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REAL ESTATE MAILBAG

By Robert J. Bruss
Saturday, April 16, 2005; Page F18

Q DEAR BOB: My daughter just bought her first condominium. Her seller included an upgraded one-year homeowner's warranty insurance policy. A few weeks after she moved in, she noticed that the heater wasn't delivering the desired temperature. Later, she discovered the air conditioner wasn't cooling. She contacted the home warranty company, which told her it would not reimburse my daughter for any repair or replacement of any equipment because the seller did not maintain the equipment. This plainly shows the homeowner's warranty company got the seller's premium and now is telling the new owner the policy is worthless. What can be done to stop this?

-- Genevieve A.

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ADEAR GENEVIEVE: You're referring to the one-year homeowner's warranty policies many home sellers offer as inducements to buyers.

The typical cost is about $400, usually paid by the seller or the listing agent. Or the buyer can buy the policy, which is usually sold by real estate brokerages that receive a referral fee.

Although there surely must be some decent homeowner's warranty companies, I have heard most of their excuses for not paying claims. The most frequent excuse is "pre-existing condition." That means the warranty company will not pay, for example, if the furnace must be replaced because of a dangerous cracked firebox heat exchanger. Most home buyers don't discover this condition until they turn on the heat. Of course, it's pre-existing before the heat is turned on.

Your daughter's experience with a home warranty company, which refused to pay because, in its opinion, the seller didn't maintain the heater and air conditioner, is becoming too typical. It's just a reason to accept the premium and refuse to pay the claim.

Your daughter's only real remedy is to sue the company in local small-claims court for the cost of the repair or new heater.

She might also write a letter to the state insurance commissioner, real estate commissioner and state attorney general, but a lawsuit will get faster results.

DEAR BOB: We want to buy our first house soon. What is our first step? Should we approach a realty agent or a mortgage company to determine how much we can afford to pay for a house? -- Rock D.

DEAR ROCK: Your first home-buying step is to get pre-approved in writing by a lender who will issue you a pre-approval letter or certificate. Don't be fooled by a mortgage broker or realty agent offering to get you just pre-qualified. That means nothing until an actual lender issues a written pre-approval, usually valid for 60 to 90 days. Then you can shop with confidence for a house or condo you can afford.

Meanwhile, as you are searching for a home, keep looking for a better mortgage deal than from the lender who pre-approved your loan application.

DEAR BOB: Is it true that the Bush administration has provided a once-in-a-lifetime forgiveness on capital gains for the sale of a second or vacation home and this provision expires at the end of the year? -- Lillie W.

DEAR LILLIE: No. There are only two ways to avoid tax on the sale of a vacation or second home.

The first method is to move into the property as your full-time principal residence for an "aggregate" 24 of the 60 months before its sale. Then it can qualify for the Internal Revenue Code 121 tax exemption up to $250,000 ($500,000 for a married couple filing jointly).


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