Q. DEAR BOB: My son and his girlfriend want to buy a house. Since he's not ready to make the marriage commitment, I suggested he buy the house in his name alone. He has an excellent job and great credit, but no savings for a down payment.

He read in your column about the Fannie Mae "Flex 97" mortgage of up to $240,000 with only a 3 percent down payment. He got preapproved by a mortgage company. I agreed to lend him the 3 percent down payment, but then he learned he will have to pay a stiff private mortgage insurance premium. I offered to lend him 20 percent for a down payment so he can get an 80 percent mortgage without PMI.

But the lender refuses to approve an 80 percent loan since the 20 percent down payment will be borrowed. Is there any way around this Catch-22 other than lying about borrowing the down payment?

--Hazel S.

A. DEAR HAZEL: Welcome to the irrational world of home mortgages. For some reason, mortgage lenders such as Fannie Mae don't want to lend to well-qualified borrowers such as your son on a safe 80 percent mortgage, but they will lend to him on a higher-cost, much riskier 97 percent mortgage.

The justification is that Fannie Mae has PMI protection on its 97 percent mortgages but not on its safer 80 percent mortgages. When the down payment is borrowed, lenders think those are high-risk loans. That may be true, but that's not the lender's problem. It's your problem if your son doesn't pay back your 20 percent down-payment loan.

One way to get around the problem is to write your son a "gift letter," which says the down payment is a gift and doesn't have to be repaid. It's a lie, of course, and lenders know this. But it's done every day by well-meaning parents to get around the lenders' stupid rules. The lender even has a gift-letter form for you to sign.

DEAR BOB: I want to sell my two-unit, free-and-clear Massachusetts rental property (worth about $170,000) and acquire a rental property, perhaps a house, closer to where I live. To avoid taxation on my capital gain, I would like to use one of those Starker tax-deferred exchanges you often discuss. But $170,000 won't buy much of a house near my current home. Where do you recommend investing?--Muriel K.

DEAR MURIEL: Your situation is ideal for an Internal Revenue Code 1031(a)(3) tax-deferred Starker exchange. You can sell the Massachusetts property for cash, have the sale proceeds held by a bank trust department beyond your constructive receipt, and then use that money to acquire qualifying replacement rental property, such as a house near your current home.

But you have only 45 days after the sale to designate the replacement property, and up to 180 days to complete the acquisition. So you should have a replacement property lined up before selling your current rental property. You can tie up the property you want to acquire by buying a purchase option on it before selling the Massachusetts property. A lease-option is another alternative.

Since you now live in a higher-cost area, you may need to use the $170,000 cash from the sale as a down payment, obtaining a mortgage on the rental or investment property you acquire. I recommend buying such property within a 30-minute drive of your home. Fixer-upper houses offer excellent profit opportunities.

DEAR BOB: After several real estate agents listed my house for sale and failed to sell it, my wife and I followed your suggestion of advertising a lease with option to buy. At our Sunday open house, we received two deposit checks and selected the better-qualified applicant. What I need to know is when do I report the sale to the IRS? Do I report the sale now or when my buyer takes title? The option price is $285,000.--John N.

DEAR JOHN: Until your buyer exercises the purchase option, report the rental income and your deductible expenses on Schedule E of your tax returns.

Presuming you and your wife qualify for up to $500,000 of tax-free principal-residence profits, by owning and living in the house at least two of the five years before sale, you don't even need to report the sale to the IRS since you have no taxable profit. Ask your tax adviser for further details.

DEAR BOB: We bought our new house about two years ago. Because of a job transfer, we must sell for at least the price we paid, as we don't have much equity. The problem is we're competing with the developer's brand-new houses in the same new community. He has model homes and a sales force whereas we have only our real estate agent, who is doing her best.

We've offered bonus commissions to the developer's salespeople to sell our house (they work on commission), but they haven't brought us any buyers, probably because they make more selling the developer's new houses. Our real estate agent advertises our house in the newspaper, in the multiple listing service and on the Internet. Any ideas?--Jerry G.

DEAR JERRY: Selling a resale house in a new community is never easy because, as you point out, you are competing with the developer's brand-new houses. The obvious solution, which you don't want to hear, is to reduce your asking price. Another alternative is, with your mortgage lender's cooperation, to advertise a low down payment (enough to pay the sales commission) and "take over mortgage payments."

Still another alternative is to lease your house with an option to buy. One- or two-year lease-options can "sell" virtually any house. There are always more lease-option buyers than sellers. Of course, you won't get much upfront cash, but the rent coming in will make the mortgage payments so you can move on to your new location.

Your situation shows why it is usually difficult to sell a house within less than four or five years of purchase and to break even after sales expenses. Selling against brand-new houses makes the sale even more difficult.

DEAR BOB: I bought an investment property in 1978 for $150,000, added to the building at a cost of about $75,000 and bought additional land in 1980 for $40,000. In 1990 the property was appraised for $400,000. In 1999 it was appraised for $525,000. A company interested in buying the property had it appraised last week for $275,000. How can there be such a difference in appraisals from qualified appraisers?--Kenton R.

DEAR KENTON: Real estate appraisal is an art, not a science. It's hard to believe the market value of your property declined from $525,000 to $275,000 this year. Perhaps the first appraiser was too optimistic and the second appraiser was too pessimistic. More likely, your appraiser wanted to please you, and the buyer's appraiser wanted to please the buyer with a "low-ball" appraisal.

If your property were a house in a tract with similar houses nearby, determining market value would be easier, based on recent sales prices of comparable neighborhood houses. However, commercial properties are much more difficult to accurately appraise.

But don't feel bad. Last year, two licensed appraisers hired by different mortgage lenders appraised my house with a $75,000 difference. Naturally, the lender with the higher, accurate, great appraisal got my business.

DEAR BOB: My daughter is thinking about buying a home. She is leaning toward buying a town house because she lives alone, travels for her job and does not have time for yard work. What do you think of town houses, and how are town house resale values if she has to sell due to a job transfer?--Don U.

DEAR DON: Single-family detached houses are, by far, the best real estate investments. In second place, sound, well-located town houses usually do well, holding their market value and appreciating nicely.

Before investing, your daughter should investigate the town house community carefully. She will be buying, essentially, a condominium that is subject to jurisdiction of the homeowners association.

The first question she should ask before buying is, "What is the percentage of renters in this complex?" If it is more than 25 percent, she should stay away.

For example, a few weeks ago I visited a town house community near Minneapolis where only 3 percent of the units are not owner-occupied. That is excellent. Too many renters often results in poor maintenance and mortgage lenders' refusal to make loans.

The second question she should ask is, "How is the soundproofing?" Poor soundproofing is the No. 1 complaint of condo and town house owners. Before purchasing, she should ask the adjoining neighbors to turn on their televisions and stereos. Most annoying is the bass level, which can be an incredible disturbance.

Third, she should ask for copies of the CC&Rs (covenants, conditions and restrictions), bylaws, financial reports and minutes of the past six board of directors' meetings. Look for special value-adding limitations, such as rules barring pets and rentals, and any potential problems, such as special assessments.

Finally, she should ask the complex residents, "What do you like best and least about living here?" She will soon know if she should buy a town house there.

DEAR BOB: When we bought our house recently, we received a "good-faith estimate" of mortgage costs. Everything looked fine, so we went ahead. But, at the closing, the lender imposed an unexpected $200 fee for "waiver of escrow account" so we can pay our property taxes and fire insurance directly. Is this a rip-off?--William and Sylvia W.

DEAR WILLIAM AND SYLVIA: Yes. Lenders have discovered a new "garbage fee" or "junk fee" rip-off. This charge for waiving an escrow impound account is a 100 percent pure-profit rip-off fee for mortgage lenders because they perform no service to you in return.

Since this fee was not disclosed to you on your "good-faith estimate" of mortgage costs, write a polite letter to your lender demanding refund of the $200 within 30 days.

If you don't receive a check, file a complaint with the lender's state or federal regulator and also take your lender to local small claims court and let the judge decide. Since most borrowers don't protest, lenders keep charging this outrageous fee (except in states, such as California, that prohibit such rip-offs).

DEAR BOB: My ex-husband and I are divorced, but his name is still on the title to my house. How can I get his name off? I don't know whether he is living or dead. I called the Social Security office to check, and they said, as far as they can tell, he's alive. What can I do to clear his name off the title to the house, which I received in the divorce?

--Inez J.

DEAR INEZ: If you can locate your ex-husband, the easiest way to clear his name from the title is to have him sign a quit-claim deed. Ask him to sign it in front of a notary public so you can record it. That will remove any legal title interest he may have to your house.

However, if you can't find him or if he is unwilling to sign a quit-claim deed, you can bring a quiet title lawsuit in the jurisdiction where the house is located. If your ex-husband cannot be located, it is usually possible to "serve" such a missing person by publication of summons notice in a local legal newspaper. Consult a local real estate lawyer to bring the lawsuit to clear your title.

DEAR BOB: I was thinking about getting a reverse mortgage because I am 75 and struggling on Social Security income alone. But you have said the home must be free and clear or must have only a small mortgage, or other liens.

When my husband died about 10 years ago, he left me with 16 liens on our house. I didn't know anything about those judgment liens. I paid all the federal, state and county tax liens. But I ran out of money, and there is still about $40,000 of liens left. I think the house is worth about $175,000. Will I be able to sell my house and use the money for living expenses?--Catherine S.

DEAR CATHERINE: Yes. Depending on the age of those liens, they may have become unenforceable. However, when you sell your house, any remaining valid liens will have to be paid off so you can deliver marketable title to your buyer.

A real estate lawyer can evaluate the validity of those liens. He or she may be able to negotiate with the lien-holders for a substantial discount. However, if you want to remain in your house and would prefer to obtain a reverse mortgage for lifetime tax-free income, you can probably get a reverse mortgage lump-sum advance to pay the liens. Both FHA and Fannie Mae reverse mortgages allow lump-sum payments to clear a home's title.

DEAR BOB: Along one side of our property is an easement for a sewer line. We would like to build a privacy fence on this side of the property. Can we do that? What if the city wants to come in to maintain the sewer in that area?--Laverne G.

DEAR LAVERNE: Homeowners often build structures or fences near or on top of underground utility easements, such as sewer lines. If the easement holder needs access to its easement, it has a legal right to remove your surface improvements, which should not have been built over the easement.

I've owned many rental houses that had privacy fences built on top of sewer lines, which ran along the rear or side yard boundaries. Several times the city had to enter my properties to clean out those sewer lines. If the sewer needed replacement, however, the city could have torn down the fence to gain access. For further details, consult a local real estate lawyer.

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