DEAR BOB: I thought you and your readers might be interested in an unusual situation that happened to us when we tried to buy a home about three months ago.
Our offer to buy a home was accepted by the seller, but we were having difficulty qualifying for a mortgage. Our income was insufficient to meet the lender ratios and several lenders turned us down.
Just when we were about to give up, we applied for a home loan at the main office of a large savings and loan.
We work near the S&L office, so we stopped by on our lunch hour to learn if our loan was approved. The loan officer said he had to reject our application because we don't earn enough income. But then he asked if we might like to buy a foreclosed house that the S&L owned. He said the S&L would finance such a sale with just a 10 percent down payment and without the tough requirements that apply to regular loans. We were given the addresses and keys to three houses in the vicinity where we wanted to live.
The next day our offer to buy one was almost instantly accepted. It was a bargain price, although it needs some fix-up work. But the best part was the easy financing.
I thought your readers who have trouble qualifying for a home loan might like to ask local lenders about their foreclosed houses. -- Frank C.
DEAR FRANK: Many S&Ls, banks and other mortgage lenders have foreclosed houses that they have acquired because nobody bid at the foreclosure auction. These properties are called real-estate owned (REOs).
I have bought many REOs from mortgage lenders. As you discovered, most lenders offer easy REO financing either from their own funds or from a cooperating lender. However, I learned not all REOs are bargains. Some are badly overpriced, but most lenders will consider any reasonable offer. However, like your new home, most REOs need work, so the repair cost should be considered when making an offer.
The best way to learn about REOs is to visit the lender's main office and ask for the REO officer. However, I have not had good luck calling lenders to ask if they have have any REOs because most lenders don't want to give this information over the telephone. You were very fortunate the loan officer suggested you buy an REO because most lenders are not so cooperative.
DEAR BOB: Several weeks ago you said the only way to avoid tax when selling investment property is to make an IRC 1031 tax-deferred exchange. However, there is another alternative to consider. It is a charitable remainder trust, authorized by Internal Revenue Code 664, which completely escapes taxes.
This is ideal for property owners who are tired of property management. It also can be combined with the $125,000 "over 55 rule" one-time home sale tax exemption. The real estate can be traded to a charitable institution in return for life income to the donor. -- David P.
DEAR DAVID: A charitable remainder trust is ideal for owners of property that has appreciated in market value and who want to increase their income without paying taxes that would be due upon a sale. Many charitable institutions will gladly answer questions about such trusts.
DEAR BOB: I hold a 10.5 percent interest rate $85,000 first mortgage secured by an out-of-state duplex worth $130,000. The loan is six years old, the borrowers always pay on time and there is a balloon payment in nine years.
We would like to buy a house and want to know if a bank will take an assignment of our mortgage and pay the balance to the seller of the house we want to buy? -- William A.
DEAR WILLIAM: Your $85,000 mortgage is not worth $85,000. That is the future value amount you will receive in nine years when the balloon payment comes due. The present value is much less, depending on what yield the bank would want to earn on its money.
Because of all the uncertainties of collecting an out-of-state mortgage, most banks would not accept assignment of your mortgage. However, many individuals would buy your mortgage at a discount. Many newspapers have classified want ads from individual buyers of mortgages as well as mortgages offered for sale.
DEAR BOB: When we bought our home about 12 years ago the realty agent told us the home has 1,850 square feet. It was written on the information sheet that we retained.
We recently refinanced our home and the appraiser says it only has 1,755 square feet. Since construction costs at least $50 per square foot, do you think we should sue the realty agent for $4,750 for the missing 95 square feet? -- Janice S.
DEAR JANICE: No. The statute of limitations has expired and the possible $4,750 amount you might receive isn't worth the cost of legal fees to you anyway.
But your situation can be a valuable lesson for real estate agents not to quote square footage of a house unless they are absolutely certain. Of course, the appraiser could have made a mistake, so perhaps the realty agent was correct. For further information, consult an lawyer.
DEAR BOB: We have had our home listed for sale three months, but no offers so far. But we have already bought our new home and we can move in any time. However, the realty agent advises us not to move because, he says, a vacant house is harder to sell than an occupied house. Do you think we should wait to move until the house is sold? -- Wayne H.
DEAR WAYNE: My usual advice is not to buy a replacement home until the old one is sold. However, you have already done that, so now you have two mortgages to pay. I hope you can afford them.
If there is no urgency to move out, I recommend staying in your old home to make it looked lived in, so prospective buyers can see how attractive it can be. Empty houses can be very difficult to sell. They show all the defects.
Buyers often can't visualize how the home will look or how their furniture will fit. An empty house also invites close inspection, so if you move out be sure to paint and put the house into near-perfect condition.
Readers with questions should write Bruss directly at P.O. Box 280038, San Francisco, Calif. 94128.