Q. DEAR BOB: In the past few years, I've had some bad financial and health luck. My former husband was sent to jail for drug dealing I didn't know about. I had to run up my credit cards to pay the bills after he lost his job. I fell behind on the payments and messed up my credit. But I managed to keep my excellent job for 12 years, to pay the rent and to make sure my 6-year-old son goes to a good school.

Now I want to buy a condominium, town house or small house. My motivation is that my landlord just raised my apartment rent. Is there any hope that I can buy a modest residence?--Alicia H.

DEAR ALICIA: Yes. Although you have good income, you didn't mention anything about a down payment. Unless you are eligible for a no-down-payment VA mortgage or you can raise at least a 5 percent down payment, it will be difficult to buy a house immediately with your bad credit record.

But don't give up. Mortgage brokers who deal with "sub-prime" lenders can often perform miracles. For example, Countrywide Mortgage's "Full Spectrum Lending" program offers home loans to borrowers with less-than-perfect credit records. Phone 1-800-775-5197 to learn the requirements.

Your mortgage will be rated a B-, C- or D-quality loan. That means you will pay a higher-than-normal interest rate. However, after a few years of on-time mortgage payments, you can refinance at a lower interest rate. That's better than wasting money on rent.

Another possibility is to buy a house with seller financing, meaning that the seller carries back the mortgage. However, most sellers want a substantial cash down payment. Another choice is to lease a residence with an option to buy. Under this kind of arrangement, you pay rent each month to build up a credit toward your down payment.

Another alternative is to take over payments on an existing mortgage from a seller who is eager to sell. A good realty agent can help you find these special situations.

DEAR BOB: I was a joint tenant on a house that was lost by foreclosure of an FHA first mortgage. About a year before the foreclosure, I obtained a second-mortgage home- improvement loan. I recently received a notice from a law firm that represents the second-mortgage lender, who was wiped out by the foreclosure.

The notice demands payment in full, but I can't pay. They are threatening to take me to court. I thought that if the house went into foreclosure, all liens would be paid off by the FHA mortgage insurance. What should I do?--Mr. R.R.

DEAR MR. R.R.: Consult a local real estate lawyer. The FHA mortgage insurance protects the FHA lender, not you. The second-mortgage lender can obtain a deficiency judgment against you. If you are truly unable to pay, since your credit is ruined, a lawyer may recommend that you file for bankruptcy.

DEAR BOB: Several years ago we rented a house to a young man. When he moved out he left piles of trash, damage to the house and unpaid rent. We were unable to locate him to sue for damages exceeding his forfeited security deposit.

After about three years, we learned he joined a church to be trained as a minister. He was ordained and sent to another state to take over a parish. We have been advised to "forget it," but I am still concerned about the debt he owes us. What should we do?

--Siegfried D.

DEAR SIEGFRIED: Whoever advised you to "forget it" gave you sound advice. Although it is legally possible to obtain a judgment against a resident of another state, unless the amount owed to you is huge, the effort isn't worth your time.

DEAR BOB: A few weeks ago, we listed our house for sale with a real estate agent. Recently we discovered his market analysis was $8,000 to $15,000 below comparable home sales of the same square footage. We have been told this bad agent prices houses low for quick sales.

Also, we discovered errors on the multiple-listing service information, which he failed to correct. His lockbox on our house never worked, so other agents couldn't show our home, and he failed to provide more fliers after we requested them several times. Now we have an offer for our house. I've heard we can cut his commission to a lower rate. When is the best time to do that? Or can we terminate his listing contract?--Mr. R.R.

DEAR MR. R.R.: Underestimating a home's market value when taking a listing is a breach of the realty agent's fiduciary duty. Fortunately, most real estate agents do excellent jobs because they want future referrals.

Have you talked with this alleged "bad agent" about his shortcomings? How did you find him? Did you check his references from prior sellers? Before listing, did you interview at least three agents, as I recommend? If you had done so, you could have compared their recommended asking prices for your house with this agent's estimate.

Since you have a purchase offer, if it is satisfactory, I suggest you accept it. Attempting to cut your agent's commission now won't accomplish anything but save you a few dollars or perhaps mess up the sale. At this point, you want the sale successfully closed so you can be rid of that agent. If he gives you any further trouble, phone his brokerage manager.

DEAR BOB: We have an excellent first mortgage at 6.75 percent interest, but we have more than $100,000 equity in our house. We want to use part of this equity to remodel the kitchen and to add a family room. Our bank will make us a home-improvement loan for 75 percent of our home's market value, but it wants 9.5 percent interest. My wife phoned some other local banks. Two will go 80 percent at the prime rate plus 1 percent. Where is the best place to get a second-mortgage home-improvement loan?

--Ronald R.

DEAR RONALD: There are no standardized second-mortgage home-improvement loans. That's because no secondary mortgage market exists for these loans, as it does for first mortgages. Each bank has different terms for second-mortgage home-improvement loans. All you can do is "dial for dollars" to find the best terms for your situation.

DEAR BOB: Thank you for the recent articles about reverse mortgages for senior citizens. I sent them to my mother, who is 78. She is interested since she owns her home free-and-clear but needs extra income because my dad's pension stopped. However, she can't seem to find a reverse-mortgage lender located near her home. Any suggestions?--Thomas A.

DEAR THOMAS: Reverse-mortgage loans are made nationwide by the FHA and Fannie Mae (except in Texas) and by Financial Freedom Plan in Western states. The biggest originators of reverse mortgages are Unity Mortgage, Norwest Mortgage, GMAC and Financial Freedom Plan. But not all offices of these lenders handle reverse mortgages.

One source to call to locate a reverse-mortgage originator near your mother's home is Fannie Mae at 1-800-732-6643. Ask for names of local originators. Another excellent new source is on the Internet at www.reversemortgage.org.

DEAR BOB: Your recent advice to an owner of an unbuildable lot was not so hot. I am a real estate agent who recently had a similar situation of an unbuildable lot that the owner wanted me to sell. I went to the adjoining neighbors to see if they wanted to buy the lot to add to their property. One bought the lot for $22,000. I've found this is a great way to sell undersized lots and to get at least something for them.--Dave W.

DEAR DAVE: Thanks for the great idea. And here's another possibility: If an adjoining owner isn't willing to buy the lot but will accept a gift deed, that would also get the title transferred so the lot and its property taxes become someone else's problems.

DEAR BOB: We moved to our current house in 1994. Unable to sell our former home of 16 years, we have rented it to tenants since then. In 1995, we had to file Chapter 13 bankruptcy and are paying our debts on a five-year reorganization plan. Is there any way we can get a hardship exception to use that $250,000 home-sale tax exemption on the sale of our former residence?--Massimo and Ina B.

DEAR MASSIMO AND INA: There is no hardship exception for the $250,000 ($500,000 for a married couple filing jointly) principal residence sale tax exemption.

To qualify for this tax break, you must have owned and occupied the principal residence an aggregate of two of the five years before its sale. However, if you move back into your former house and live there at least 24 months before its sale, you can qualify. A tax adviser can provide more details.

DEAR BOB: My husband and I want to buy a house, but we have past credit problems. Recently, you mentioned taking over an existing mortgage. Is that our best choice?--Mrs. L.L.

DEAR MRS. L.L.: Your bad credit may not stop you from buying a house. But before you shop for a house, go to a mortgage lender to get pre-approved for a mortgage.

If you can't qualify for mortgage pre-approval, look at houses for sale with assumable mortgages, such as older VA, FHA and adjustable-rate mortgages. In addition, some sellers will carry back mortgages for buyers, and won't even run a credit report.

DEAR BOB: I am a single senior citizen, 74. About two years ago, I bought a condominium in a retirement community. Now I want to sell it because I bought a better house. The problem is that my daughter's name is on the title with mine and she refuses to sign off.

The condo was bought with my money. Her husband made out the papers (he is a lawyer), and I signed them. I questioned adding her name, but he said there wouldn't be any problem if I wanted to sell in the future. I can't afford two properties. This is my retirement money, and I need to sell. What can I do?

--Phyllis Y.

DEAR PHYLLIS: Your situation shows what can happen when parents add their adult children to real estate titles and the child won't cooperate. There is no valid excuse for your daughter's behavior since it is your money that is involved.

If you can't get her to sign a quit-claim deed, your legal remedy is to sue her in a partition lawsuit. That means you ask the court to order a sale of the property with the proceeds divided according to ownership interests. Since you contributed 100 percent of the funds to buy the condo, I don't see how the court could award anything to your daughter from the sales proceeds. Consult a local real estate lawyer.

DEAR BOB: I had a condominium renter who did $180 damage to the common area. I was charged this amount after the renter moved out, so I had no hope of collecting it from him. My lawyer wrote to the condo association asking questions and expressing my dissatisfaction. The association's lawyer answered, and I was charged a legal fee of $156.

When I didn't pay, the association put a lien on my condo. Finally, I paid $469 in total charges, figuring that was the end. Five months later I received another bill for $240 in legal fees. I refused to pay and took the condo association to small claims court. The judge dismissed the case.

To clear the lien off my condo, I had to pay fines and fees of $422 and $299 for a total of $1,190, which included $240 interest for 18 months. Now the association says I owe $298.01 in additional fines. I am excluded from board of director meetings because I still owe this amount. If I hire a lawyer, the association threatens to fine me again.

Is there anything I can do to protect myself against this out-of-control condo association?--Judith C.

DEAR JUDITH: The situation shows what can happen when a condo homeowner's association has an out-of-control board of directors. If I were you, I would sell the condo. The small amount of $298.01 isn't worth fighting about. Pay it. You don't need the aggravation of owning that condo.

DEAR BOB: We own five acres in a "buyout area" for flood control and wetland preservation. Our plan was to retire there, to build a cabin and to have a few horses. But it appears we must sell. Do we have to pay capital gains tax on our profit? Can we defer capital gains by reinvesting in other property? Can we use the money to build a rental duplex on property we already own?--Leonard C.

DEAR LEONARD: When private property is taken by eminent-domain condemnation, the tax situation is covered by Internal Revenue Code 1033. You generally have two years to reinvest in "similar-use" property if you are to defer capital gains taxes. I doubt that building a rental duplex on other owned property will qualify, but consult a tax adviser for details.

DEAR BOB: When we refinanced our mortgage about two years ago, we didn't know the lender stuck in a prepayment penalty for the first five years. So when the lender included a prepayment penalty of $2,600 in our payoff demand we were, to say the least, shocked. Perhaps you should warn your readers to avoid mortgages with prepayment penalties.--Spencer S.

DEAR SPENCER: Thanks for sharing your experience. In recent years, some mortgage lenders have been including prepayment penalties because so many borrowers were refinancing after a year or so to take advantage of lower interest rates. However, prepayment penalties are tax-deductible as interest.

Fortunately, not all mortgage lenders include prepayment penalties. Home-loan borrowers should shop around to find a mortgage without a prepayment fee.

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