DEAR BOB: You should warn home buyers about mortgage brokers. As a real estate agent for the last 16 years, I have tried to advise buyers not to use mortgage brokers. I usually give my buyers the names of three local mortgage lenders that I know offer good loans.

But one recent buyer insisted on going to a broker friend of his. It took him two weeks to get my buyer's loan application ready to deliver to a lender. Then the lender turned it down because the buyer is only making a 10 percent cash down payment. The broker then submitted the loan package to two other lenders who turned it down because of credit problems and insufficient income.

Finally, I had to rescue the buyer and recommend a local savings and loan, which approved the mortgage within a few days. Then the broker demanded a fee since he had prepared the "loan package." If I hadn't stepped in, the broker would still be shopping that loan package among lenders. -- John R.

DEAR JOHN: I also recently had a bad experience with a mortgage broker who assured the buyer of one of my homes that it would be no trouble getting a mortgage with a 5 percent down payment. It turned out the lender had discontinued the loan program two weeks earlier, but the broker had failed to keep in touch with the lender.

My experience has been that mortgage brokers are either very good or very bad. The good ones can perform finance miracles by placing loans with the right lenders. But the bad ones make promises they can't keep. I share your skepticism about mortgage brokers and agree borrowers should be cautious when dealing with them.

DEAR BOB: Please provide us instructions on how to prepare a contract for the sale of our home. We ran a newspaper ad and found a buyer willing to pay a price agreeable to us. He put up a $500 earnest money deposit. What should we include in the written contract and what do we do next? -- Ted D.

DEAR TED: Since there apparently is no real estate agent involved, hire a local real estate attorney to guide you through the closing. The attorney will prepare a written sales contract with all the necessary terms of the sale. After you and the buyer have signed it, the attorney can arrange for the closing of the sale.

DEAR BOB: I have good income and credit, but can't seem to save for a home down payment. However, I have seen several newspaper ads for homes being sold on lease-options. Is this a good way to go? -- Wendell P.

DEAR WENDELL: Yes. A lease-option is a great way to try out a home, lock in the purchase price and build a "forced savings account" from the rent credit toward your down payment.

For example, I recently lease-optioned a home to a young man who pays me $1,500 per month rent. Each month he earns a $500 rent credit toward his down payment if he exercises the purchase option. After 12 months he will have a $6,000 rent credit. It's pretty hard to save that much money so fast. The bigger the rent credit you can negotiate the bigger your "forced savings" toward your down payment.

DEAR BOB: My wife and I are considering selling our home and moving to a small town. We can sell our home for a net profit of at least $75,000. In the town where we want to move there are several beautiful homes for sale at about $100,000 less than the probable sales price of our current home.

Our tax adviser tells us if we buy a home that costs about $100,000 less than our old home's sale price we will owe tax on our $75,000 profit. How can we avoid this tax? -- Sherman H.

DEAR SHERMAN: Your tax adviser is correct. When you sell your principal residence and buy a less expensive replacement home, your sale profit is taxable up to the difference in the two prices. Since you expect to buy a home for $100,000 less than the net (adjusted) sales price of your current home, Internal Revenue Code 1034 requires taxing all your $75,000 sale profit.

DEAR BOB: I bought a house in 1974 for $44,500. The market value today is about $160,000. I have been told I am tax exempt on the capital gain because I am over age 65. Is this true? -- Edward B.

DEAR EDWARD: The "over 55 rule" $125,000 home sale tax exemption of Internal Revenue Code section 121 applies if you (1) are 55 or older on the day you sell your principal residence, (2) you have owned and lived in it any three of the five years before its sale and (3) you have never used this tax break before. Since your profit is $115,500, it appears all your profit is tax-free. Consult your tax adviser for details.

DEAR BOB: A dear cousin wants me to cosign on his home mortgage, so he can buy a house. Then he says I can quitclaim my interest in the house to him and be free of any liability. Is this true? -- Gertrude W.

DEAR GERTRUDE: No. Most mortgage lenders insist a mortgage cosigner also be a co-owner of the property. If you quitclaim your title to the resident, some lenders argue this is a title transfer that enables the lender to call the loan under a due-on-sale clause.

More important, you remain legally liable on the mortgage. Especially if the mortgage is a VA or FHA loan, you could be held liable for any foreclosure deficiency the lender may suffer, even in states with anti-deficiency laws. Consult a local real estate attorney for details.

DEAR BOB: We recently bought our first home and are wondering which of our closing costs will be tax deductible on our 1990 income tax returns. Our closing costs included down payment, property tax proration, attorney fee, title fee, escrow charge, mortgage interest, 2 percent loan fee, pest control inspection fee, notary fee, documentation fee, recording fee, transfer fee and fire insurance premium. -- Jodie R.

DEAR JODIE: Your itemized income tax deductions include the property tax proration, mortgage interest and the loan fee, which qualifies as deductible interest on a home acquisition mortgage.

Except for the down payment, most of your other closing costs are not tax deductions, but should be added to your home's purchase price cost basis. The attorney fee, title fee, escrow charge, pest control inspection fee, notary fee, documentation fee, recording fee and transfer fee all should be added to your home's purchase price cost basis. However, the fire insurance premium is neither tax deductible nor an addition to your purchase price. Ask your tax adviser to explain further.

DEAR BOB: I own a house that I bought before I married. When I recently sold it, the title insurance company insisted my wife sign the deed. Since she doesn't think I should sell it, she was reluctant to sign. This house is my separate property. I argued with the title insurance officer, but he refused to insure the buyer's title unless my wife signed a quitclaim deed.

In the future how can I avoid this problem because I have several more properties I own that I want to sell? -- Davis W.

DEAR DAVIS: The title insurance company is looking out for its best interests. Even though the house was your separate property, in most states the wife might acquire a marital interest in it. Dower, curtesy or community property rights may be involved.

Title insurers usually insist on a quitclaim deed from the non-owner spouse just to be certain all marital rights are being conveyed. For details, consult a real estate attorney.

DEAR BOB: I usually agree with your advice, but you really blew it when you disparaged us "discount brokers." Yes, we perform fewer services for home sellers than so-called full-service brokers, but many home sellers don't need all those fancy services.

For example, I find my sellers are perfectly capable of holding Sunday open houses. My office has three salespeople, but last Sunday we had 19 open houses advertised. Two of those houses sold. When a buyer expressed interest in buying, the seller phoned our office and one of our salespeople rushed over to prepare the written purchase contracts, which were accepted by the sellers who saved thousands of dollars in commissions as compared to full-price brokers.

Isn't it about time you wised up to the advantages of discount brokers? -- Thelma P.

DEAR THELMA: I am well aware of the pros and cons of discount brokers. The problem is many discount realty brokers are not as successful at selling homes as you seem to be. Another difficulty is that most sellers are not very good at holding their own weekend open houses because they are too anxious to sell their homes and buyers are turned off by pushy sellers.

Although your discount firm may do an excellent job, in my community I observe most of the discount brokerage "for sale" signs are not replaced with "sold" signs, but with "for sale" signs from full-service brokers. For these reasons I am not convinced that most home sellers will benefit from listing with discount brokers.

DEAR BOB: I will soon be marrying a wonderful lady. We were both recently divorced. I own a small house and she owns a condominium. We would like to sell the house and condo so we can buy a larger home together, since we each have one child who will be living with us.

The problem is if we sell our homes we will have profits on which we will owe tax. Is there any way we can avoid paying tax in this situation? -- Alfred W.

DEAR ALFRED: Yes. You can both use the "rollover residence replacement rule" of Internal Revenue Code 1034. This tax break allows you to defer the profit tax when selling your two principal residences if you buy one replacement principal residence within 24 months before or after the sales. The new home must cost at least as much as the total sales prices of your two former residences.

To illustrate, if your home sells for $175,000 and your wife's condo sells for $100,000, you can both defer the profit taxes on the two sales if you together buy a replacement principal residence costing at least $275,000 within 24 months before or after the sales. For further details, consult your tax adviser.

DEAR BOB: I am a novice landlord. Several months ago I bought a two-family duplex. The upstairs apartment is occupied by an elderly couple who appreciate quiet. But the downstairs apartment is occupied by two young men who love to have wild parties.

When I contracted to buy the property, the downstairs apartment was occupied by a single woman. It seems she subleased to the two bachelors without the permission of the former owner. But in reading over the lease I see there is no prohibition on subleasing.

This lease has about six months remaining. Since the two men are uncooperative and rude to me, I want to get them out, so I don't lose my good tenants upstairs. What can I do? -- Louise P.

DEAR LOUISE: Unless a lease prohibits subleasing or assigning, the general rule is a sublease or assignment is allowed. In the future I suggest you use a lease form that prohibits subleases without the owner's permission.

Although you would have a difficult time evicting the men because they are subleasing from the original tenant, you may be able to get them out for breach of another lease provision such as causing disturbances.

The next time they have a loud party, suggest the upstairs couple phone the police, so there will be evidence of the disturbance. Should the loud noise continue, you will have grounds to evict the noisy men.

For details, consult a real estate attorney.

DEAR BOB: We listed our home for sale with a local Realtor for 90 days. Before she put the listing into the multiple listing service book or advertised it, I told a friend our home was for sale and she immediately bought it from us.

When I phoned the Realtor to tell her we would not be needing her services because we found a buyer for the home she thanked me for locating a buyer, but she said we owe her a full sales commission anyway. After I explained we can handle the closing, her boss phoned to say he expects to be paid the full sales commission and will put a lien on the house if we don't pay. Is this legal? -- Homer R.

DEAR Homer: If you signed an exclusive right-to-sell listing, it is legal for the Realtor to sue for the sales commission. When you signed the exclusive listing you became obligated to pay the sales commission whether the listing agent, another agent or you found an acceptable buyer. However, the agent cannot put a lien on the house to prevent its sale. Consult a real estate attorney for details.

DEAR BOB: Last weekend a local realty agent showed us a nice home available on a five-year lease-purchase plan. As I understand the program, we will pay $1,250 monthly rent and $250 will apply toward the purchase price if we make all our payments on time each month. The sales price is locked in at today's market value. What do you think of this plan? -- Juan R.

DEAR JUAN: The lease-purchase plan is fine if all goes well. Your big danger is that after you faithfully make your payments for five years the seller might not be able to deliver marketable title.

Be sure to have all the documents reviewed by an experienced local real estate attorney. Also have the property's title checked to be sure it is marketable. Then hope it remains that way for the next five years. Readers with questions should write Bruss directly at P.O. Box 280038, San Francisco, Calif. 94128.

1990, Tribune Media Services Inc.