurchase loans that become delinquent within a few months after sale. The more aggressive the lender in pushing through marginal cases, the more buybacks they are likely to face. Collateral calls and buybacks are the major causes of lender failures.

Next week: Are loans still available to subprime borrowers?

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

Two weeks ago, the 10-year T-note traded under 4.65 percent; yesterday it touched 4.9 percent. Mortgages — as always, following the 10-year in lockstep — were trying to break 6.25 percent going down; now they are trying to hold 6.5 percent while going up.

The case for holding is poor.

Rates are rising because the global economy is taking off. Forget all the thoughts of drag from concerted tightening by central banks, Europe to top out, America to slide near recession on weak housing and manufacturing, Asian exports to be undercut by American weakness.

April orders for durable goods ran a 1.5 percent adjusted gain, manufacturing perking back. New claims for unemployment insurance are dead low, the job market just fine.

Housing is neither at bottom nor causing a recession. Wall Streeters thought that a 16 percent leap in sales of new homes in April was good news; they’ll never get it right: the surge is a sign of panicked builders trying to stay in business, building and dumping homes at or below cost, undercutting resales. Sales of existing homes fell another 2.6 percent in April, and unsold inventories hit a 15-year-record high, 8.4 months’ supply.

Why isn’t housing knocking over the economy? The traditional reasons are lost on Wall St.: if you don’t have to sell, don’t sell. Live in it. If your value doubled since 2001, and you’ve lost 5 percent, you still have a 95 percent gain. The foreclosure pain is confined to late-comers with bad loans — it’s very painful for them, but confined. So far.

How can mortgage rates rise when demand is falling? Get a grip: annual American mortgage demand is a minor element in global markets for IOUs. They are just electrons, after all, traded 24/7 in competition with every other borrower on the planet. A German 10-year bund today trades at 4.39 percent, only a half-point under our 10-year. Given lower inflation risks there than here; the euro-zone economy thriving in global trade, as opposed to American export-by-accident, import-by-joyride; and euro-zone political leadership compared to our pack of fools … euro-zone bonds look cheap.

As the global economy heats up, America the laggard, competition is pulling our rates up. Back there, nine years ago, the Committee To Save The World (from the Asian Contagion, Messrs. Rubin, Summers and Greenspan) warned that the American engine could not pull the world by itself for long, and other nations would need to get in gear. Be careful what you wish for.

There is still plenty of concern that global heat is the result of financial artifice, kids in $10,000 suits running rings around central bankers. But, past a certain point, it doesn’t matter whether the heat is authentic or artifice. This point: the Shanghai stock market has quadrupled in less than two years. Its $2.6 trillion value has risen fivefold and is now a greater sum than all bank deposits in China. In the last month there, new stock brokerage accounts have opened at the rate of 300,000 every day.

Central bankers do not like to wake each morning, day after day to discover that every major stock market has set a new high. Nor the creepy sensation that assets and future cash flows are being liquefied by borrowing, the liquidity causing assets to rise further, which … don’t go there.

Our Fed is almost a year into 5.25 percent sitzkrieg. The ECB is 3.75 percent, still tightening, putting pressure on our rates (a lot of pressure: given at least a 1 percent rate/inflation differential, roughly equivalent to ours). The Bank of England is 5.5 percent, behind its growth/inflation curve and still tightening. China, terrified of the political consequences of a rapid economic slowdown, rides the tiger, increasing risk for everybody else.

As glorious as all this growth is, at this pace it is accident-prone. I have no clue if this phase will end by central-bank catch-up, tripping stock markets as they go by, and shoving property markets from behind; or by central-bank failure, markets running to cliffs. Whichever: rates are going up.

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

Copyright 2007 Lou Barnes

Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, March 19, 2006.

Spring is traditionally the best time of year to sell your house or condominium. The reason is that March through June is the peak home sales season when the largest numbers of prospective buyers are in the market place.

But 2006 started out differently. For some unexplained reason, the numbers of houses and condos listed for sale in most communities took a sudden jump in January and February, far earlier than usual. Maybe these home sellers just wanted to get a head start on what promises to be an excellent sales season with mortgage interest rates still very affordable for buyers.

Purchase Bob Bruss reports online.

HOW TO SELL YOUR HOME FOR TOP DOLLAR. If you are thinking about selling your house or condo, this is the best time of year to do so. However, a successful home sale requires preparation and planning.

The first step is to get your residence into near “model home” condition. That means cleaning, repairing and painting. But don’t go overboard with renovations. Let your buyers remodel to their taste. Most home improvements rarely bring in as much in additional sales price as they cost.

However, modest-cost cosmetic improvements usually pay off. Profitable examples include fresh paint inside and outside (paint is the most profitable dollar-for-dollar improvement you can make), new light fixtures, new floor coverings (if needed) such as wall-to-wall carpets, and outdoor landscaping spruce-up.

THE BEST WAYS TO DETERMINE YOUR HOME’S MARKET VALUE. Home sales prices depend on recent sales prices of nearby comparable residences within the last few months. A good place to start is on the Internet to determine your home’s approximate market value.

A brand-new Internet Web site that provides free “guesstimates” of home values is www.Zillow.com. When I checked my home, I was amazed to see an aerial photo of my house, including the lot boundaries. The Zillow estimate of my home’s market value was remarkably accurate. However, this remarkable new Web site doesn’t yet cover the entire nation.

Other free Internet home-value-estimate Web sites include www.HomeGain.com, www.HouseValues.com, www.OurHomesPrice.com, www.Domania.com and www.PriceAHomeOneline.com. These Web sites will often refer you to a local realty agent.

After you have had fun with the Internet estimates of your home’s market value, if you are a serious home seller, the best way to obtain a more accurate market value estimate is to interview at least three successful local real estate sales agents.

Even if you are thinking about selling your home alone (known as “for sale by owner” or “fizzbo”) the agents you interview won’t mind giving you their listing presentations. The reason is they know most “for sale by owners” give up and list with a professional agent within 30 to 60 days.

KEY QUESTIONS TO ASK EACH LISTING AGENT YOU INTERVIEW. The reason it is so important to interview at least three local agents is to compare their sales abilities and their CMAs (comparative market analysis) of your home’s market value.

Each interview, including the agent’s inspection of your home, should take about an hour. These will be the three most profitable hours you ever spend.

The reason is each agent should prepare a written CMA showing the agent’s estimate of your home’s market value. The CMA will include recent sales prices of comparable nearby homes, the asking prices of neighborhood homes now listed for sale (your competition), a list of recently expired nearby listings which didn’t sell, and the agent’s estimate of your home’s market value.

In addition to receiving each interviewed agent’s CMA, here is a list of key questions to ask each agent (the best agents anticipate these questions as part of their listing presentations):

1.) What are the names, addresses, and phones of your five most recent home sales listings?

Before you decide to list with one of the agents interviewed, be sure to phone those recent sellers to ask, “Were you in any way unhappy with your listing agent?” and, “Would you list another home for sale with the same agent?”

2.) How long have you been selling homes in this area? Do you sell real estate full-time? What professional courses and designations have you completed?

Some agents will resent these questions, realizing you are a well-educated home seller. But the best agents will have anticipated these important questions.

Occasionally, you will find a successful part-time agent who comes highly recommended by recent home sellers. Or you might encounter a promising new licensee who has lots of time to devote to selling your home listing.

3.) What is your minimum listing term? The best answer is 90 days so you won’t tie up your home for a long time with a lazy or ineffective agent. However, some agents insist on 180-day listings.

They usually justify such a long term by saying, “The average number of days on the market for homes in this area is 150 days (or whatever).” But your reply should be, “I don’t want just an average agent. I want an outstanding agent who has confidence in his or her ability to get my home sold within three months for top dollar.”

If the agent you think is best still insists on a six-month listing, after checking his or her references, an acceptable alternative is a 180-day listing with an unconditional cancellation clause after 90 days written into the listing contract. Then, just in case you chose a “bad agent” you won’t be stuck more than 90 days.

4.) What is your marketing plan for my home? The best agents will have anticipated this question by providing a written marketing plan as part of their listing presentation.

Each written marketing plan should include at a minimum a) a weekday open house tour for all MLS (multiple listing service) member local agents, b) Internet promotion on the agent’s personal Web site and at www.Realtor.com (where 70 percent of today’s home buyers begin their search), c) weekend open houses once or twice a month, d) newspaper ads at least once every week, e) brochures (ask to see samples of the agent’s past brochures for other listings), and e) depending on the sales price, advertising in additional publications.

5.) How many listings do you have now? What are their addresses? Do you have an office assistant? What percentage of your listings didn’t sell last year? What day of the week do you take off and who covers for you when you are gone? Are you planning any vacations during the next three months?

If the agent you are considering has too many listings, he or she might not be able to devote enough time to your home sale. Watch out for “numbers agents” who take many listings, have several assistants, but sell a low percentage of their listings. However, consider it a bonus if two agents work as a “team” to handle a large percentage of their listings.

Having an office assistant is another bonus to free the agent’s time for sales while the assistant handles the details such as arranging inspections, appraisals, and sales closings.

6.) What sales commission do you charge for a home like mine?

You should be aware, according to a recent survey by Real Trends, the average home sales commission is 5.1 percent. However, many agents try to get the traditional 6 percent sales commission, especially for homes priced below $500,000.

If the listing commission is competitive, this is not the time to cut the agent’s commission and incentive to get your home sold. Presuming the agent’s references and success record are satisfactory, a sales commission up to 6 percent is acceptable.

However, if the listing agent produces a low purchase offer, that is the time to say, “Well, since you didn’t produce a purchase offer at your recommended asking price, if you will lower your sales commission, maybe I can accept this low purchase offer.”

The most important part of the sales commission is the portion that will go to the buyer’s agent. To illustrate, if your home sale listing offers only a 2 percent commission to the buyer’s agent, but other local listings offer a 3 percent commission, agents representing buyers are likely to show those homes before yours.

In addition to the sales commission, at the time of listing be sure to ask if there are any additional fees for you or your buyer. Some brokerages try to charge “transaction” or “administration” fees in addition to the sales commission.

SUMMARY: Spring is the best time of year to sell your house or condo to earn top dollar. But before listing your home for sale with the best agent for your situation, be sure to interview at least three successful local agents before selecting the best agent.

(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

There’s been a lot of interest in energy-efficient light bulbs lately, with an emphasis on swapping out older incandescent bulbs for newer fluorescent ones. Unlike the long fluorescent tubes we’re all familiar with, these bulbs, known collectively as compact fluorescent light bulbs, or CFLs, resemble a standard light bulb. They are designed to screw directly into the same socket as a standard incandescent bulb, and are available in a variety of sizes to work with virtually any existing fixture you might have in your home.

According to some statistics compiled and presented by the government’s Energy Star program, CFLs can produce an equivalent amount of light to a standard bulb, but they last up to 10 times longer and use about two-thirds less energy. So the cost savings associated with not having to replace your bulbs as often will make up for the higher initial cost of the CFL, and you should save something on the order of $30 per bulb in energy costs over the projected life of the fluorescent bulb.

Some of the other benefits of CFLs include a reduction in heat output. We all know how hot a standard incandescent bulb gets as the filament glows, so they’re more dangerous to use, and all that heat adds to the cooling load in your home. According to Energy Star, a typical CFL puts out only about 30 percent of the heat of an incandescent bulb.

If you’re thinking of starting to replace some of the incandescent bulbs in your house with CFLs, you might want to start with the fixtures that are switched on the most, such as porch lights and lights in the living room and kitchen. And remember that not all fluorescent bulbs are the same, so follow some of these tips for selecting the right bulb:

• Select a bulb with a lumen rating (lumens are the standard measure of light output) that is equal to the bulb you’re replacing. For example, a 60-watt incandescent puts out about 800 lumens, so if you’re replacing a 60-watt bulb you’ll want a fluorescent bulb that meets or slightly exceeds that lumen output.

SOME OTHER STRATEGIES

In addition to replacing bulbs, you can minimize energy usage with a few other strategies as well. In the kitchen, consider the use of fluorescent under-cabinet lighting. These glare-free fixtures illuminate the counters for improved viewing with less eye strain, and can save you from having to rely on additional overhead incandescent fixtures.

In fixtures such as multibulb bathroom lights, if you don’t want to switch to CFLs yet you might want to think about reducing the wattage of the bulbs. For example, a fixture with five 60-watt bulbs uses 300 watts of electricity, while replacing the bulbs with 40-watt ones will reduce that to 200 watts, saving you the equivalent of a 100-watt bulb.

You may not have the luxury of rearranging your light switches in an existing home, but if you’re building or remodeling, another great strategy for saving electricity is to pay attention to how your switches are set up. For example, when walking into the kitchen and flipping on the switch, you probably don’t need any more than just one or two overhead lights to see efficiently. For specific tasks, such as washing dishes or preparing food, having the task-light fixtures in each specific area set on a separate switch will allow you to regulate the amount of light — and electricity you use — to the task you’re performing at that time.

A CORRECTION

In my response to a recent reader question about why her water heater was running out of hot water so quickly, I suggested a couple of possible reasons. Several sharp-eyed readers of the column wrote to point out that I neglected to include replacement of the dip tube as a possible — perhaps even a probable — cause of the problem.

A dip tube is a long plastic tube inside your water heater that carries the cold, incoming water to the bottom of the heater, where it can be warmed more efficiently. If the dip tube is broken or has come loose, cold water sits at the top of the heater and doesn’t circulate through the tank. The result is that only a portion of the water in the tank gets warmed, so you will run out of hot water much more quickly.

It is indeed a likely culprit in the case of the woman with limited hot water, and my thanks to the readers who took the time to write and suggest it!

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

I often hear people say of some old house, “Wow, they don’t build ‘em like this anymore.” To which I’m often tempted to add, “And it’s a good thing, too.” There’s a lot to be said for the aesthetic of older homes — I’ve said a good deal of it myself — but on the technical side, houses are far better built today than they were just 30 years ago, let alone 60 or 100 years.

For one, we know a lot more about protecting houses from all the bad things that can happen to them.

Take fire safety: Older houses were built with wooden lath that made perfect kindling, single-wall furnace flues that could rust out and overheat, and damage- and overload-prone knob-and-tube wiring that could smolder and start fires. Modern houses are built with flame-resistant gypsum wallboard, double-wall flues, and better protected wiring systems. They’re also required to have smoke detectors, perhaps the most worthwhile life-safety feature of all.

New houses also hold up much better in earthquakes, hurricanes and tornadoes. Prewar houses typically had little or no foundation reinforcement and were sheathed with horizontal boards that gave very little lateral strength. They also had rather casually connected floors, walls and roofs. Today’s houses, on the other hand, have well-reinforced foundations, enormously strong plywood shearwalls to resist wracking, and a host of inexpensive yet very effective metal connectors, the sum of which allows new homes to survive natural catastrophes that would probably destroy an older home.

But safety isn’t the only thing that’s improved. New houses are several times more energy efficient than those of just a generation ago, thanks to mandates for better floor, wall, ceiling and duct insulation, double-glazed windows, and more efficient furnaces and lighting.

They’re also more durable. Modern copper water pipes, for example, will easily last the life of the structure, which certainly can’t be said for the rust-prone galvanized steel pipe found in most older homes. And the “engineered lumber” used in today’s houses — much of it made from mill waste that used to be thrown out or burned — is stronger pound for pound than the solid-sawn lumber used by builders of yore. Even modern glass is better: While the French doors in old houses contain plain glass that shatters into dagger-like shards, the tempered glass required in modern doors crumbles into harmless little granules when broken.

Given that today’s homes are technically superior to yesterday’s, why do developers try so hard to make their new houses look as if they were old? And why do so many people nevertheless prefer to live in an actual old house with all the infirmities noted above? No doubt it has something to do with the peculiar human tendency to idealize bygone times. Or as the writer and humorist Finley Peter Dunne put it, “The past always looks better than it was; it’s only pleasant because it isn’t here.”

That can’t be the whole story, though. To my mind, when people say they don’t build houses like they used to, they’re not really talking about lumber, pipes and wiring. They’re talking about the one elusive quality you can’t build into any new house, no matter what the price: the inimitable dignity of a genuine past.

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

Copyright 2007 Arrol Gellner

Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, March 19, 2006.

DEAR BOB: I bought a rental property in 1991, which I sold for $450,000. To avoid capital gain tax, I used an Internal Revenue Code 1031 tax-deferred exchange to buy another rental property for $450,000. After renting it for 12 months, I moved in and have lived in it for 24 months. If I sell this property at the same $450,000 price, will I owe any capital gain tax since I made no profit? Is this a good way to avoid capital gain tax? –Sim Y.

DEAR SIM: Nice try! But Uncle Sam is way ahead of you.

Your adjusted-cost basis for the $450,000 rental house you acquired in the Internal Revenue Code 1031 tax-deferred exchange was not $450,000.

Purchase Bob Bruss reports online.

Instead, it was your $450,000 purchase price minus the deferred capital gain on your old rental property minus the depreciation you deducted on the acquired property during the 12-month rental period before you moved in to make it your principal residence.

Although you owned and occupied the acquired property as your principal residence for the last 24 months, if you wish to claim the Internal Revenue Code 121 tax exemption up to $250,000 (up to $500,000 for a married couple filing jointly) you must own the acquired property at least 60 months before sale.

I hate to break the bad news, but the depreciation you deducted will be taxed at the special 25 percent federal “depreciation recapture” tax rate when you sell your current property. For full details, please consult your tax adviser.

HOME SELLER RENT-BACK MUST BE REPORTED ON TAX RETURNS

DEAR BOB: We recently bought a house and let the sellers rent it back for a month for which they paid us rent. Does this rent-back count as rental income on our income tax return? Does having them live in our house affect deducting mortgage interest for that month? –Robert R.

DEAR ROBERT: Your mortgage interest and property taxes are always tax-deductible.

However, the rent you received, because the rental term exceeded 14 days, must be reported on Schedule E of your federal income tax return where you can also deduct the applicable expenses for the rental period. Your tax adviser can give you more details.

LIFE ESTATE DOESN’T HAVE MUCH VALUE

DEAR BOB: My husband died about two years ago. He left me a life estate in his house. I am 68, but I want to move to Georgia to be near my children and grandkids. A neighbor offered me $1,000 for my life estate. Isn’t it worth much more than that since I am in excellent health and my family members live into their 80s and 90s? –Maida T.

DEAR MAIDA: Please read the exact terms of your life estate. Some life estates specify that if the life tenant permanently moves out, the life estate terminates. That means your life estate becomes worthless when you move out of the house.

However, if your life estate doesn’t terminate until you die, you can sell your life estate interest to the neighbor so he can rent or occupy the house. But that buyer shouldn’t pay very much because when you die, the life estate terminates.

Although you say your family members live into their 80s and 90s, you could get hit by a truck while crossing the street, thus terminating your life estate in the house. For full details, please consult a local real estate attorney.

The new Robert Bruss special report, “How to Sell Your House or Condo for Top Dollar With or Without a Real Estate Agent,” 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 have owned a two-unit apartment building for the last four years. I have month-to-month tenants in one of the units that started renting there after I bought the building. They have a clearly written agreement that states they are the only two tenants and no subletting or other tenants are permitted. However, we are about 90 percent sure that someone else has moved in for the last nine months. He never comes or goes and yet he’s there day and night, seven days a week. How do we prove it and what recourse do we have?

James McKinley, an attorney for landlords, replies:

You don’t say if your original two tenants are still living in the unit. If they are, you should start by asking your tenants if they have moved in a roommate. If someone else has moved in, you could have him fill out a rental application, and, if he meets the rental criteria, sign a new rental agreement with all tenants; or you could serve a legal notice to perform covenant or quit, followed up by an eviction action if your tenants do not comply by removing the occupant not on the lease. If you feel you cannot prove that there is an illegal subtenant, you always have the option of serving a notice of termination of tenancy.

Question: Many times I have arrived home to a smoked-filled apartment caused by my neighbor who barbeques on his fire escape. I called the fire department, who advised me to shut my windows. This is a health hazard for me. Also, the fire escape is full of debris. Shouldn’t fire escapes be free of any items?

Landlord attorney McKinley replies:

Fire escapes are most often found on multiple-story residential buildings, such as apartment buildings. At one time, they were a very important aspect of fire safety for all new construction in urban areas; more recently, however, they have fallen out of common use. Fire escapes are designed for emergency use only, and should not be used for recreation, or cooking, and should not be cluttered with debris. You should speak to your landlord to make him aware of the problem. I doubt your landlord wants any tenants barbequing or otherwise using the fire escape for anything but its intended purpose. The landlord should fit the door or window that accesses the fire escape with a fire alarm to prevent unauthorized use of the fire escape. As many fire escapes were built before the advent of electronic fire alarms, fire escapes in older buildings have often needed to be retrofitted with alarms for this purpose. If your landlord does not respond to your request, you should make a complaint to your city’s code-enforcement department.

Steven Kellman, an attorney for tenants, replies:

Smoke, whether from outdoor cooking or cigarettes, is a chemical released into the air, many times treated like noise or odors. It is something that can intrude on or disturb a neighbor, and therefore may be improper and restricted if excessive. Closing one’s window to block out a neighbor’s barbeque smoke is hardly fair since closing the window also deprives the tenant of the right to have full access to the use of the unit including the fresh air around it. Fire escapes are designed for emergency use to escape fires and not to have barbeque fires set on them. Using fire escapes for recreational use (i.e. as if it were a balcony) is not only an improper use of the safety device, but it may also be dangerous because it was not designed for such use. It may not hold the sustained weight of a barbeque event or it may present other hazards. The accumulation of debris on the fire escape will also impair the intended use — which is to escape fires — and perhaps cause more injuries than it was designed to prevent. James is right when he advises to seek some assistance and intervention from the landlord, and if no help is forthcoming, to contact the city.

This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of “Property Management for Dummies” and co-author of “Real Estate Investing for Dummies,” and San Diego attorneys Steven R. Kellman, director of the Tenant’s Legal Center, and James McKinley, principal in a law firm representing landlords.

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

Questions should be brief and cannot be answered individually.

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

Copyright 2007 Inman News

Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, March 19, 2006.

In 1988, Jennifer and Terral Croft divorced. The court awarded Jennifer use of the jointly owned family home and ordered Terral to pay child support for their children.

But Terral was not faithful in making child support payments. In 1992, the state court entered judgments against him for the accruing unpaid child support payments.

Purchase Bob Bruss reports online.

In 1996, the Internal Revenue Service filed and recorded a federal tax lien for $73,857 in unpaid federal taxes against Terral.

In 2004, Jennifer obtained a judgment against Terral for $131,495 for unpaid child support payments. The court granted her an equitable lien against Terral’s half-interest in the house.

She then filed this lawsuit against the IRS, alleging her interest in Terral’s half of the house was superior to the IRS tax lien that was recorded in 1996.

The IRS argued that because its tax lien was recorded in 1996 against Terral, under the “first in time, first in right” rule, the $73,857 tax lien has priority over Jennifer’s $131,495 judgment in 2004 for unpaid child support payment.

If you were the judge, would you rule the 1996 IRS tax lien has priority over Jennifer’s 2004 judgment as to Terral’s 50 percent interest in the house?

The judge said yes!

“The Federal Tax Lien Act creates a lien in favor of the United States upon ‘all property or rights to property, whether real or personal’ belonging to any person who neglects or refuses to pay any tax after demand,” the judge began.

“Once a taxpayer’s interest in property is established and a federal tax lien arises, however, federal law governs the priority of competing liens,” he explained.

“In other words, as to these interest holders, the ‘first in time, first in right’ priority applies,” the judge emphasized.

“By her petition, plaintiff claims an equitable entitlement to monies owed to her by Mr. Croft dating to July 6, 1988, the date that the final judgment of dissolution of marriage was entered, and Mr. Croft’s support obligation was created,” he continued.

However, she was not a judgment lien creditor in the marital residence by reason of the divorce decree and, at the earliest, she did not obtain a recorded final judgment until April 6, 2004, the judge emphasized.

Since the IRS tax lien attached to Mr. Croft’s one-half interest in the residence in 1996, the tax lien was first in time so it is superior to the plaintiff’s equitable lien for unpaid child support in the property, the judge ruled.

Based on the 2005 U.S. District Court decision in Croft v. U.S., 2006-1 USTC 50105.

(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

Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, March 19, 2006.

DEAR BOB: I would like to buy a second home in Phoenix, but all my money is tied up in retirement accounts. I am thinking a reverse mortgage will give me the money I need (about $250,000). Can I continue to live in my current residence? Are there annual fees for the reverse mortgage? –Roger D.

DEAR ROGER: I presume you are 62 or older. Fannie Mae offers reverse mortgages for home purchase. However, the residence acquired must become your principal residence and you must make a substantial down payment. The big advantage, however, is no monthly payments as long as you live in the acquired home.

Purchase Bob Bruss reports online.

If you want to keep your current principal residence where you plan to spend most of your time, you can obtain a “lump sum” reverse mortgage. The exact amount available depends on your age (the older the better) and your home’s current market value.

The reverse mortgage lender doesn’t care how you spend the money. To find a reputable local reverse mortgage originator, I suggest you go on the Internet to www.reversemortgage.org to learn how much you can obtain secured by your current residence. More details are in my special report, “The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant Internet delivery at www.bobbruss.com.

PARTIAL TAX EXEMPTION FOR HOME SELLER

DEAR BOB: In 2004 my wife accepted a job in Seattle. We bought a house for her to live in there, but we kept our former residence where I remained. She lived in the Seattle house for 10 months before accepting a new position that allowed her to return to living with me in our home. When we sell the Seattle house, can we exclude the capital gain from tax on 10/24 of the $250,000 we would have been eligible for if she lived in the house for 24 months? –Chuck V.

DEAR CHUCK: Yes. From your description, it seems your wife qualifies for 10/24 of the $250,000 principal residence sale exemption of Internal Revenue Code 121 for the profitable sale of the Seattle house. For full details, please consult your tax adviser.

PRICE, NOT UNITS, DETERMINES TAX-DEFERRED EXCHANGE

DEAR BOB: I read your real estate section every week. Thank you for the valuable information. If we were to sell our two-bedroom rental house and buy a multi-unit dwelling out of state, will that qualify for an Internal Revenue Code 1031 tax-deferred exchange if the house we sell is more expensive than the units we acquire? –Theresa W.

DEAR THERESA: It’s not “my” real estate section, but I enjoy contributing to it every week. To qualify for an Internal Revenue Code 1031 tax-deferred exchange, you must trade equal or up in both price and equity. The number of rental units is irrelevant.

The exchange you describe is a taxable “down trade” because you will be taking out taxable “boot,” such as cash or net mortgage relief. Also, you will be exposing yourself to the dreaded special 25 percent federal tax rate for “depreciation recapture.” Please consult your tax adviser for details.

The new Robert Bruss special report, “How to Sell Your House or Condo for Top Dollar With or Without a Real Estate Agent,” 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 have mold developing underneath a window in my bedroom. The window faces north-northwest and never has sun on it. I wonder if the mold could be caused simply by moisture accumulating in the room, or is it a more serious problem, such as a leaking window frame?

I have no idea whom to consult. One inspector wrote in his report that the paint job was poor, but didn’t say why. There’s a contractor in my neighborhood, but how do I know he knows what he’s talking about?

I’d like to get someone who could determine what is causing the mold, and why the paint splits off my front window sills within months of being applied. The wood is not soft, and the tip of a knife does not penetrate. Any tips on what kind of expert I should be consulting and how to recognize a reliable person would be greatly appreciated.

A: The mold on your window is either the result of too much moisture and too little ventilation or it could be symptomatic of a more serious problem.

The peeling paint on the front window sills likewise could be a sign of excess moisture or it may simply be that the top coat of paint is incompatible with the undercoat.

If there is a structural problem, it is possible that it’s caused by termites, but we doubt it. More likely it’s caused by a fungus infestation, also known as dry rot. Fungus flourishes in moist conditions. We recommend that you employ a licensed professional structural and pest control contractor to determine whether you have a problem and if so, its extent.

The inspection you had done seems to have been deficient. A “bad paint job” tells us (and you) nothing.

If, for example, exterior caulking was substandard, that may be the cause of water infiltration and the mold. If it’s been going on awhile it could also cause rot. A general building contractor might be of help in identifying structural defects but generally does not have the specialized training necessary to ferret out and identify specific pest control problems, such as the cause of the mold under your window.

As for finding a reliable structural and pest control inspector, we suggest you inquire with the people who use them the most: real estate brokers.

A structural and pest control inspector is part of almost every home sale. Most brokers have a number of pest control operators they use regularly. Tell the broker up front that you’re not thinking of selling (unless you are) but that you have a problem and are looking for some guidance. We think the broker will be happy to recommend a licensed pest control company.

Once you have a name, schedule an inspection. Also ask to talk to the inspector and tell him your concerns. We recommend that you have the entire home inspected and that you be there during the inspection.

It’s possible that the inspector will suggest that he open a test hole or two in the exterior walls to determine if there is hidden damage. This is the case especially if the house siding is stucco.

Our experience is that inspectors do not recommend this unless they suspect trouble. Allow him to do it, but ask him to patch the holes when he’s done.

After the inspection, ask the inspector to talk to you about his findings and ask questions. He’ll probably be happy to take you around the house and show you any problems he uncovers.

A week or so after the inspection you will receive a written report detailing the damage he’s found and the cost to repair it. At this point you can choose what, if anything, to repair. You can also put any suggested repairs out to bid. The cost of the inspection should be no more than $200. We think this is a bargain for the knowledge you’ll get.

If what you have is merely mold, the cause is a lack of sunshine and inadequate ventilation on your north-by-northwest windows. This is especially true if you live in a foggy area.

Mold needs three things to thrive — moisture, food and a temperate environment. The moisture is provided by condensation; the food is the paint or plaster; and the temperate climate is provided by the warmth of your home’s interior.

If the mold is not too severe, clean it up by wiping the area with a 25 percent solution of chlorine bleach and rinsing with cold water. Keeping the curtains open and the promoting ventilation by opening the door and windows (weather permitting) will help keep the mold at bay.

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

Copyright 2007 Bill and Kevin Burnett