DEAR BOB: I read in the newspaper that home mortgage interest rates may drop in the next few months. As we are in the market to buy a home, do you think we should wait to buy? When do you think mortgage interest rates will be at their lowest point? -- Razwell P.
DEAR RAZWELL: Today, as always, is an excellent time to buy a home. The problem with waiting to buy, hoping mortgage interest rates will drop, is that home prices go up when interest rates decline.
Except in communities with an oversupply of homes for sale, the number of homes for sale doesn't change as fast as the number of prospective buyers increases when interest rates drop. The result is the owners of homes for sale, not being dummies, quickly raise their prices. Thus, any interest rate saving is balanced by rising home prices.
Now is an especially good time to buy a home before the spring weather brings droves of prospective buyers out of their winter hibernation. To be more specific, the best day to buy is when it is cold and rainy, which is when all other prospective buyers are at home. Then you have little or no competition and your home purchase offer looks especially attractive to the seller. But if you wait to buy until the weather improves, you will be competing with other home buyers, and you can expect to pay more.
To summarize, I wouldn't wait to buy. Any slight mortgage interest rate savings you might make by waiting will be eaten up by rising home prices. If mortgage interest rates drop substantially in the future, you can refinance the mortgage but you will have locked in the home's cost at today's purchase price.
DEAR BOB: About a year ago we bought some rural land. The seller and real estate agent gave us a copy of the title abstract along with a local attorney's title opinion letter stating the title was marketable. The attorney handled the simple closing and we received the deed. Then, about six months ago we received a letter from another attorney, along with some legal papers, stating his client (a relative of the seller) won a lawsuit against our seller involving title to the land. This attorney said he recorded a ''lis pendens'' against our land in October 1986 and his client is now claiming our land. The real estate agent has moved away to parts unknown, the attorney who gave his title opinion has died and we are wondering what to do. Our personal attorney says it looks like we will lose this land, which cost us $54,000 cash. The seller is broke. What should we do? -- Joseph R.
DEAR JOSEPH: Let me extend my sympathy. However, you have nobody to blame but yourself for not obtaining an owner's title insurance policy at the time of purchase. Over and over I've written that every property buyer needs title insurance, especially when buying from friends and relatives.
Your situation is a classic example of why an old-fashioned title abstract and attorney's title opinion are worthless without also getting an owner's title insurance policy. Apparently the attorney somehow missed the lis pendens document that was recorded a few months before your purchase. A lis pendens gives notice that litigation is pending regarding title to the property and anyone buying the property or lending money on it does so subject to the outcome of the title litigation. Your only hope is to consult a real estate attorney to see if there is some legal loophole to protect your interest in the property.
DEAR BOB: You often advise people to consult a good real estate attorney. But how can I find such a person? Our family attorney who drew up our wills and handled an adoption for us knows zilch about real estate. -- Ginger L.
DEAR GINGER: Real estate law is a legal specialty that requires expert knowledge. One way to find a local real estate attorney is to inquire who teaches the real estate law course at a nearby community college or university. Usually this person is a part-time instructor and a full-time real estate attorney.
Another good technique is to phone the local Board of Realtors for the name of its attorney. This person must keep up on real estate law developments because the Realtors insist on having the latest information.
Still another method is to ask for recommendations from local real estate investors and, if you are a member, from the local apartment owners' association.
DEAR BOB: You often suggest home buyers insist on obtaining a one-year home warranty policy. The modest cost of around $300 seems like a good deal. But my question is, where can I buy such a policy for my home if I am not buying or selling? -- Sylvia H.
DEAR SYLVIA: Sorry. I am not aware of any home warranty company that makes its policies available to home owners who are not buying or selling their home. Many home warranty companies, however, start the warranty coverage the day a home is listed for sale with a real estate agent. This warranty protects the seller for repairs to the plumbing, wiring, heating and built-in appliances during the listing period before the home sale closes. Then the same policy protects the buyer for one year after purchase. Ask your real estate agent for further details.
DEAR BOB: I especially enjoyed the letter a few weeks ago from the home seller whose buyer hired a nit-picking inspector who cast doubt on the house. That happened to us, too, but because we were the buyers we liked having this man tell us what was right or wrong with the house. I took a half day off from work to accompany the inspector on the tour of the house. However, my complaint is that he absolutely refused to tell us how much it would cost to have the defects he found corrected. He said it would be a conflict of interest if he were to, for example, tell me the house needs a new water heater and then quote a price for it. But I don't see why a professional inspector can't give a rough repair estimate so the home buyer knows if a potential defect is serious or trivial. Also, in our area it is customary to get a termite inspection. If the termite inspectors will estimate repair costs, why won't the professional inspectors? -- David McG.
DEAR DAVID: You raise some important questions. The professional home inspection industry has grown very rapidly in the last few years. Real estate agents often encourage home buyers to obtain professional inspections so the buyer won't have any unexpected surprises.
I agree with you that it would be a good idea for professional inspectors to offer repair estimates even if the work is subcontracted to other firms. This would be similar to the termite inspection companies that usually estimate repair costs. Of course, the home buyer is free to shop around to see if the work can be done more cheaply by another company.
Professional home inspection services are just becoming established in most areas. They must be very careful not to be so negative about a house that the sale is killed. Yet they must be sure to point out possible defects so the buyer won't encounter unexpected surprises shortly after purchase. Although I don't know of any home inspectors who estimate repair costs, I agree it would be a good idea to do so because buyers want to know what to expect.
DEAR BOB: About 10 years ago my father died and I inherited his farm. My brothers and sisters had moved to the city and weren't interested in farming. Now I have decided to sell the farm. The attorney handling the sale says there is a question if my brothers and sisters have any interest in the farm, although the deed says I received it from my father's estate. The attorney wants to prepare quit claim deeds to be signed by my brothers and sisters. Is this the proper way to handle this? -- Benjamin H.
DEAR BENJAMIN: Yes. Quit claim deeds are often used to clear up title questions where a person may or may not have an ownership interest in a property. Such a deed means: ''If I have any ownership interest in this property, I give it up. But I'm not guaranteeing I own any interest in this property.''
For example, I recall years ago that, as a real estate salesman, I had to persuade a reluctant ex-wife to sign a quit claim deed so her ex-husband could convey good title to an apartment building. Their divorce decree wasn't clear about who got what so her quit claim deed was the only way to clear the property's title. Finally, I paid her $1,000 from my sales commission and she reluctantly signed the quit claim deed.
DEAR BOB: I think I'm getting the runaround, but I can't prove it. For months I have been working with a real estate agent to find the right house for our family. Last weekend I spotted a realty agent's open house sign and stopped to inspect the house. I told the agent I already was working with another agent and she said she would be glad to cooperate. I immediately phoned my agent and we wrote up a purchase offer bid that was virtually full price with only a contingency for getting a mortgage. My agent brought the offer to the listing agent's office and left it with a secretary there. The next day my agent called the listing agent who said the seller was considering my offer. That went on for a few days and my agent told me she was getting the runaround. Finally, we learned the house was sold by the listing agent to her own buyer so she gets all the sales commission. Is there some way I or my agent could have forced the seller to sell to me? -- Norma Jean G.
DEAR NORMA JEAN: You raise a very delicate question. The answer is that a home seller cannot be forced to sell listed property. However, if a full-price, all-cash offer with no contingencies is obtained, the listing agent is entitled to a full sales commission even if the seller refuses to sell.
But your problem revolves around the listing agent's successful attempt to sell the house to her buyer so she could get all the commission. To prevent this from happening, your agent should have written in the offer: ''This offer to be presented to the seller only in the presence of the selling agent.'' If you had wished also to be present, you could have written in the offer bid: ''This offer to be presented to the seller only in the presence of the buyer.''
Without such conditions in the purchase offer, the listing agent can decide how and when any offer bid will be presented to the seller. Of course, all offers must be presented promptly to the seller.
It appears you ran into a listing agent who doesn't realize the benefits of cooperating with other agents. Unfortunately, there isn't much that can be done about such an agent unless you can prove a law violation, such as failure to present your offer to the seller. In the future, I suggest your offer bid contain a clause requiring the presence of either your agent or you when the offer is delivered to the seller. Ask your attorney to explain further.
DEAR BOB: Recently I attended a local seminar put on by a real estate agent for first-time home buyers. The agent was promoting some foreclosed houses his investors acquired that they now want to offer on an equity-sharing plan to home buyers. As I understand it, if I buy into one of these homes I would make all the mortgage, property tax and repair payments in return for half of the interest and property tax deductions. While this doesn't sound too good, after two years I would receive the deed to the house and refinance to buy out the investor's one-half share. Do you think this is a good deal for me? -- Bruce N.
DEAR BRUCE: No. Internal Revenue Code section 280A, which authorizes home equity sharing arrangements, requires both the nonresident investor and the resident to hold title if they are to deduct mortgage interest and property taxes. From the way you explain the proposed program, it won't qualify you for tax deductions.
A better approach is to forget equity sharing and instead lease the house with an option to buy. Be sure to record a memorandum of your option and get title insurance for it. Lease options are ideal for home buyers without much cash but who have good income. To compensate for the lack of tax deductions, be sure to negotiate a rent credit toward the purchase price.
For example, you might negotiate a two-year lease with a 50 percent rent credit toward the down payment. Be sure to lock in the purchase price at today's market value for the house. During the two years you can check out the house and neighborhood to see if you want to buy. In the meantime, the owner gets the tax deductions. If all goes well you have a strong incentive to exercise your purchase option to buy the house. Lease options are good for both buyer and seller, especially if the buyer lacks cash.
DEAR BOB: Next month we plan to put our home up for sale, so we are now considering which real estate agent should get our listing. We're thinking of signing up with one of the so-called cut-rate brokers here. Every week they mail to every home in our area a flyer showing all their listings. I contacted several of these owners and learned they are not very happy with the cut-rate broker. However, the cut-rate broker charges a flat fee of $1,950 and this would be a substantial savings over a full-commission agent. The cut-rate broker's office is about 10 miles from our home, in the adjoining county, so we are skeptical. Do you think we should take a chance with the cut-rate agent? -- Agnes A.
DEAR AGNES: Before listing your home with an agent, I suggest you interview at least three active, local real estate agents. Include the cut-rate broker among the agents. You should expect each agent to prepare a written "competitive market analysis" form showing recent neighborhood home sales prices as well the asking prices of similar nearby houses now for sale. By adding and subtracting value for the pros and cons of your home, each agent will help determine your home's asking price.
Be sure to ask each agent lots of questions about their fees, services, use of the local multiple listing service and recent success record. Insist each agent give you names of their recent sellers. Before listing your home, phone those people to ask if they were satisfied with the agent's service and if they would list with the same agent again. You will quickly be able to decide which agent should get your listing.
As for the cut-rate broker, I would be very cautious. In return for a lower-than- normal sales fee, I'm sure you realize you will have to show the house to prospective buyers and do much of the work a full-service agent usually performs. Another big problem is that the cut-rate broker is not located near your home. Listing with an out-of-area broker could be a major mistake.
DEAR BOB: Last November we signed a contract to sell our home. It said "time is of the essence." But the buyer didn't obtain a mortgage promptly. We waited until Dec. 15. Then we went ahead with a sale to a "backup buyer" the real estate agent had obtained while the first sale was pending. But before the sale to the second buyer could close, the first buyer recorded a "lis pendens" against our title and is suing us for specific performance. We are caught in the middle between the first and second buyers. Our lawyer advises us to sell to the first buyer. What should we do? -- Mac L.
DEAR MAC: As you are finding out the hard way, a "time is of the essence" clause in a real estate sales contract doesn't always mean what you think it says. If the first buyer's lawsuit goes to trial, don't be surprised if the judge rules the first buyer's short delay did not cancel the first sales contract. "The law abhors a forfeiture" is a legal maxim that courts often apply to situations like yours.
If I was in your situation, I would quickly refund the second buyer's earnest money deposit and get on with the sale to the first buyer who sounds like a troublemaker.
DEAR BOB: In May 1986 we sold our home. With our 1986 income tax returns we filed IRS Form 2119, on which we indicated we plan to buy a replacement home within two years so we can defer the tax on our sale profit. However, our family has recently suffered unemployment, illness and now my husband has filed for divorce after he ran off with another woman. However, if we don't buy another house by May 1988, my soon-to-be ex-husband and I will owe Uncle Sam tax on about $78,000 of profit. Can we get a time extension until we iron out our problems? -- Marsha T.
DEAR MARSHA: There is no general provision in Internal Revenue Code section 1034 for any extension of the two-year replacement period for deferring your profit tax by purchasing a principal residence of equal or greater cost. However, if you join the military or move overseas you can obtain an extension for buying your replacement home.
In divorce situations, the rollover residence replacement rule is applied separately to each spouse. To illustrate, suppose your home sold for $100,000 and the proceeds were divided equally. That means you would have to buy a replacement principal residence costing at least $50,000 within two years before or after the sale if you are to defer tax on your half of the profit. It doesn't matter if your ex-spouse buys a qualifying replacement home or pays tax on his profit share. Consult your tax adviser for further details.
DEAR BOB: I own an apartment building that has a very bad fixed-rate mortgage at 13 percent interest. The problem is it is locked in for 20 more years. I can refinance at 10.5 percent fixed interest. But the lender wants a prepayment penalty of about $24,000 if I pay off the old mortgage. My idea is to quit making payments, let the loan go into default, and pay it off just before the foreclosure sale to avoid the prepayment penalty. What do you think of this idea? -- James R.
DEAR JAMES: Welcome to the world of big-time finance. Your idea has been used many times by real estate tycoons to avoid huge prepayment penalties. Just be sure the default won't reflect adversely on your credit report or on your reputation. Consult a real estate attorney for further details.
DEAR BOB: Recently I've seen several newspaper ads for fixed-rate home loans in the vicinity of 9.5 percent to 10 percent. As we have an 11.75 percent fixed-rate home loan, do you think it would pay us to refinance now? We like the fixed-rate loans, but several of our friends have taken out adjustable-rate loans. What do you think of ARMs? -- Herman J.
DEAR HERMAN: The general rule is it pays to refinance if you can reduce the loan interest rate by at least 2 percentage points and if the loan costs will be repaid by the reduced monthly payments within 36 months.
Using this criteria, it appears that if you can get a new home loan for 9.75 percent or less and repay the loan fees from payment savings within three years, then you should refinance.
As for your question about adjustable-rate mortgages, they have become very popular because fixed-rate loans were too expensive and ARMs had very attractive interest rates. However, the rate on fixed-interest loans has recently declined substantially, whereas ARMs have not dropped as fast. I like the adjustable-rate loans that are tied to the cost of funds index. They are much less volatile than ARMs tied to the Treasury bill indexes.
DEAR BOB: Please clarify if the 2 point loan fee we paid in 1987 to get our home loan is tax deductible as interest. Our tax preparer says it is not deductible if we did not pay the fee by separate check. -- Lynn R.
DEAR LYNN: Loan fees, usually called "points," are tax deductible as itemized interest if the purpose of the loan was to buy or improve your personal residence and if you paid the fee by separate check. The IRS says loan fees subtracted from the loan proceeds, as well as fees on loans for any other purpose, must be amortized over the life of the loan. Your tax preparer is correct.
Readers with questions should write Bruss directly at P.O. Box 6710, San Francisco, Calif. 94101.