DEAR BOB: We have two public easements under our property, one for a storm drain and another for a sewer. A sewer district engineer recently told us that a pier of our house is driven into the sewer line below. Now they want to put a manhole in our back yard.

I suggested it be placed along the fence line, as indicated on the land title search. He said that would be too costly. However, we are currently contracting for a room addition, and the setback from the property line is supposed to be 10 feet. Now I am told 30 feet is required. What should we do?--Frances and Les D.

DEAR FRANCES AND LES: I hope you obtained an owner's title insurance policy when you bought your home. It should include a specific description of the easements under your property. Those recorded documents should disclose the location of those easements.

An easement holder is entitled to reasonable access, but installing a manhole outside the easement area is not allowed without compensation to you.

Your first step is to ascertain the exact easement locations. If your title insurance policy disclosed the wrong easement location, then your title insurer is liable to you for the diminished property value.

The second step is to allow the sewer manhole installation only within the easement area. If that is not feasible, you are entitled to compensation for creation of an additional easement area. A local real estate attorney can help you with the title insurer and easement holders.

DEAR BOB: I am selling my home, plus a rental house. My goal is to buy my "dream home" without owing profit tax. I hope to clear $150,000 on the sale of my home, plus $50,000 on the rental sale. I understand the $250,000 tax exemption for the sale of my home.

Can I do a tax-deferred exchange on the sale of the rental house since I plan to buy a house with an "in-law unit," which I will rent to my daughter? How can I escape capital gains tax on the sale of the rental?--Carolyn A.

DEAR CAROLYN: Consult your tax adviser for exact details. Presuming you have owned and occupied your principal residence an "aggregate" of two years during the past five before sale, up to $250,000 of your home-sale profits are tax-free.

As for sale of the rental house, a Starker "delayed" tax-deferred exchange is ideal. Internal Revenue Code 1031(a)(3) allows tax deferral when selling a rental or business property if you invest the proceeds into a replacement of equal or greater cost.

Within 45 days after the sale, you must designate the replacement property and complete the purchase within 180 days. The rental property sales proceeds must be held by a third-party intermediary such as a bank trust department beyond your constructive receipt.

To illustrate, suppose you find a "dream home" that includes an "in-law unit" (a rental unit). If you sell your old rental house for $150,000, the value of the "in-law unit" must then equal or exceed $150,000, and you cannot take out any taxable "boot" such as cash or net mortgage relief. You'll need an appraisal of the acquired property to show the in-law rental unit qualifies for tax deferral.

DEAR BOB: I recently received a bonus from my employer, and it is about half our $220,000 home mortgage. I think we should pay down our mortgage, which is at 7.25 percent interest. But my wife says we should invest it for our two daughters' education. What do you advise?--Carlo R.

DEAR CARLO: Listen to your smart wife. If you pay down your mortgage, you will have invested those funds at 7.25 percent return. That's a good, but not great, investment.

More important, if you need that money for an emergency or investment opportunity, it will not be easily available. You could become house rich but cash poor. Also, your monthly mortgage payments will not decline, although you will save interest by having your mortgage paid off early.

Instead, find a better investment, such as a 401(k) plan with your employer, college savings plan or an individual retirement account. Don't tie up that money by paying off your home loan.

DEAR BOB: About a year ago you wrote about buyers with bad credit purchasing houses by taking over existing mortgages. About a year ago, we found a home seller who just wanted to get out. We only had about $7,500 for a down payment and closing costs, so we offered to take over the existing mortgage.

The mortgage company gave us a little hassle, but we kept current on our payments, so they stopped bothering us about an "assumption fee." In June, we refinanced to lower our interest rate.

Keep encouraging home buyers in situations like ours to take over existing mortgages. Without you, we wouldn't own our home today.--Juan C.

DEAR JUAN: Thank you for your letter. Most mortgage lenders will not call a mortgage due upon title transfer if the payments are current. But, as you discovered, they often attempt to extract assumption fees and other unnecessary costs for home buyers like you.

DEAR BOB: I own property, plus enough cash to pay off my mortgages. I have a revocable living trust for my three adult heirs. My lawyer left the area, and I wish to add a codicil to my will. Must I pay a lawyer or can a title company handle the situation? I feel betrayed by the lawyer. What should I do?--Mrs. R.S.

DEAR MRS. R.S.: I'm glad you have a living trust for your three heirs so they won't be burdened by probate costs and delays. However, I presume you have major assets outside your living trust that will be subject to your will and probate, which you now wish to modify with a codicil modification.

A title company definitely cannot handle your wishes unless you wish to deed property to someone now. Consult an attorney to modify your will with a new codicil.

DEAR BOB: In May, after 30 years, we made the final payment on our home mortgage. We recently received the fire insurance renewal premium bill. It is for $574. Since we no longer have a mortgage, my wife says we should cancel our fire insurance. We are retired, so we can use the savings. What do you advise?--Herman R.

DEAR HERMAN: Your wife is wrong. Every homeowner needs fire insurance, usually called homeowner's insurance or hazard insurance.

If your home burns down, can you afford to rebuild? I doubt it. Canceling your fire insurance policy will be a false economy. Also, that policy probably offers many additional protections such as for liability, theft, off-premises coverage and personal property loss.

DEAR BOB: We are trying to buy a house but have a problem with our buyer's agent. She put on a "home buyer's seminar" that we attended, and we foolishly signed a 90-day agreement with her. Later, we learned she is new to the real estate business.

Our first purchase offer was rejected by the seller, without any counteroffer. On the next house we wanted to buy, she insisted we offer the full asking price. We offered less, and again there was no counteroffer.

We are stuck with this lousy agent for almost another two months. She won't let us out of our contract. What should we do when we see a house we really want to buy?--Cheryl F.

DEAR CHERYL: If you don't have confidence in your real estate agent, just write a simple clause in your purchase offer. An example is: "This purchase offer is to be presented to the seller only in the presence of the buyers."

Although your agent won't like that, she has to include it in your purchase offer if you insist. If she refuses, immediately report her to the state real estate commissioner for breach of fiduciary duty to you.

By accompanying your agent to present your purchase offer, you can then be certain it is enthusiastically presented. It also gives you a chance to meet the sellers.

Normally, I do not recommend that home buyers and sellers meet. But in your situation, you have no other choice until your agreement with that buyer's agent expires. Now you know why I recommend that a buyer's agent contract not exceed 30 days.

DEAR BOB: Thanks for your great advice to a reader who was undecided about fixing up her house before sale. Since the home-sales market was so hot, you suggested she put her house up for sale "as is" for 60 days. If it didn't sell, then you recommended fixing it up.

We took your advice in our similar situation. It would have cost us about $15,000 to fix up our house, but we decided to sell "as is." Within two weeks, our superb real estate agent sold our house "as is" at practically the full asking price. We saved all the fix-up hassle. She told us the sellers plan to thoroughly remodel before moving in. We're so happy we didn't waste money on a fix-up that the buyers might not have liked.--Thelma S.

DEAR THELMA: Thank you for sharing your successful experience. I have exactly the same situation myself and will probably test the market for 60 days to see if the house will sell "as is" in its current condition. If it doesn't, I'll take it off the market, fix it up and relist at a higher asking price to reflect the renovation costs.

DEAR BOB: I am a new real estate investor who has been reading your articles for months. My question is, do you find it best to "flip" or "keep" houses bought for investment?--Scott O.

DEAR SCOTT: There is no right or wrong answer to whether you should quickly resell investment properties, after profitably upgrading to raise market value, or hold for long-term investment. You might wish to do as I do: sell some and hold some.

DEAR BOB: Although I know you advocate listing houses with

professional agents, my wife talked me into selling our house without one. We bought a "for sale by owner" kit and listed our house on several Web sites for do-it-yourself home sellers.

We received great interest, but mostly from flaky buyers. After about two weeks, our patience grew thin with these people. We advertised Sunday open houses in the local newspapers. They produced good crowds, but everyone wanted to negotiate us down in price.

We set our price based on two recent nearby home sales. Finally, a buyer's real estate agent brought his client. We agreed to pay the agent a 3 percent commission. His buyer offered almost our full asking price. We accepted. It took us almost a month, whereas another nearby house listed with an agent sold in about a week.

You were right. Never again will we try to sell a house without a professional agent.--Irv L.

DEAR IRV: Thank you for sharing your experience. I would love to tell home sellers that they can save the sales commission and sell their houses without professional agents. But, as you discovered, that's not true.

Home sellers need real estate agents for many reasons, such as to comply with disclosure laws and to market to the widest possible group of buyers through the local multiple listing service. That's why over 80 percent of home sales involve real estate agents.

Although you saved about half the typical sales commission, you earned that savings by enduring the grief of dealing with all those "flakes," most of whom were not serious buyers.

DEAR BOB: I am in a wheelchair and want to invest in real estate. My wife and I own our house, plus a small apartment building we inherited. Since our real estate has done so well, mostly through market value appreciation, we want to buy more. We are thinking rental condominiums might be best. What do you think of investing in rental condos?--Marco H.

DEAR MARCO: Many people share your idea and think condos are easy to manage because the condo homeowners' association handles most of the maintenance.

However, most condos do not rent for enough to pay the mortgage, property taxes and condo monthly fees. Also, they do not appreciate in market value nearly as well as comparably priced single-family homes.

Condos can be great personal residences (I own one as a second home). But I do not recommend them as investment properties.

DEAR BOB: As an occasional buyer of foreclosure properties from lenders, mostly banks, I often wonder why people let their homes go into foreclosure. I've picked up some bargains, paying 5 to 10 percent down payments, with the lenders financing my purchases. Why don't homeowners sell their houses rather than losing them by foreclosure?--Ted R.

DEAR TED: Most borrowers in foreclosure aren't thinking straight. Having dealt with some of these folks, I've wondered the same question. Many walk away with nothing, rather than get some of their equity out by selling at a realistic price before the foreclosure sale.

DEAR BOB: Although home loan interest rates rose recently, it's still a "seller's market" in the area where I want to buy. Any house listed for sale at a reasonable price gets sold within a few days, often for more than the asking price. This is insane. Do you think my husband and I should wait to buy a house?--Evana S.

DEAR EVANA: No. A seller's market means there are fewer houses for sale than there are qualified buyers. But there are good buys even during seller's markets. Work with an experienced real estate agent to find the right house at the right price. Don't be in a hurry.

Sharp realty agents often learn of houses coming on the market before they are actually listed. Sooner or later, the market for home sales will cool down. Presuming you are already pre-approved for a mortgage in writing, then you will be ready to buy.

As an investor-buyer, I dislike competition. As a seller, I love it. Just be patient. If your buyer's agent is not phoning you every few days with new listings, it's time to broaden your search and work with more than one agent (unless you foolishly signed a long-term exclusive buyer's-agent agreement).

Some buyers purchase a house within 30 days. Others take six months, occasionally even longer. Incidentally, fixer-uppers are often overlooked as a home source. Be sure your agent shows you fix-up houses, which often have few interested buyers. Also, make offers on the overpriced listings that have been for sale several months. Many of those sellers are willing to become realistic.

DEAR BOB: We recently moved into a rental house with the option to buy. Following your suggestions, my husband, who's a lawyer, negotiated a 40 percent rent credit toward the purchase price on a two-year lease-option.

However, the landlord insisted we get a renter's insurance policy. Our insurance agent says this will cost about $140 per year. Don't you think this is a waste of money?--Alva S.

DEAR ALVA: No. Congratulations to your shrewd husband. Maybe I should hire him to negotiate my lease-option purchases. As for renter's insurance, every tenant should have a renter's insurance policy. It provides a variety of coverage, including damage to your furnishings due to a fire or roof leak, liability to guests and thefts. That $140 premium is just $11.67 per month, a genuine bargain.

DEAR BOB: A year ago we signed a lease-option with our landlord, and now we have a rent credit of about $6,000 toward the purchase price. My parents have offered to lend us the additional down payment money we need.

Thanks to your sage advice, we locked in the purchase price a year ago. House prices in our area have gone up at least 10 percent since then. But our problem is that mortgage lenders don't want to count our $6,000 rent credit as down payment money. Why? We don't want to lose this. Where can we get a mortgage?--Kevin R.

DEAR KEVIN: I've run into the same problem. Although Jim Johnson, the now-retired chairman of Fannie Mae, extolled lease-options in his book "Finding a New Way Home," Fannie Mae and Freddie Mac refuse to fully recognize lease-option rent credits as down payments without complicated evidence that the rent was higher than market rent. That's stupid.

Fortunately, there are many lenders who accept lease-option rent credits as the equivalent of cash down payments. My experience has been that adjustable-rate mortgages are easiest to obtain with rent credit down payments. Shop around. A sharp mortgage broker can arrange the mortgage you need.

Readers with questions should write Robert J. Bruss at P.O. Box 280038, San Francisco, Calif. 94128.{copy} 1999, Tribune Media Services Inc.