DEAR BOB: Please get us out of a mess. About four years ago we bought a one-acre lot in a new residential development. Our idea was to build a home on the lot in about 10 years when my husband retires. We faithfully made our payments each month and also paid the property taxes. But last September we went to inspect our lot and found that the whole area was just as barren and undeveloped as when we bought. The developer promised streets and utilities, which he put in, but the streets are overgrown with weeds because there is no traffic. Only a few houses have been built and they are boarded up. The sales office is closed. There are dozens of for sale signs on the lots, so I'm sure there are no buyers in this desolate project. We stopped making our mortgage payments to the developer and immediately received a notice that said unless we paid our missing payments, plus late charges, our failure to pay would be reported to a credit bureau. We value our excellent credit rating. What should we do?
DEAR HOLLY: I question whether the developer would report you to the credit reporting agencies for failure to make your mortgage payments. If he does, however, you can add an explanation to your credit report telling your side of the story. If there is no resale market for your lot and you don't want to use it in the future, you might wish to offer to deed it to the developer in return for a release of liability.
Your situation is a classic example of why raw land should not be bought except for immediate personal use. The risks are too high. Although the developer appears to have delivered the streets and utilities he promised, the project turned out to be a disaster and your money was wasted. You might also write to the state real estate commissioner to see if that office can be of any assistance to you. For further details, consult a real estate lawyer.
DEAR BOB: Last March we sold our home and adjoining commercial building to a nice young couple. Because we were anxious to sell and had no offers during the year that the property was listed for sale, we agreed to sell the house with no down payment and and take back a second mortgage behind the assumable first mortgage. In September the buyers didn't make their mortgage payment. When I phoned them they said their business was not doing well and they could not afford to make the mortgage payments. When I pointed out they would either have to make the mortgage payments or we would foreclose, they said we misrepresented the property. They refused to be specific, so I think they are just being difficult. What should we do? Thor L.
DEAR THOR: Begin foreclosure immediately. Never fear taking the property back. But you should get started quickly before the first mortgage lender forecloses. As for the alleged misrepresentation, their legal remedies are rescission of the sale or monetary damages. Since they bought the home without making a down payment, they probably won't counterclaim because they made mortgage payments for just a few months. Consult a real estate lawyer for further details.
DEAR BOB: We listed our house for rent with a real estate agent. Because we live out of town, the agent has rented our house several times before. The agent, however, gave the key to someone who phoned after reading a newspaper ad about the house. The agent didn't take any security such as credit cards while the person visited the house. The person vandalized the house, removing the stove, refrigerator, carpets and hot water heater. It was three hours before the agent realized the key had not been returned to the agent's office. I think the agent should pay for the damage but she says ''these things happen.'' What do you think? Kurt T.
DEAR KURT: I think you are right and the agent is wrong. Shame on that agent for giving out the key to your house to a stranger. The agent should have accompanied the prospective renter.
Because the agent's negligence was the cause of the loss, the agent should pay. If the agent refuses, I would let the agent know you intend to file complaints with the local Board of Realtors and the state real estate commissioner. That should intimidate the agent into paying. If not, small claims court is your next stop.
DEAR BOB: I notice you always refer to mortgages but never to trust deeds. Our state allows both mortgages and trust deeds. Which is better and what is the difference? Mrs. R.C.
DEAR MRS. R.C.: Both mortgages and trust deeds are used to pledge real property for repayment of loans. A mortgage involves two parties, the borrower and the lender. But a trust deed involves the borrower, the lender, and a trustee who holds ''bare, naked legal title'' to the property until the loan is repaid. The trustee also handles any foreclosure sale that becomes necessary. If foreclosure becomes necessary, a mortgage usually requires a court lawsuit and a judicial sale. There usually is a redemption period after the sale to allow the borrower to recover the property. However, some states allow mortgages to be foreclosed like trust deeds, which are usually foreclosed at a nonjudicial sale with no redemption period.
Most lenders prefer trust deeds over mortgages because trust deed foreclosure is quicker and cleaner with no redemption period. But borrowers like mortgages because they can stall out the foreclosure longer than if a trust deed is used.
DEAR BOB: In November we applied to a savings and loan for mortgage refinancing. We had to pay a $450 application fee. The loan officer assured us that based on our loan application there would be no problem getting the loan. But about three weeks later she told us we could not qualify because our income was too erratic and unstable, the monthly mortgage payment would take more than 28 percent of our adjusted income, and the S&L's appraisal was too low to give us the loan amount we want. She refused to refund our $450 application fee but, when I told the S&L president the loan officer said we would qualify, he refunded our $450. Then the real estate agent who sold us our home recommended we apply with a large bank that keeps its mortgages. We had no trouble getting a mortgage there within a few weeks. They couldn't have been nicer. Because we are black, do you think we were discriminated against by the S&L? Should we sue them? Whitney R.
DEAR WHITNEY: Before answering your question, your letter gives me a perfect opportunity to emphasize the big difference in home loan lenders. The S&L was obviously planning to sell your loan in the secondary mortgage market to Fannie Mae, Freddie Mac or another buyer. These lenders are very tough about borrower qualifications, which must meet their guidelines. If the lender submits a loan that doesn't meet the requirements, the originating lender has to take back the loan. Apparently, the loan officer didn't know how to evaluate your loan application and misled you.
But the bank that made your loan apparently planned to keep your mortgage in its portfolio. Many large lenders do this. Sometimes a lender may keep the loan in the portfolio for a year before selling the loan in the secondary mortgage market. Portfolio lenders are much more flexible than are lenders who immediately sell all their loans in the secondary market. For this reason, I suggest that borrowers ask prospective lenders if they are portfolio lenders. Dealing with flexible portfolio lenders is much easier.
Regarding the other part of your question, yes, you might have been a victim of racial discrimination. The S&L appeared to have tried very hard to justify its rejection of your loan despite the loan officer's preliminary approval. Frankly, I don't think it's worth the time and trouble, but if you feel strongly about the matter you may wish to contact the nearest office of the U.S. Department of Housing and Urban Development to discuss filing a complaint against the S&L. Such action might make the S&L more careful in the future about how borrowers are treated.
DEAR BOB: I have read your column for some time but have never seen any mention of reverse mortgages, through which elderly people can borrow on their home equity to supplement their retirement income. But no bank or other lender in my area seems to know anything about these loans. I would appreciate your dealing with this subject because I am an elderly widow with a large house that was paid off some time ago. Three of my six married children often visit me with their grandchildren, so I hesitate to sell the house and move to smaller quarters. Your advice, please. Jessica B.
DEAR JESSICA: The reason I don't tackle the issue of reverse mortgages is they are not widely available. A few small lenders make these loans to senior citizens, but the programs vary widely and there is no standard reverse mortgage. In some areas, investment firms make these loans, but in return they get the house when the person dies. I don't think that is very fair to the borrower's heirs. The number of reverse mortgages made is very small so perhaps seniors who have investigated conclude, as I do, that reverse mortgages are not a very good deal.
Readers with questions should write Bruss directly at P.O. Box 6710, San Francisco, Calif., 94101.