DEAR BOB: You have suggested that home sellers check the real estate agent's references before listing a home for sale. I agree. But I think another good way to check an agent out before listing is to knock on the doors of the agent's current listings. I did that. The story I received from one seller was the agent found a buyer but the house was tied up for 90 days. Then the seller discovered that the buyer couldn't qualify for a mortgage. I realize the better agents insist that a prospective buyer fill out a financial statement before the agent will show that person homes. But it seems to me people who really want to buy a home should get a mortgage company to ''prequalify'' them so the home won't be tied up while the buyer shops for a mortgage. How can a home seller protect against these ''flakey buyers'' who can't qualify for a mortgage? -- Edwin S. DEAR EDWIN: You raise a very important question. I also appreciate your idea of checking with an agent's current listing sellers to see if they are satisfied with the agent's service.
As you point out, the best real estate agents check out their prospective buyer's financial status before showing homes. But many buyers, including me, resent the agent's prying into their financial affairs. To solve this problem, some agents refer prospective buyers to a reliable local mortgage lender for prequalification.
Each agent should know a mortgage lender who will quickly prequalify or reject a prospective borrower. Of course, there's no obligation for the buyer to use that lender, but at least the agent and buyer then know where a mortgage is available. This is very reassuring to a home seller when the buyer finds a home to purchase.
Another solution is to set a time limit, such as two weeks, after the seller accepts an offer for the buyer to obtain a mortgage commitment. In other words, the mortgage contingency clause in a home purchase offer should have a firm time limit on mortgage approval. If VA or FHA financing is required, be sure the buyer goes to a lender with quick ''automatic approval authority.''
I realize that in some towns no lender will qualify borrowers that fast, but in major cities with a competitive mortgage market most lenders will quickly give a qualified ''yes'' or ''no,'' subject to the appraisal, within a few days. In the meantime, the seller can keep the home on the market in case another buyer comes along. DEAR BOB: For 13 years our family has lived in a home that we enjoy very much. Our only source of irritation is the house next door. The owner moved out about three years ago and has rented or left the house vacant since then. It is unpainted, the lawn is dead and the driveway is a mudpit. As a result, the tenant quality has greatly deteriorated. We have attempted to buy this house, but the asking price -- About $20,000 above market value -- is far beyond our means for an investment property. Our town's ineffective ordinances only cover grass cutting and junk accumulation. This house is the only sore spot on our block. We have been told it is affecting the value of our home. Our vacation club finds it difficult to arrange a home swap because of this problem. Other than moving, what can we do? -- Mr. J.H.
DEAR MR. J.H.: I presume you've nicely asked the owner to maintain the house, but without results. If the problem is very serious, you and your neighbors could sue the owner for maintaining a nuisance. Although it sounds like this ugly house isn't that bad, talk the matter over with an attorney.
Another solution would be to offer to pay for cleaning up the property and painting the house. A few hundred dollars could be money well spent. Several years ago I did that. When my neighbor across the street wasn't home I went over and mowed her badly overgrown lawn. She got the hint and kept the lawn mowed after that. However, I recommend asking the owner for permission so you won't get arrested for trespassing.
Finally, if you really want to buy the offending house, make a written offer. Maybe the owner will be more reasonable when he sees the details in writing. DEAR BOB: Several months ago we made the final payment on our mortgage, but we have received no papers confirming this. What should we do to make sure the mortgage is cleared off the public records? -- Ana S. DEAR ANA: Depending on whether you had a mortgage, deed of trust or contract for deed, the lender should send you a document such as a satisfaction of mortgage, deed of reconveyance or a deed. But lenders are often very slow to do this since they have more profitable things to do. Just last week I received the payoff document for a loan I paid in May. Keep bugging the lender. If necessary, phone the lender's president to ask for his help to get the matter closed. DEAR BOB: I have heard from many people that real estate offers the best long-term profit opportunities of any investment. I am 23 and have been selling homes as an agent for the last year, earning about $42,000 in sales commissions. I am eager to start buying property. Do you think the best realty investments are apartments, strip shopping centers, industrial buildings or offices? -- Jeff McC. DEAR JEFF: None of the above. I think the best real estate investments are single-family rental houses. As a former investor in apartments and small commercial buildings, I can say with confidence that rental houses are much easier to buy, finance, manage and profitably sell than any other type of realty investments.
There are three real estate profits to consider: (1) when you buy, (2) while you own and (3) when you sell. Since you already know the housing market in your community, judging from your sales success, why not buy one or two houses each year with your sales commissions?
You are in an excellent position to spot the bargains. Whenever possible, make below-market offers to buy the ''distress houses'' needing repair. Then hold them for a few years as rental property. The 1986 Tax Reform Act took away most of the tax benefits, but you should at least break even after taxes. After a few years you can then refinance to take out tax-free cash, create tax-deferred exchanges or make profitable sales.
The special advantage of rental houses is that minimal cash down payments are required, especially if the seller will help finance your purchase. DEAR BOB: We are in the middle of the horrendous process of trying to get a loan to buy our first home. You wouldn't believe the charlatans in the mortgage market. Our problem is we only have a 10 percent cash down payment so we must get PMI (private mortgage insurance) on our loan. One lender says she can add our first year's PMI premium to the loan fee so it will be tax deductible as interest. We asked another lender about this and he said it is illegal. Please clarify. -- Tommie H. DEAR TOMMIE: The IRS says the mortgage loan fee paid to obtain a mortgage to buy or improve your principal residence is tax deductible as itemized interest. But the loan fee must be ''normal and customary'' in the community.
If the lender normally charges a 2 percent loan fee, and a first-year PMI premium of 2 or 3 percent is added, the total 4 or 5 percent loan fee doesn't look ''normal'' to me. I question whether the IRS would accept it either. Consult your tax adviser. DEAR BOB: You would be doing a great service to the homeowners of America if you warn them about mortgage brokers. We fell victim to two of these unscrupulous characters who run newspaper ads offering excellent home loan terms. One charged us a $350 loan application fee but failed to deliver the promised loan. She blamed it on the lender's changing loan terms. Then we applied with another mortgage broker recommended by a friend. This broker charged us a $450 application fee but could only deliver a totally different loan from the one we applied for. However, our story has a happy ending because we went to our bank, which arranged to refinance our old mortgage on terms that were better than either mortgage broker advertised. We sued both brokers in small claims court and won our money back. What can be done about these mortgage brokers who don't deliver on their promises? -- Alan H. DEAR ALAN: A few years ago I used to highly recommend mortgage brokers because they usually represent at least a dozen out-of-town home loan lenders who often had better terms than local lenders. Many mortgage brokers also have fantastic contacts with obscure lenders who will make unusual loans to meet nonroutine lending situations, such as borrower's poor credit, unimproved properties and one-of-a-kind properties.
But in the last two years I have received so many complaints about mortgage brokers I no longer can recommend them. As you know, they are middlemen between the borrower and lender. However, the big problem is that they have no control over the lender's changing loan terms. And to get loan applications there are many mortgage brokers who promise loan terms that sound too good to be true. Having had recent first-hand experience with an unscrupulous mortgage broker, I share your concern but am glad everything turned out well for you. DEAR BOB:I manage a title insurance office and am surprised you never mention the discount rates we offer. For example, our firm has discounts if the property has had a title insurance policy issued on it within five years. That includes homeowners who refinance mortgages. We call this a ''bring-down rate.'' I think you should give these discounts more publicity. -- Gerry H. DEAR GERRY: These discounts are available in most states. But I've discovered that the title companies rarely volunteer these discounts and the insured owner must ask. Shame on the title insurance industry for not advertising the bargains. DEAR BOB: In 1981 we bought our home on a five-year land contract. Unfortunately, in March 1986 we had to take a new mortgage at 13 percent interest. But recently we received a letter from an out-of-state lender offering to refinance our mortgage. We contacted them by phone and received a packet of forms to complete. They quoted 10.5 percent interest with a 2.5 point loan fee plus a 1 percent origination fee for a 30-year conventional mortgage. These terms would save us money, but I have not been able to check the standing of this company and would be afraid to initiate a long-distance transaction. They want a $300 loan application fee and quote $900 closing costs if accepted. Are you familiar with this firm, and what do you advise? -- Virginia K. DEAR VIRGINIA: I am familiar with the firm and have nothing good to say. I think you would be taking an unnecessary risk by dealing with any out-of-state lender since there are plenty of nearby lenders offering similar or better terms.
It usually pays to refinance a mortgage if you can reduce the interest rate by at least 2 percent and pay the refinance costs from payment savings within three years. Although you didn't give the amount of your loan, according to my calculations in about 18 months your reduced monthly loan payments will pay back your loan fees. After that, you've got pure savings.
To find a reliable local lender ask for recommendations from business associates and real estate agents. Your nearby bank, S&L or credit union probably can make you an equal or better loan and you can talk to them in person. I would borrow from an out-of-state lender only if the terms are much better than you can obtain locally and if you know you are dealing with a reliable firm. DEAR BOB: In a recent article you had a letter about a possible fraudulent real estate sale involving a dishonest seller and home inspector. I can't vouch for the seller, but as a professional home inspector I feel compassion for that buyer. In most states, unfortunately, home inspection is unregulated and home inspectors are unregistered. But there is a professional society that offers education and standards to follow during an inspection. The American Society of Home Inspectors (ASHI) at 1010 Wisconsin Ave. NW, Suite 630, Washington, D.C. 20007, phone (202) 842-3096, will be glad to give names of local members. The home buyer should always be present for the inspection to ask questions and to have the report explained in full. An inspection of a typical house should take at least two hours. Any less and the home buyer is not getting their money's worth. -- Mitch C. DEAR MITCH: In the same mail with your letter came another from a home buyer complaining about an inspection that failed to answer important questions about basics such as water pressure and septic tank drainage. If the buyer had been present for the inspection, the questions would have been answered.
The rapidly developing professional home inspection industry is performing a valuable service for home buyers and real estate agents. Now there is a reliable way for buyers to know what they are purchasing and for agents and sellers to avoid liability for undisclosed defects. I highly recommend inspections by members of ASHI. But unfortunately, in most states anyone can call themselves a professional home inspector.
DEAR BOB: We sold two lots in Hawaii. Our buyer is delinquent in his mortgage payments to us and is in trouble with the law so we are foreclosing. Can a person use land as collateral when there is a mortgage on it and without advising the mortgagee? -- Margaret D. DEAR MARGARET: A property owner can pledge his or her equity as security for a second, third or whatever mortgage. I presume you are talking about a bail bond. Many bail bondsmen prefer a second mortgage on real estate as security for posting bail. If the defendant skips town and bail is forfeited, the bondsman can foreclose on the property.
As the first mortgage lender, you are in a very secure position when there is a second mortgage on the property. As the day nears for your foreclosure sale, chances are the second mortgage lender will step in to cure the default on your loan. If that is not done, the second mortgage lender is wiped out by your foreclosure sale on the first mortgage. Readers with questions should write Bruss directly at P.O. Box 6710, San Francisco, Calif. 94101.