Real Estate in Steamboat

By LISA A. PHILLIPS

Published: June 22, 2007

MOST people who buy a second home are seeking refuge, a place to recharge their psychic batteries, to leave the worries and trivia of their jobs and hometowns behind. The last thing on their minds, generally, is to get sucked into the whirlpool of local politics.

Becoming involved in a second community might mean attending an occasional meeting of the homeowners’ association or writing a check to support a local cause. Reading the local newspaper or learning who the mayor is, however, just might not be quite as important as finding the best bagel in town.

But then there’s the experience of Peter Blaes, 54, a psychiatrist from Bethesda, Md., who has a vacation home in Rehoboth Beach, Del., a rare resort town where second-home owners can vote in local elections and thus become embroiled in issues of zoning, preservation and building codes. For people like him, the idea of getting away and getting involved is not a contradiction.

“I struggle with important issues all week long, so the whole point of coming here was to get away,” Mr. Blaes said. “But the risk of losing the character of this place as we know it is worth the expenditure of energy.”

No man is an island, and no vacation home exists in a vacuum. As much as second-homers might try to defy the pull of local issues – even tiny issues – such resistance is sometimes in vain. Bucolic getaways can turn into dens of contention over things like the paint color on the interior walls of a condominium, as happened in Punaluu, Hawaii; the environmental and visual impact of a proposed wind farm on Nantucket Sound five miles off the southern coast of Cape Cod; or whether homeowners around Lake Tahoe, Calif., can put new buoys, boat ramps and piers on their properties.

In the New York region, second-homers were key players in the battles over outlawing charcoal barbecues in Ocean Beach on Fire Island in the 1990s. More recently, second-home owners have jumped into tussles over cellphone towers in the Catskills and the proliferation of McMansions in the Hamptons. And a group of second-home owners in Southampton tried, in vain, to incorporate their beachfront property into a new village, to be called Dunehampton, several years ago because of dissatisfaction with the local government.

In the case of the Cape Cod wind farm controversy, part-time residents have donated millions of dollars through private foundations to nonprofits that are fighting the project, said Wendy Williams, co-author of “Cape Wind: Money, Celebrity, Class, Politics, and the Battle for America’s Energy Future on Nantucket Sound.”

“The people who have second homes on the cape do not have voting rights,” she said, “but they have a huge influence.”

More typically, weekend residents wield their power in community affairs through letter-writing campaigns, getting the local news media involved and putting up lawn signs. Some part-timers claim their vacation home as their primary residence so they can vote in local elections.

Rehoboth Beach is one of the few municipalities nationwide that explicitly permit second-home owners and renters to vote and hold certain elected offices. Delaware’s election code grants cities and towns the right to set qualifications for voters and elected officials in municipal elections. “Nonresident voting is not totally unknown, but it’s not widespread,” said Doug Lewis, the executive director of the Houston-based National Association of Election Officials.

In many places it’s against the law. There was controversy last year, for example, after a Suffolk County, N.Y., grand jury subpoenaed election records for Saltaire on Fire Island after complaints that some summer residents had voted illegally by casting ballots there as well as at their primary residences.

The second-home activists in Rehoboth Beach don’t take their suffrage rights for granted. On a Friday night in May, about 70 people, some right from their jobs in Washington, gathered in the great room of a spacious beach cottage for a cocktail party-voter registration drive. As guests drank white wine and ate canapés laden with artichokes and sun-dried tomatoes, organizers greeted them with cards telling them how to get their names on the town’s rolls. The city charter requires municipal elections for the second Saturday in August, so the campaign season heats up with the weather.

MARY PECK and her husband, Kevin, listened as Patrick Gossett, 53, one of the three city commissioners who are part-time residents, gave updates on two thorny issues: recent changes to the city’s building codes and the possibility of establishing an architectural review board to approve new building plans.

The Pecks, who own a five-bedroom bungalow on a beachfront block, are unhappy about the look and the sparse landscaping of two new houses that went up across from them, Ms. Peck said. They registered to vote the morning after the party.

“We hadn’t known what kind of a voice we’d have because we’re already registered where we live,” she said. “It’s kind of unusual to vote in two places.”

For Rehoboth Beach’s concerned part-timers, involvement often goes beyond the voting booth. Some say they routinely stretch their weekends to attend Monday night meetings of the board of commissioners, the city’s governing body.

Architectural aesthetics and space allocation are the key issues for second-home activists in Rehoboth Beach, which is a mile square and has little undeveloped property.

Nonresidents, as local officials call part-timers, make up an estimated three-fourths of the 3,256 property owners there, according to the office of the city manager. They are a powerful and active constituency, coming mainly from Baltimore and Philadelphia in addition to Washington and Virginia. There are only 1,556 full-time residents, according to 2005 population estimates from the Census Bureau.

The housing stock is coveted, with the average price of a single-family home in the Rehoboth Beach area at $675,863 in the first quarter of 2007, almost double the average of five years ago, according to the Sussex County Association of Realtors.

The typical lot is 50 feet by 100 feet, with most properties in full view of the street. An abundance of mature trees adds a measure of privacy and shade. With houses so close together, many in Rehoboth Beach say that the size and style of new houses are not just matters of personal choice.

Dennis Barbour, 56, a lawyer, pointed to a 3,500-square-foot, three-story Bauhaus-style house in the final stages of construction on a treeless lot. It looms over an older, two-story wood-shingled house.

“When one house towers over the surrounding houses,” he said, “it cuts off the neighbor’s sunlight and air circulation.”

Mr. Barbour said he realized the importance of neighborhood preservation after buying a cottage in Rehoboth Beach as a sanctuary from his Washington workweek. He soon discovered that the owner of a house across the street was petitioning the city to rezone his lot from residential to commercial so he could open a home-based hair salon. Mr. Barbour and about 40 neighbors protested the change.

They lost, and up went an addition that turned a small house into what Mr. Barbour called a “huge, monstrous thing” – a full-fledged shop with a gravel parking lot.

Years later, Mr. Barbour became one of the founding members of Save Our City, the main citizens action group in Rehoboth Beach. In 2005, he made a successful bid for city commissioner in a contentious election that pitted preservationists against real estate interests and advocates for property rights. He has kept the position, even after taking a job in Cleveland. His weekend commute is now an hour-plus flight to Washington and a nearly three-hour drive east.

Save Our City, with about 300 members, has helped enact several changes, including revisions to the city’s floor-to-area-ratio that limit the size of new houses to two and a half stories and 60 percent of the lot size.

SOME say the group’s agenda unrealistically limits property rights. “Save our city is exactly what they’re not doing,” said Eugene Lawson, a lawyer who splits his time between Rehoboth Beach and McLean, Va. “The new ordinances have created an entire separate level of bureaucracy and government control that we’ve never had before.”

But, in any second-home community, if there wasn’t an ax to grind, what would an activist be able to do besides relax?

Nancy Martin, an organizer of Save Our City, called the hours she spends on Rehoboth Beach politics “pure enjoyment.” Many of the activists are baby boomers who went to college during the 1960s, she said.

“We’re reliving the spirit of our college days. It’s fun.

DEAR BOB: I am a 51-year-old widow of eight years with three children, ages 9, 11 and 15. I earn only about $3,000 per month and my children receive a total of $2,100 per month in Social Security benefits. I have owned my home for six years and currently have a 30-year fixed-rate mortgage at 5.375 percent interest. My monthly payment is $1,279, including $67 PMI (private mortgage insurance) plus $217 for escrowed property taxes and insurance. I have $16,000 in credit card debt at 8 to 10 percent interest, mostly for home improvements and medical expenses, and $125,000 in an IRA. My FICO score is 779. I recently met with a financial advisor/college planner who recommends I refinance with a 20-year, fixed-rate, interest-only mortgage at 6.75 percent interest. My new payment would be $1,317 including the tax and insurance escrow but no PMI. But I would go from having $70,000 equity to almost no equity. He anticipates I will refinance again in three to five years. I would walk out with about $25,000 cash to pay off my credit cards and buy annuities. I would use the $600 saved each month on credit card debt for emergency cash reserves. Is this interest-only mortgage a good idea? –Phyllis K.

DEAR PHYLLIS: You appear to be doing a great job of managing your household on a limited budget. But I don’t like the idea of your being “sold” on a bad interest-only mortgage that will wipe out your equity and not build any future home equity from monthly mortgage payments.

PurchaseBob Bruss reports online.

Unless you currently have an FHA mortgage, you can easily get rid of that $67 monthly PMI premium if your loan-to-value ratio is below 80 percent. Just contact your lender and explain you have at least 20 percent home equity. You’ll have to pay for a new appraisal, but that will be money well spent to save $804 annually.

There’s no advantage for you to refinance from 5.375 percent to 6.75 percent interest. If you want to pay off your credit card debt, get a home equity credit line. With your superb FICO score, your bank should eagerly approve such a credit line at the prime rate or lower.

RECENT EXCELLENT BOOKS ON MORTGAGE LENDING TRICKS

DEAR BOB: Several months ago your article gave a top rating to a new book by a mortgage insider who revealed the mortgage lending dirty tricks. But I lost that article. What is the name of that book? –Peggy P.

DEAR PEGGY: In the last few months I reviewed several excellent new books by mortgage insiders. The most recent is “Mortgage Rip-Offs and Money Savers” by Carolyn Warren. Another superb recent book is “Mortgage Confidential” by mortgage broker David Reed. Both are available in stock or by special order at local bookstores, public libraries and www.Amazon.com.

HOW TO LEARN ABOUT APPRAISALS

DEAR BOB: I am a real estate investor with an interest in getting certified to appraise residential and/or commercial properties. Someone told me that appraisers will not be in demand due to the availability of information on the Internet. I don’t want to waste my time or money if property appraisers will not be in demand in the near future. What is your opinion? –Sandy W.

DEAR SANDY: I suggest you take the basic real estate appraisal course at your local community college next semester. After completing the course and talking with the instructor, you will know if you like appraisal work and what the future is for appraisers.

GET AGGRESSIVE IF CONDO ASSOCIATION WON’T FIX WINDOW LEAK

DEAR BOB: About two years ago, my boyfriend and I bought a two-bedroom condo. Before we closed our purchase, we were told by our professional inspector there was a problem with moisture and rain around a bedroom window. The condo management company sent out a contractor who agreed the problem was structural and the homeowners association should pay for repairs. So we went ahead with our purchase. Despite our repeated pleas and letters, the window still leaks. We finally contacted the president of the large homeowners association who had no knowledge of the problem, and the leak is now so serious that we can’t use that bedroom. Our son is now two years old and we were hoping that would become his bedroom. What should we do? –Erica W.

DEAR ERICA: If I were in your situation, I would be much more aggressive. The homeowners association clearly has a duty to repair that leaky window.

I suggest writing a very polite letter to the homeowners association president, with a copy to the professional management company, stating you want this long-standing problem fixed within 30 days.

If you don’t get satisfactory action by then, it’s time to hire a local attorney who is familiar with condominium law. This problem is affecting the enjoyment of your condo, its market value and the marketability of your unit. You’ve been very patient far too long.

REALTOR IS IN PROPERTY SALES, NOT FORECLOSURES

DEAR BOB: I sold my house six years ago and carried back a $7,000 second mortgage at 5 percent interest for the buyer. She has made only random payments of different amounts, for about $5,000 total, including interest. There was supposed to be a balloon payment due at the end of two years. She still owes me about $5,000. My problem is the Realtor who handled this said he would handle any problems. He has all the paperwork. I realize I am not at the top of his priority list. The loan is way overdue. I’ve avoided consulting an attorney because I heard the fee would be more than the loan balance. What should I do? –Marianne T.

DEAR MARIANNE: Get rid of that Realtor. His job is to sell properties, not to advise you on servicing a mortgage that is in default. Get all the paperwork from the Realtor and figure out exactly what the defaulting borrower owes you.

Then, depending where the property is located, take your documentation to either the trustee named on the deed of trust or to a local real estate attorney who specializes in mortgage foreclosures.

This should be a routine matter to either record a notice of default or file a mortgage foreclosure lawsuit. You have been far too lax. Get busy.

You will get your money when the borrower receives the official notice or, if the property goes to a foreclosure sale, from the high bidder, or you will get the property title back to sell for a second profit.

WHO IS LIABLE FOR THEFT AT OPEN HOUSE?

DEAR BOB: At some point during the showing of my house for sale or while it was being inspected, an expensive item went missing. Is it unreasonable to ask the real estate agents involved to be responsible for items stolen? Or is this something for our homeowners insurance to deal with? –Nick G.

DEAR NICK: You should not have left an expensive item in the house that you knew would be inspected by strangers. Unless you can prove that the realty agent, a professional inspector or a prospective buyer stole the item, forget it. Of course, if the item is insured under your homeowners insurance policy, file a claim with your insurer.

LIVING TRUST CAN AVOID PROBATE PROBLEMS

DEAR BOB: I asked my father to put our house into a living trust, but he refuses. My younger sister ran away from home in high school. He thinks if he dies intestate without a will the probate judge will make me own half of the house with her in case she ever reappears. Should he die, what will I do with one-half of a million-dollar house? I can’t sell or rent it without my sister’s approval. What is the solution? –Mel G.

DEAR MEL: If your father dies intestate without a will, state law decides who gets his property. Probate court proceedings will be required, thus taking at least six to 18 months, perhaps longer.

If you and your missing sister are his only heirs, the house and other assets will go to both of you by intestate succession. After you both receive title, then you could bring a partition lawsuit to force a sale of the house. If she can’t be found, the court could order her half of the sales proceeds held in trust for her.

But a better approach to avoid probate court interference is for your father to deed the house and his other major assets into his revocable living trust. When he passes away, then the living-trust assets will be distributed by the named successor trustee (presumably you) as provided in the living trust.

In the living trust, your father can specify his estate goes to you with $100 to your sister. Then, upon his passing, you can sell or keep the house. More details are in my new special report, “Pros and Cons of Living Trusts to Avoid Conservatorship, Probate Costs and Delays for Your Heirs,” 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

In a hot seller’s market, setting a list price that’s lower than market value can be an effective strategy as long as you combine it with an aggressive marketing campaign. The theory behind this approach: If you expose an underpriced listing to a broad-enough segment of the market before accepting offers, the market will establish the price through a process of competitive bidding.

In order for this strategy to be successful, your property must be in a desirable location. It also must have qualities that are in high demand, such as excellent condition, a coveted public school district or good upside potential. Lastly, this strategy is most effective in markets that lack enough homes for sale to meet the demand.

For instance, a listing came on the market in North Berkeley, Calif., at the end of June. It was a charming, sunlit home with enchanting gardens, a remodeled kitchen and master bathroom. And, it was located on a desirable street within walking distance of Solano Avenue, a popular shopping district. Given the increased number of buyers looking for good homes within close proximity to shops and cafes, it wasn’t surprising that the listing received offers from four different buyers. The listing sold for considerably over the list price.

Some sellers in markets that were formerly hot but have subsequently softened are still using this pricing strategy, hoping that a low list price will yield a higher sale price. Whether or not this approach works depends on the character of the home sale market in the area. There are still pockets of the market where listings are in short supply, as in the above example.

However, there are pitfalls with this strategy, particularly in a market where buyers are holding back from making offers. If you’re attempting to sell in a soft market, you could be sorely disappointed if you offer a tempting price expecting a much higher price and find that not a single buyer makes an offer.

Your options are limited in this case. You can take your home off the market and re-price it for a price you would be willing to except. However, if your first price was out of line for the market, you may be wasting your time trying to resell for an even higher price.

HOME SELLER TIP: To be a successful seller, you need to manage your expectations. Don’t set yourself up for disappointment by scheming for ways to generate more offers and a higher price in a market where you should be grateful for one offer at a reasonable price from a well-qualified buyer.

The real estate market is continually in flux. Sales information from six months ago may be out of date in terms of establishing a realistic market price for your home. Focus on the most recent sales information you can find in your area.

Sellers who don’t like what they hear about the probable selling price of their home should seriously consider if it’s the right time to sell. Having a home on the market priced over market value only serves to help agents sell the well-priced listings in your area. It does nothing to help your cause. You would be better off waiting until the market improves if you can’t bring yourself to sell at current market value.

THE CLOSING: Using gimmicks to attract buyers, such as a free trip, may increase the number of showings your listing receives. But, it’s unlikely to result in a sale if your listing is priced too high. Buyers are not overpaying in today’s market.

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

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Copyright 2007 Dian Hymer

These days, I hear many complaints from home sellers. Among them: “It’s been on the market for nine months with nary a nibble”; “I cut the price three times, still hasn’t sold”; and “Three other houses on my block are up for sale, so I took mine down.”

In a buyer’s market, sellers not only compete with each other, they are also in competition with builders. But builders have an advantage: they have affiliations with lenders through whom they offer financial inducements that most individual home sellers don’t know about. Yet the fact is that there is nothing that builders offer that individual home sellers cannot match, provided they know how.

Typically, the first thing sellers think about doing to make their houses more marketable is reduce the price. Very often, that doesn’t work, because the price is not the problem. If potential borrowers are cash-constrained or income-constrained, a price reduction provides very little help.

Here is an example. Jones has her house listed at $200,000, and lenders will lend 95 percent of that at 6.5 percent on a 30-year fixed-rate mortgage to a borrower with adequate income and good credit. The cash-constrained borrower, however, can’t come up with the $14,000 in required cash, consisting of a $10,000 down payment plus (say) settlement costs of $4,000.

If Jones cuts the sale price by 7.5 percent, or $15,000, the cash required from the borrower drops from $14,000 to $12,950, or by a measly $1,050. (These and other numbers below can be found in a spreadsheet on my Web site). For this potential buyer, it makes far more sense for Jones to pay the $4,000 in settlement costs, which reduces required cash by $4,000.

Next, let’s consider the case of an income-constrained buyer. The income constraint may be imposed by lenders, who set maximum ratios of income to expenses, or the constraint may be self-imposed, based on what buyers believe they can afford.

The $15,000 price decrease, which reduces the loan amount from $190,000 to $175,000, reduces the payment by $90.07, or 7.5 percent. From the seller’s perspective, that is not a lot of bang for the buck.

A better option is to pay points to reduce the rate on the buyer’s mortgage, retaining the same sale price and loan amount. If the interest rate on the $190,000, 30-year, fixed-rate loan were reduced from 6.5 percent to 5.5 percent, the payment would fall by 10.2 percent. The cost to the seller would be about 4.6 points, or $8,740. This is about 40 percent less than the price reduction needed to reduce the payment by 7.5 percent.

Points paid to reduce the rate are sometimes termed a “permanent buydown” because the lower rate and payment run for the entire life of the loan. An even more powerful way to lower the payment is for the seller to buy down the payment in the early years of the mortgage. This is called a “temporary buydown” because the payment reduction doesn’t last.

On a 3-2-1 buydown, the mortgage payment in years one, two and three is calculated at rates 3 percent, 2 percent and 1 percent, respectively, below the rate on the loan. On a 2-1 buydown, the payment in years one and two is calculated at rates 2 percent and 1 percent below the loan rate. And on a 1-0 buydown, the payment in year one is calculated at 1 percent below the loan rate.

I will use a 2/1 buydown to illustrate because it is the most common. Using the same mortgage as before, the payment in year one is calculated at 4.5 percent, which is 2 percent below the 6.5 percent rate paid the lender. The payment in year one is reduced by 19.8 percent, which is almost twice as large as the reduction with the permanent buydown. In year two, the payment is reduced by 10.2 percent. And in year three it is back to what it would have been without the buydown.

The total cost to the seller is $4,324, which is about half the cost of the permanent buydown. The $4,324 is placed in an escrow account from which monthly withdrawals are made. The total payment received by the lender, consisting of the payment made by the borrower plus the withdrawal from the escrow account is exactly the same as it would be in the absence of the buydown.

WARNING: The buydown cost assumes the seller is not credited with any interest on the buydown account. Don’t fight about that; the interest is reasonable compensation for setting up the arrangement. But some lenders go beyond that and calculate the buydown amount on a 2/1 as 3 percent of the loan amount, which would increase the cost to $5,700. (On a 3/2/1, they would charge 6 percent). This is a rip-off, which you can avoid by making your arrangement through an Upfront Mortgage Broker. Since their fee to the borrower is set in advance, they don’t profit from any such rip-offs and won’t use a lender who practices them.

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

Financial markets have quieted, more from exhaustion than resolution of the underlying credit panic. Agency mortgages never made it below 6.5 percent and are rising slightly now, and vanilla jumbos are still above 7 percent but easily available.

Economy-watching is frozen by time lag. We won’t get the first August data for another 10 days, and it’s hard to believe that credit-crunch damage will show in employment data so quickly. August home-sales are closing on contracts written June-July, and a substantial decline in activity won’t appear until September sales are reported in October. Given calm markets, and absent a weak-side surprise in August data, the Fed won’t do any rate-cutting before its Sept. 18 meeting.

The discount-window circus has been embarrassing.

Federal Reserve Chairman Ben Bernanke in ringmaster’s red coat and top hat, whip in one hand and pistol in the other, stood next to the flaming hoop and ordered the beasts to jump through. The crowd gasped in anticipation … and nothing moved. Again the order, snap of whip … no lions, no tigers, no bears. Again … still nothing. Not even a Chihuahua.

Finally, yesterday, four bored elephants ambled through the hoop to spare the impresario further laughter from the hyenas in the bond market.

The discount window is open only to AAA collateral. No one in the banking system has had any trouble selling or borrowing against these securities. The four big banks that borrowed $2 billion yesterday did not need the money and acted to cover the ridiculous outcome of the grand gesture: prior discount-window borrowings this week had been at the low end of normal, which itself is low.

The troubled assets out there are credit derivative “tranches.” The collateralized debt obligation (CDO), each an aggregation of some good-quality IOUs and some floor-sweepings, was the darling of finance in 2000-07. In a mathematical miracle, the tranches of each CDO were worth greatly more than the sum of the IOU parts. Today, their market value and credit is greatly less than the sum.

If you attempt to present to the Fed’s discount-window Tranche #13-b from Acme Immensely Prudent Can’t Miss Series Eleven, you are out of luck. All of this talk about “liquidity trouble” is misplaced: the banking system is as awash in liquidity as the guy in the drunk-driving commercial who rolls down his window and releases a flood of gin and olives. The CDO tranches are illiquid because nobody knows what they’re worth; this is a credit problem, not a liquidity problem.

Somehow, some way, these tranches, all $5 trillion- or $10 trillion-worth, must be re-underwritten, re-rated, or evaluated and guaranteed in some form. Until then, the owners and the owners’ bankers are impaired or imperiled, and worse — much worse — cannot buy new IOUs, the cause of our current mortgage starvation.

Big talk, huh? How are you gonna do that? A bailout?

It’s been done before. In my ill-spent youth, I and many others were sent to S&Ls in 1985-87 by regulators to value loan portfolios. One senior consultant, two staff, a billion-dollar S&L, no great precision, just “get close” — in three weeks, we knew.

Before deploying a new army like that one, we have to find the deals. All of them: their hidden and scattered status is part of this problem. To do that, wake up the Fed. I don’t know if we need electrodes or explosives to get Bernanke into the real world, but once he’s here this job is a snap. In the old days, one of the most feared events on Wall Street was an “information call” from the Fed.

Don’t want to talk? Stonewall with privacy concerns and legalisms? This was the logjam breaker: “If you will not assist us, we will advise our member banks that your firm presents a hazard to the system, and your access to the system will close. Today.”

The investment banks and rating agencies have the records of the derivatives. They are not the White House, after all. Google has the phone numbers. This credit crunch is a flat-out emergency, and it’s time the authorities acted accordingly.

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

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Copyright 2007 Lou Barnes

Nobody, including me, likes to think about death. But it is inevitable, as I was reminded during a recent hospitalization for major surgery. Thankfully, because of the excellent surgeons, nurses and my friends, I came through the experience successfully.

After I recovered, I learned from the doctors I had been very close to death. When I got home and was feeling better, one of the first things I did was review my estate plan.

PurchaseBob Bruss reports online.

In the process, I discovered my old living trust had become nearly worthless. The primary reason was, like most real estate owners, in the last few years I refinanced my properties to take advantage of lower mortgage interest rates. As part of the process, the lenders required me to take my property titles out of my living trust, record the new mortgages, and then put the titles back into my living trust.

But I carelessly didn’t follow up and the title companies failed to re-deed my properties back into my living trust. The result was my living trust had become virtually empty because it was “unfunded.” If I could make that mistake, think of how many other homeowners and realty investors also have worthless, empty living trusts.

Especially because I wanted to revise my estate plan and change my beneficiaries, I decided to hire a trusts and estates attorney. The total cost, including recording fees, was about $1,300. That is far less than the 3 to 10 percent of gross assets it costs to probate a typical estate.

Frankly, although I am an attorney and could prepare my own living trust to avoid probate costs and delays, I’m glad I hired another attorney.

Among the extra improvements he suggested were (1) a durable power of attorney for lifetime asset management (in case I become unable to manage my assets); (2) a “living will” (also called an advanced health care directive) so the designated person can make health care decisions, such as taking me off life support if there is no reasonable hope for recovery; and (3) a “pour-over will” for any assets omitted from my new living trust. The attorney also made certain all my property titles were correctly transferred to fund my living trust.

EVERYBODY NEEDS A WILL. Shockingly, less than 20 percent of U.S. residents have a written will. For those who have a will, after they die their assets will be distributed according to their wills by the local Probate Court. Probating an estate, even a modest one, usually takes six to 18 months or longer before the heirs can receive their inheritances.

For individuals who die without a written will, the state law of intestate succession determines who will receive their assets. Especially in second marriages, the result is often not what the decedent would have wanted. Again, the local probate court supervises intestate succession distribution, subject to costs and delays.

However, if no written will and no relatives can be found, a person’s assets “escheat” to the state. That means the probate court will sell the assets and deposit the proceeds into the state treasury. That is not the result most people want.

HOW TO AVOID PROBATE. Even if you have a written will, it usually won’t avoid probate costs and delays. Well-known methods of probate court avoidance include holding real estate titles in joint tenancy with right of survivorship (or as tenants by the entireties between husband and wife) and holding bank accounts or stock brokerage accounts with “payable upon death” designations.

But all these methods have major drawbacks, especially when two or more persons own an asset but one becomes incapacitated such as by Alzheimer’s disease, a coma or a severe stroke.

A better alternative to avoid probate costs and delays for most individuals is a revocable living trust. This is simply a method of holding title to major assets, such as a home, investment property, bank accounts, common stocks, mutual funds, and other major assets.

When a living-trust grantor creates a living trust, he is its initial trustor, trustee and beneficiary. That means he can buy, sell, refinance and manage the assets as before.

However, if he becomes incapacitated, then the named successor trustee, such as a spouse or adult child, takes over management and can even sell the assets if necessary. There is no necessity to have a conservator appointed by the probate court. Husband and wife can either have individual living trusts or a joint living trust.

After a living-trust grantor dies, the successor trustee then distributes the living-trust assets to the individuals and/or charities named in the document. The local probate court does not become involved, so distribution usually is completed within six months.

ADVANTAGES OF LIVING TRUSTS. Among the many advantages of a revocable living trust are (1) easy amendments or revocation as desired by the trustor; (2) ownership benefits remain unchanged, including income-tax deductions and the principal-residence-sale tax exemption; (3) avoidance of multistate probates if real estate is owned in more than one state; (4) privacy because living trusts do not become public, as do written wills filed for probate; (5) the successor trustee manages the living-trust assets if the trustor becomes incapacitated; and (6) the successor trustee distributes the assets after the grantor’s death.

DISADVANTAGES OF LIVING TRUSTS. Among the few disadvantages of revocable living trusts are (1) no statutory period to limit creditor claims (as occurs in probate court); (2) the cost and inconvenience of “funding” the living trust (usually far less than the cost of probating an estate); (3) when refinancing mortgages, lenders usually require taking real estate out of the living trust for a moment while the mortgage papers are signed and recorded; and (4) a living-trust trustor needs a “pour-over will” or a “back-up will” for any assets that were not included in the living trust.

SUMMARY: Revocable living trusts offer many advantages and few disadvantages to avoid probate costs and delays for heirs as well as conservatorship during the grantor’s lifetime.

By avoiding involvement of the local probate court, living-trust beneficiaries usually receive their assets within six months after the decedent’s death. More details are in my new special report, “Pros and Cons of Living Trusts to Avoid Conservatorship and Probate Costs and Delays for Your Heirs,” 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

It seems that hardly a day goes by without reports of a devastating wildfire burning somewhere around us. From rural acreage to crowded suburbs, living anywhere on the edge of a potential wildfire zone can put you, your home and your family at risk. To minimize the dangers from a hot, fast-moving wildfire, there are several practical, straightforward things you can do to protect your home.

ESTABLISH A DEFENSIBLE SPACE

To improve the odds of your home making it through a wildfire, you need to establish a defensible space around your house that makes it harder for a fire to start or become established. That space should extend out a minimum of 30 feet from your house in every direction, and it should be well planned and continually maintained.

• Use fire-resistant landscaping: Within the 30-foot zone, use fire-resistant landscaping such as lawns, moist ground-cover plantings and low shrubbery. Avoid plants that are naturally dry and highly flammable.

PROTECT YOUR FAMILY

You also need to make certain that your family knows what to do in the event of a fire or the need to evacuate.

• Establish a firm evacuation plan: All family members should know what to do and where to assemble in the event of an evacuation, including rounding up and caring for pets.

HELP EMERGENCY CREWS

Now take a moment to look at your home from the eye of a firefighter or other emergency crew that needs to get to you.

• Mark your address: Would someone who doesn’t know your home be able to find it quickly in an emergency? Is your address clearly marked and clearly visible from a distance? Can it been seen at night?

A wildfire may seem like a remote possibility, but every year hundreds of homes and other structures are destroyed, so it really pays to be prepared. Take a little time this weekend to look around the inside and the outside of your house, and make plans now to turn your home into a safe and fire-resistant zone.

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

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

Copyright 2007 Inman News

DEAR BOB: Can a home seller use the buyer’s earnest money good faith deposit to make repairs to the home and not tell the buyer? Or is the deposit used only at the closing? I am concerned because we are purchasing a “for sale by owner” house and I noticed the lawyer already cashed our check. Is this “normal” for the seller to get our money before the sale closes? –Tonya G.

DEAR TONYA: No, it is not “normal” for the home seller to receive the buyer’s deposit money before the sale closes. For your protection as the buyer, you should make the deposit check payable to the firm that will be handling the closing of the sale.

PurchaseBob Bruss reports online.

Unless you made the deposit check payable to the seller, the seller should not be able to obtain those funds until the sale closes and the title transfers to you.

If the lawyer is holding the deposit funds in his trust account, that’s fine. However, if the seller has your money and, for some reason, the sale never closes, getting your deposit refunded could be a big problem, especially if the seller spent the deposit money.

Your situation shows another danger of buying direct from a home seller without the benefit of an experienced real estate agent to protect both parties.

SHOULD HOME SELLER REPLACE AN 18-YEAR-OLD ROOF?

DEAR BOB: I am selling my 40-year-old home, which is located on 10 acres. In this buyer’s market, should I replace the ugly 18-year-old roof? –Patti B.

DEAR PATTI: The answer depends on the type of roof and if it is leaking. Some types of roofs last 30 to 50 years. But most asphalt shingle roofs are due for replacement in 15 to 20 years.

If the roof looks bad, although it is not yet leaking, I would replace it with an attractive asphalt shingle roof at a modest cost. A new roof will be an important sales benefit to make your home listing stand out among all the other listings.

RECASTING A MORTGAGE MAY BE CHEAPER THAN REFINANCING

DEAR BOB: A friend was telling me about recasting a mortgage loan. Have you heard of this and what is your opinion of recasting verses refinancing a mortgage? –Linda W.

DEAR LINDA: Recasting a mortgage means the borrower and lender agree to change the terms of the mortgage, such as the interest rate, monthly payment or due date for a balloon payment.

In other words, recasting a mortgage is a modification of the loan terms. All that gets recorded is a modification agreement, rather than a new mortgage or deed of trust.

For example, several months ago I entered into a home equity credit line modification with my existing home equity lender. We agreed to reduce my interest rate and increase my credit line. This was cheaper and easier than doing all the paperwork and recording a new home equity credit line.

The new Robert Bruss special report, “Pros and Cons of Living Trusts to Avoid Conservator ship, Probate Costs and Delays for Your Heirs,” 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

Aging boomers say no to stairs and maintenance, yes to luxuries.

So – the kids are gone, you’ve got some newfound freedom and you’re thinking about moving. You’ve long been known as a baby boomer, but these days you’re also known as an empty nester. And at this stage, as throughout your trend-making lives, you and your peers are making lifestyle changes that are rippling throughout American society.

Not surprisingly, as the number of empty nesters booms – 40 percent of households will be led by someone 55 or older by 2012, according to the National Association of Home Builders — builders are developing neighborhoods at virtually every price point with empty nesters in mind. Although specifics vary, some basic trends are emerging:

One-level living. Stairs and aging joints aren’t exactly a match made in heaven, so home geared toward empty nesters are either built on one level or keep the master bedroom and all the primary living areas on the main level.

Reduced exterior maintenance. Many developers are luring empty nesters by including yard maintenance – even with single-family homes — and using building materials that require little to no maintenance.

Turn-key lifestyles. Active empty nesters like to travel – they have grandchildren to spoil and dream vacations to enjoy – and want to be able to turn the key and leave without worrying about security or maintenance.

Down-sizing doesn’t mean skimping on amenities. Empty nesters who give up square footage still want open floor plans, gourmet kitchens and large master suites.

Condominiums combine many of those attributes, and are expected to become increasingly popular choices for empty nesters of varying income levels. But other kinds of neighborhoods that suit empty-nesters’ needs are emerging as well.

Higher-income empty nesters – people between 50 and 60 years old with annual household incomes of $100,000 or more – are driving many of the emerging housing trends, according to a survey conducted by DYG Inc. for Hanley Wood publishers, which covers the housing building industry. The survey report called them “Boomfluentials.”

About half of the Boomfluentials surveyed said they wanted to change their lifestyle and downsize when they retired. Close to 40 percent said they wanted to live in a better climate. Only one in five wanted to stay in their current home when they retired.

The survey highlighted additional empty-nester housing trends to watch:

•·                                 The market for single-family detached homes will weaken as more empty nesters move into multifamily housing. That includes patio homes as well as condominiums and co-ops.

•·                                 Semi-detached homes like duplexes, row houses and townhouses also will become more popular because they meet empty-nesters’ desires for less space and reduced maintenance.

•·                                 Rural communities are likely to become increasingly popular for retiring empty nesters, especially in areas with warmer climates.

A February 2006 report by the National Association of Home Builders also found a strong preference for outdoor living among empty nesters, even if they weren’t in places like Arizona or Florida. Empty nesters are looking for covered balconies, porches with ceiling fans and courtyards with fireplaces so they can enjoy leisure time outdoors, according to the report.

Definitely trends worth following, whether your kids are home or having children of their own.

Published on April 09, 2007