DEAR BOB: I seem to have gotten myself into a real mess. Last year I was having trouble selling my condominium because the market was glutted with condos for sale. A young man offered to buy my condo by taking over my mortgage for me. Since I didn't have much equity, I was glad to be relieved of the mortgage payments because I had moved out of town. But last month I learned the buyer of my condo has never made a payment since buying it from me last year. He has apparently rented it to tenants at a low rent that he pocketed.

My former neighbors tell me they think the condo is being used to sell drugs. Worse yet, I got a certified letter from the Federal Housing Administration notifying me the condo will be going up for foreclosure auction and I can be held liable for any loss that the FHA might suffer on my mortgage. What can I do about this? -- James H. DEAR JAMES: Unfortunately, there isn't much you can do except pray the FHA lender doesn't suffer a loss at the foreclosure sale of the property. You made a very serious mistake by selling the condo "subject to" your mortgage without getting the buyer to assume your FHA mortgage, so you could be relieved of further liability on the loan.

Because you no longer hold title to the condo, you can't repossess the property to protect yourself from possible loss if the condo doesn't sell at the foreclosure sale for the amount of the mortgage balance. Of course, if you suffer a loss you have a lawsuit claim against the defaulting buyer, but he is probably long gone and has probably made himself judgment-proof. Consult your attorney for further details. DEAR BOB: We bought our home about five years ago. Since then the state has upgraded a nearby road into a very noisy freeway. To make matters worse, they built an offramp exit that pours traffic down the street in front of our house. It is so bad it often takes me 10 minutes to find a break in the traffic so I can back out of my driveway.

As a result, houses on our street have lost considerable market value. The homeowners are suing the state and the city, but I doubt we will ever collect for the lost value of our properties. Because of a job transfer, I have to sell. My employer hired a relocation company that had our house appraised, but the value came out about $14,000 less than we paid for it. We have decided to accept their offer. Can we deduct our loss on our income tax returns? -- Julie A. DEAR JULIE: No. Losses on the sale of your personal residence are not tax deductible. However, you could have turned this situation into a tax-deductible loss if you had converted the house into rental property before selling. Losses on the sale of investment or business property are tax-deductible. It's too late now for you, but perhaps other readers can benefit from your mistake. Consult your tax adviser for further details. DEAR BOB: I recently agreed to rent my detached, two-car garage to my neighbor for use as storage. She will pay me $25 per month. Do I have to report this rent on my income tax returns, and, if so, can I depreciate my garage? -- Helga S. DEAR HELGA: Yes, you must report the rental income on your tax returns, and yes, you also can depreciate the garage. In addition, you can deduct applicable rental expenses such as part of your insurance, utilities and maintenance costs for the rental garage. For further details, consult your tax adviser. DEAR BOB: I want to buy a run-down house that needs considerable fix-up work. It currently has an 8.5 percent fixed-interest-rate mortgage that has a due-on-sale clause. I estimate it will take me about three months to renovate the house, after which I will refinance it. To save finance costs, I want to keep the existing low-interest-rate mortgage until the renovations are completed. Do you think I have any risk the lender might call my loan before the renovation is completed? -- Richard B. DEAR RICHARD: Most lenders learn there has been a transfer of the property title when they receive a new fire insurance policy with a new owner's name on it.

I've heard of buyers who avoid letting lenders know about a title transfer by keeping the old policy in force and then buying another insurance policy with the buyer's name as the insured, but without the lender's name on it. If you perform the renovation work quickly, the lender probably won't enforce the due-on-sale clause before you refinance. DEAR BOB: I don't understand why you always tell home buyers to take the biggest mortgage they can get. With today's high interest rates costing more than can be earned on money market fund deposits, that doesn't make sense. Please clarify. -- Ruby H. DEAR RUBY: We agree. Mortgage money costs more to borrow than the interest you can earn on funds safely deposited. But that is not the reason for obtaining a maximum mortgage when buying a residence.

The primary reason for getting the largest mortgage you can qualify for when acquiring a home is to maximize your income-tax deductions. Current tax law allows homeowners to deduct interest only on an acquisition mortgage plus a home equity loan up to $100,000. If you should be foolish enough to pay all cash for your home, but you later realize your mistake, then you can only deduct interest on a home equity loan up to $100,000. For further details, consult your tax adviser. DEAR BOB: Recently you have run several letters from homeowners who asked about making extra payments on their home loans, so they can pay off their mortgages earlier than scheduled and save thousands of dollars in interest.

Although we can afford to pay $200 extra each month toward mortgage principal, we are not sure that would be a good idea for us because we expect to sell in three to four years due to an expected job transfer. Should we make extra principal payments on our mortgage? -- June R. DEAR JUNE: No. The extra principal payments won't save you much interest if you just plan to keep your home for a few years. The big interest savings come in the last years of the mortgage if you make extra principal payments in the early years of the loan. If you are certain you will only keep your home for a few more years, making extra principal payments each month is not a great idea. DEAR BOB: Our landlord has offered to sell us the house we are renting. She wants a land contract sale because we don't have any cash for a down payment. As I understand it, she will hold the title, we will make payments to her and she will continue the payments on the existing mortgage. But this woman was divorced a few years ago and she told us what a bad person her ex-husband is. How can we be sure if we enter into this transaction that our landlady has good title? -- Lyle R. DEAR LYLE: Land contract buyers should insist on title insurance at the time of entering into the transaction. However, just because title is marketable today doesn't mean it will remain so. What a shame it would be to make your monthly payments faithfully and then discover the seller can't deliver marketable title. Ask your attorney to explain further. DEAR BOB: Almost 10 years ago my late father gave my brother his 220-acre farm. Several years later my brother said if he ever sells the farm he will make sure I receive part of the proceeds. Several months ago he sold the farm and made a large profit. When I asked him about his promise to give me part of the proceeds, he said, "What promise?" Since I am unable to work and am on welfare, what should I do to enforce my brother's promise to me? -- Anna H. DEAR ANNA: The Statue of Frauds requires agreements for the sale of real property to be written to be legally enforceable. Because your brother received a gift of the land from your father, he had no legal obligation to share the land with you. His alleged oral promise to give you part of the sale proceeds appears to have been gratuitous and unenforceable. For further details, consult a real estate attorney. DEAR BOB: Last month we closed the purchase of our first home. The mortgage company threatened to withdraw the loan commitment, so we had to close the sale on schedule. We knew the seller had not yet moved out, although she promised to do so in a few days. That was three weeks ago. What should we do to get her out? -- Phil S. DEAR PHIL: Your legal alternative is to evict the seller, just as you would evict a nonpaying tenant. An attorney should be consulted to handle the legal paperwork.

This situation can serve as example of why home buyers should not close their purchase until the seller has vacated the residence. However, if it is necessary for the seller to remain in the residence, the closing papers should provide a rental agreement with a fixed daily rent prepaid from the seller's sale proceeds. Without a daily rent, the seller has no financial incentive to move out. DEAR BOB: I would like to buy a small home, perhaps a town house. My boyfriend says to be sure to include an "escape clause" when I make a purchase offer, just in case I change my mind about buying. Please explain how an escape clause works. -- Claudia P. DEAR CLAUDIA: A more acceptable name for an escape clause is a "contingency clause." Virtually every home purchase offer contains one or more contingency or escape clauses.

For example, you probably want a finance contingency clause, so you won't be obligated to buy the residence if you cannot obtain the mortgage you need. Such a clause might read, "This purchase offer contingent upon buyer and property qualifying for a new 30-year first mortgage of at least $100,000 with a fixed interest rate not exceeding 10 percent, monthly payment not more than $877.58 and a loan fee not more than two points." If such a loan proves to be unavailable, you can either accept the best available mortgage or cancel the sale and get your earnest money deposit refunded.

Other contingency clauses you might want to use make your offer contingent on the buyer's approval of a professional inspection report, roof inspection, plumbing inspection or just about anything else you want to insist upon. However, more than two contingency clauses might cause the seller to reject your purchase offer, so don't be unreasonable. Ask your attorney to explain further. DEAR BOB: Why are you so soft on real estate agents? You may not realize it, but in the last few months when readers write to complain about real estate agents you have let the agents get off too easily. You should have said, "Sue the lousy agent in court."

Let's face facts. Becoming a real estate agent is too easy. Considering they handle the biggest financial transaction most people will ever encounter, as an attorney I find it is shocking how easy it is to become a licensed realty agent. Have the Realtors put you on their payroll? -- Henry H. DEAR HENRY: No. I go out of my way to avoid conflicts of interest. In fact, the Realtors are constantly complaining I am too tough on them.

Unfortunately, the thousands of satisfied home buyers and sellers rarely write to tell what a great job their real estate agent did. I only hear from the few people who were unhappy with their sales agent. But when an agent makes a serious mistake, either accidentally or intentionally, I share those letters with readers like you because we can all learn from them. DEAR BOB: I recently inherited some vacant land. Because it is located far away from my home, I want to sell it. However, a real estate agent I consulted wants a 10 percent sales commission. He says that is "standard." Is it? -- Royce H. DEAR ROYCE: Yes. Ten percent is the customary sales commission for vacant land. Although commissions are theoretically negotiable, most agents charge the "going rate," and in the case of vacant land that is usually 10 percent of the gross sales price. DEAR BOB: How much below a home seller's asking price is it safe to offer without insulting the seller? We found a home we want to buy, but the asking price is totally outrageous based on sales prices of nearby houses. Would an offer 20 percent below the asking price get us thrown out? -- Roth Y. DEAR ROTH: There is no rule of thumb as to how much below the seller's asking price, also known as the dream price, is safe to offer. Sometimes the asking price is set right at the market value, so an offer more than 5 percent lower will result in the seller rejecting your offer without any counteroffer. Other times an offer 10 percent to 20 percent below a vastly inflated asking price can result in acceptance or at least a counteroffer.

The moral is to know the home's true market value before you make a purchase offer, and don't be afraid to make a low offer. You can always come up in the offer price, but you can't lower your offer after it is accepted. DEAR BOB: Following your suggestion we are trying to acquire a lease with an option to buy a house. We found one where the option price and rent are reasonable, but the owner will only give us a 50 percent rent credit toward the down payment. Shouldn't the owner give us a 100 percent rent credit? -- Lee W. DEAR LEE: Not necessarily. The lease-option rent credit is fully negotiable between the owner and tenant. If the owner really wants to sell, he or she would give you a 100 percent rent credit. But a modestly motivated owner might only give you a 50 percent rent credit. Currently, I am giving 33 percent rent credit, so consider yourself lucky you don't have a lease-option on one of my houses. DEAR BOB: Our home has been listed for sale since April with no purchase offers so far. Before we listed with a very highly recommended agent, we interviewed several other agents. Each agent gave us their written estimate of our home's market value. One agent even brought her entire sales staff through our home before giving us her opinion of our home's probable sales price.

Since we have owned our home many years and don't have to receive top dollar, when we listed with the best agent we set the asking price at the low end of the agent's estimated values. The listing agent assured us our home would sell quickly. Our listing will expire soon and we need to sell, we are uncertain what to do. The listing agent wants us to sign a new six-month listing, but with an asking price $15,000 below our initial listing price. Our city is in a buyer's market, but we don't want to give our house away.

Since we are willing to carry a first mortgage for two years, with a 30 percent down payment, what should we do to get our home sold? -- Norris T. DEAR NORRIS: Your situation is typical of home sellers who have discovered in most cities there are many more homes for sale than there are qualified buyers. This is a great time to be buying a home, but not such a good time to be selling.

But that short-fuse, two-year balloon payment mortgage you are offering isn't much of a sales incentive, especially if you insist on a 30 percent cash down payment. A 10-year, seller-financed mortgage with a 10 percent to 20 percent down payment would be a much better sales inducement.

If your agent has not been able to obtain one purchase offer in three months, something is wrong. Yes, a price reduction might work if there is evidence home sale prices have declined in your area. Switching agents also might help. But before you do so, interview at least three other agents. Ask their opinions of your agent and why your home hasn't sold.

Although most cities are now in a buyer's market, a six-month listing would be far too long. A 90-day listing, such as you signed in April, is more realistic. Based on my experience as a sales agent, I know most realty salespeople work hardest, smartest and fastest just before a listing is ready to expire. Realty agents hate me for saying that, and I will receive many nasty letters from them, but it is the truth, so please don't sign a long listing.

As for switching agents, your current agent might be grateful because she is probably tired of your listing. A fresh agent with a new approach to selling your home might be a welcome change. Of course, be sure to check the new agent's references of previous sellers by asking them: "Were you in any way unhappy with your agent and would you list your home for sale again with the same agent?" You'll soon know which agent should get your listing. DEAR BOB: We are in the process of trying to buy a home. But we are receiving conflicting advice as to the amount of the earnest money deposit that should accompany our purchase bid when we are ready to make an offer. My father-in-law, a retired real estate broker, says we should make a deposit of $100 to $500. But several real estate agents we met at Sunday open houses say we should make a $1,000 to $5,000 deposit. Who is right? -- Kaye T. DEAR KAYE: My general rule is to make the smallest possible earnest money deposit with your purchase offer that you think is reasonable. The reason is if something goes wrong and the seller refuses to refund your deposit, you don't want to tie up a large amount of cash.

However, an exception occurs if you are making a very low offer, far below the seller's asking price. Then a large deposit with your bid can often impress the seller into accepting your low bid. DEAR BOB: I own a rental condominium that my tenants want to buy, and I want to sell to them. However, I will have a profit of around $23,000. To avoid paying tax on my profit, can I make a tax-deferred exchange for a single-family house? -- Ryan T. DEAR RYAN: Don't mix apples and oranges in a tax-deferred exchange. The only way to avoid tax on the sale of your rental condo is to make an Internal Revenue Code 1031 tax-deferred exchange for another "like kind" investment or business property. Sorry, but you cannot defer tax by trading it for a property that will be your personal residence.

You can defer your profit tax by trading for a "like kind" property such as a rental house, apartments, warehouse, shopping center or vacant land. Of course, you must exchange equal or up in value and equity without receiving any "unlike kind" personal property taxable "boot," such as cash or net mortgage relief. For further information, consult your tax adviser. DEAR BOB: We have made a deal to buy a home directly from a family friend. No real estate agent is involved. She is going to carry back the mortgage for 20 years at 9 percent interest. Our attorney is handling the closing. He has checked the title and says everything looks good. In these circumstances do you think we can save the title insurance cost? -- Rick H. DEAR RICK: No. Always insist on an owner's title insurance policy when buying any real estate. Especially when buying from friends or relatives, you need title insurance. The attorney's title opinion is not enough. Title insurance protects against unexpected title risks such as forged signatures in the chain of title, claims of ex-spouses and undiscovered heirs and a zillion other unexpected title losses. Buying without title insurance is foolish economy. Readers with questions should write Bruss directly at P.O. Box 6710, San Francisco, Calif. 94101.

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