Dealing With Deadbeat Agents

DEAR JEFF: Be sure you have adequate rental owner's liability insurance for at least $300,000. If your net worth exceeds $1 million, ask your insurance agent about an excess liability umbrella policy for $2 million or $3 million. It's cheap, usually just a few hundred dollars per year.

However, be sure your basic rental owner's insurance and the umbrella policy are with the same insurer so there is no conflict between insurers if a large negligence liability loss occurs in your condo. Also, your umbrella liability policy will protect you against other losses, such as your negligence in a serious auto accident.

DEAR BOB: I like your idea of using a lease-option to sell houses and condos in a tough market. As a real estate agent, I have a question. Do you set the option purchase price when the lease-option is signed or when the option is exercised? If the option price is set up-front, it seems to me that hurts the seller if home prices go up. -- Sylvia R.

DEAR SYLVIA: As a buyer and seller of rental houses and for my personal use, I have been using lease-options at least 25 years. I have always set the option purchase price at the time of entering into the lease-option contract.

However, as a seller I sign only one-year lease-options. At the end of each year, if my tenant isn't ready to exercise his purchase option, I then have the right to "adjust" the rent and the option purchase price.

If market values and rents haven't increased substantially, I leave the terms unchanged. However, when rents and market values escalate, then I raise the rent and the option purchase price annually.

But as a lease-option buyer, I try to negotiate the longest possible term. The best I've ever done was a 15-year lease-option with no change of rent or option purchase price. I exercised my purchase option in the 13th year at the option price negotiated with the seller 13 years earlier.

DEAR BOB: My daughter wants to buy a house with a co-worker. Do you know of a contract form to cover the possible contingencies, such as what to do if one is unable to pay her half of the mortgage payment and expenses? What do you advise regarding the best way to hold title? -- Vincent C.

DEAR VINCENT: Your daughter should consult a lawyer to discuss her concerns. There is no standard form to cover all the possible contingencies for the situation you describe. Unless it is a long-term relationship with a "significant other" or extremely good friend, I do not recommend co-ownership with a friend. The possible problems are endless. It's easy to buy a property together, but it can be extremely difficult to split ownership fairly if that becomes necessary.

DEAR BOB: What is your opinion of a "negative-equity home loan?" I am 68 and am looking for a retirement home, but I am concerned about keeping my monthly payments as low as possible. I won't have much cash left after the sale of my current home. -- Helene P.

DEAR HELENE: I am not familiar with a "negative-equity home loan." If you meant a "negative-amortization home loan," my best advice is to stay away. A negative-amortization home loan can result in your monthly payment being lower than the interest earned by the lender. Any unpaid interest is added to your mortgage balance with the unpleasant result of you owing more than you borrowed.

After selling your current home, if you can pay at least a 50 percent cash down payment on your retirement home, you may be eligible for a Fannie Mae reverse mortgage for home purchase. No monthly payments are required. To find a reputable local reverse mortgage representative, go to http://www.reversemortgage.org/ .

Readers with questions should write Robert J. Bruss at 251 Park Rd., Burlingame, Calif. 94010, or contact him via his Web page, http://www.bobbruss.com.

2006Inman News Service