QDEAR BOB: My 76-year-old sister, who is bedridden, has a reverse mortgage and a living trust. Upon her death, her house goes to her five brothers and sisters. She bought the house for $13,200. Today, it is worth about $400,000. Does Internal Revenue Code 121, the $250,000 principal-residence-sale tax exemption, apply if the house is sold? Would we five siblings be liable for capital gains tax? -- Tony J.

ADEAR TONY: If your sister sells her house before she dies, presuming she has owned and lived in it an "aggregate" two of the five years before its sale, she would qualify for up to $250,000 in tax-free profits under IRS Code 121. However, she would owe capital gains tax on her sale profit exceeding $250,000.

The fact that she has a reverse mortgage for additional income and a living trust to avoid probate costs and delays is irrelevant. If she continues to own her home until she dies, when you and your siblings then inherit it via the living trust, you will receive the house with a new stepped-up basis of its market value on the date of her death.

Presuming the house is worth $400,000 when your sister dies and the siblings agree to then sell it, only any net amount received that exceeds the $400,000 stepped-up basis would be subject to capital gains tax.

DEAR BOB: I recently inherited a six-unit apartment building that now has four vacancies. I've spent a small fortune fixing up and painting it to make it very attractive. It is in a low-income part of town, but lots of decent people live in the neighborhood. I plan to keep it as an investment. I've been advertising the apartments for about a month in a local neighborhood newspaper. No results. A friend who owns several rental properties suggests I offer the apartments as furnished rentals. What do you advise? -- Florence G.

DEAR FLORENCE: Having been a landlord for 35 years, my best advice is don't rent furnished apartments unless you absolutely must. If tenants need furnishings, they can rent or buy them. When I started out, I had a few furnished rentals. They rented fast. But the tenants usually stayed less than a year. To maximize profits, you want long-term tenants. Tenants with their own furniture usually hate to move. Of course, be sure to provide a modern stove, refrigerator and possibly a dishwasher.

Advertise your vacant apartments in the largest newspaper in the area so you attract the widest number of prospective renters. Include in your ad this phrase: "Small pet OK." You will be swamped with excellent applicants who have difficulty renting with pets. Be sure to determine if the pet is vicious, however.

Contact nearby real estate brokerage offices. They often get walk-in prospective tenants who want to rent in the area.

For example, my best tenant ever was obtained by a realty agent who doesn't even specialize in rentals. One day I casually mentioned to the agent that I had a vacant house near the freeway. I gave the agent a key to the house, and within a few days he brought me a signed rental agreement from an FBI agent and his wife. Although I had to pay a rental commission, it was worthwhile.

After several years, the FBI agent got promoted and transferred. A few days after he moved out, I received a phone call from the FBI checking up on their agent. I reported he was a superb tenant and asked if they could send me any more excellent tenants. You can also post your vacancies with nearby police and fire departments because their personnel make superb tenants.

DEAR BOB: My credit is not good because of a divorce. I want to buy a house or condo, as I know there is no future for me and my daughter in renting. I stumbled on a small house offered for sale by owner. The seller is willing to accept $12,000 as the down payment, but she wants to sell to me on a land contract. I've never heard of this before. Is this a good or bad deal? -- Diane Y.

DEAR DIANE: Consult a real estate lawyer. A land contract, also called a contract for deed, installment land contract sale, contract of sale and a zillion other names, means the seller keeps the title while you make payments to the seller.

The land contract seller is the legal owner. As the buyer, you are the equitable owner, entitled to all the income tax deductions, such as for mortgage interest and property taxes. If there is an existing mortgage, the seller is obligated to make the payments to the lender by using part of your monthly payments.

The big potential problem is that after you complete all of the payments to the seller and are entitled to receive the title, the seller might not be able to deliver marketable, insurable title.

For example, maybe the seller has a judgment lien, an IRS tax lien or other lien that attached to the property while you faithfully made your payments. Worse, maybe the seller didn't keep up the payments on the existing mortgage and the lender has foreclosed without notifying you.

DEAR BOB: About four months ago, I phoned a realty agent recommended by a friend, as I wanted to sell my home. After she looked at my house, the agent said, "What do you think your home is worth?" I told her my opinion, based on two nearby home sales. She said, "That sounds reasonable." Then she filled out the paperwork to list my home for sale at the price I suggested.

Within 10 days, my home sold for the full asking price. At first, I was pleased. However, before the sale closed, I learned from neighbors that I sold for about $35,000 below recent sales prices of similar homes. However, my listing agent said I couldn't cancel the sale without getting sued. Do I have any recourse? -- Evan R.

DEAR EVAN: Consult a real estate lawyer. Your situation shows why sellers should interview at least three successful realty agents who sell homes in their vicinity. Then you could have compared their opinions of your home's market value.

Your listing agent might have been incompetent, or perhaps she breached her fiduciary duty to you. Listing a home for sale $35,000 below its market value, unless you needed a fast sale, is gross negligence for which your listing agent may be liable to you for damages.

DEAR BOB: We recently refinanced our home. The lender's "good-faith estimate" of loan costs seemed reasonable. However, the final closing papers were completely different, about $1,600 higher than the original estimate. When I confronted the loan officer, she said, "Well, if you don't like it, you don't have to take it." But we knew we would save about $350 per month on our mortgage payment, so we reluctantly signed. The lender ignored my complaint letter. What can we do, as I hate to let the lender rip us off for $1,600? -- Karen V.

DEAR KAREN: The local small-claims court is the place to go, to let the judge decide if you or the lender is correct. Unfortunately, there is no legal penalty when lenders give borrowers false "good-faith estimates" of loan costs.

Depending on the circumstances, the increased loan costs might be justified. Or, the lender might have low-balled you. Then the lender can be required by the court to refund your overcharges.

DEAR BOB: The house next door to my residence was vacated by its tenant about eight months ago. To our surprise, the house remained vacant. I contacted the out-of-state owner, whom I met once about five years ago. She said the house was losing money, and she decided to stop paying the mortgage and the property taxes. I tried to buy it from her, but she wouldn't sell to me.

A friend who is a real estate lawyer checked out the situation and learned there were three mortgages. Eventually, the first mortgage lender foreclosed. When the house came up for foreclosure sale, I was the only bidder, so I bought the house for $1 more than the first mortgage balance. The second and third mortgages were wiped out. The house was a mess inside. But my son and I fixed it up beautifully. My question is: Should we keep it as an investment or should we sell it for a quick profit of at least $50,000?

-- Kirt T.

DEAR KIRT: Unless you need the $50,000, if I were in your situation, I would not flip that house for a quick resale profit. The primary reason I would hold it as a long-term investment is because it is next door to your residence. You probably want to control who lives there so they don't disturb you.

If you make a quick resale profit after less than 12 months of ownership, your profit will be fully taxable as ordinary income. That's another reason not to flip that house.

Presuming you live in a nice neighborhood where homes gradually appreciate in market value, in addition to the investment-property tax benefits, by holding that house long-term you will benefit from its market value increases. Over the long-term, most houses appreciate at least 4 percent annually, often faster.

In addition, you can periodically refinance to take out tax-free cash by refinancing as the adjacent rental house goes up in market value. For all these reasons, I recommend holding rather than flipping that house.

DEAR BOB: I am on the board of directors of a 78-unit condo association. A major problem is that too many units have become rentals: 56 percent. The result is that condo owners have great difficulty selling their condos because few lenders will make loans into such a heavily-rented place. Any suggestions on how we can do this? -- Ruth W.

DEAR RUTH: You should have limited or prohibited rentals when most of the condos were owner-occupied. Even if you could somehow get a majority of the condo owners to vote to prohibit future rentals, current rentals would have to be "grandfathered." For more details, consult a condominium law lawyer.

DEAR BOB: My home has a mortgage at 7.25 percent interest. I am 82. Although I have the money in savings to pay off my mortgage, I am reluctant to do so because then my savings would be depleted. My son says I should pay off my high-cost mortgage. With limited income, I am unable to refinance at a lower interest rate. I can comfortably afford the monthly mortgage payments from my Social Security. Should I pay off my mortgage?

-- Bert H.

DEAR BERT: No. Why make yourself house rich and cash poor? Paying off your mortgage would increase your monthly cash flow by the amount of the mortgage payment. But because of your limited income, you probably won't be able to borrow cash quickly if you need it for an emergency.

However, an alternative to consider is a reverse mortgage. You could pay off the existing mortgage from your savings and then obtain a reverse mortgage to obtain a lump sum, credit line, monthly lifetime income or any combination of the three.

DEAR BOB: Why don't you warn home buyers not to buy a house on a corner lot? When we bought our home about five months ago, it never occurred to us that a corner lot would turn out to be horrible. The house is set back about 25 feet from each street. We liked that. But we never realized we would be subjected to traffic and noise from two streets.

Our master bedroom faces the side street. At all hours, we hear cars and motorcycles. To make matters worse, there is a stop sign on the side street. After the cars and motorcycles stop, as they start up we hear their loud noise. We have double-pane windows and insulation. But we still hear the traffic, especially the noisy Porsches and other sports cars. Do we have any recourse? -- Sylvia T.

DEAR SYLVIA: Over the years, I've written many times about the pitfalls of buying a house on a corner lot. Shockingly, many developers of new subdivisions charge extra premiums for houses on corner lots. Instead, they should offer discounts.

The claimed advantage is a corner lot has neighbors on only two sides rather than on three, as with interior lots. However, the developers conveniently "forget" to tell corner lot buyers that there is noisy traffic on two streets rather than just in front of the home.

I'm not aware of any statute or court decision that says corner lot home sellers must notify their buyers of the drawbacks. Sorry, I don't think you have any legal recourse against the seller or realty agent for not warning you of the extra corner lot noise.

DEAR BOB: About two years ago, I married. Unknown to me, my new husband had horrible credit. When I repeatedly brought up the subject of buying a home, he kept putting me off. After we got rejected for a credit card, I learned of his credit problem. But I really wanted us to buy a house so we could start a family.

I found a mortgage broker who specializes in home buyers like us with bad credit. She arranged for us to get a 90 percent mortgage. But the interest rate was 2 percent higher than the lowest rate. She suggested we take the loan, buy our home, make our payments on time without fail, and she would then help us refinance after we established good credit.

Just last month, she refinanced us at only 6.5 percent on a 30-year mortgage. Perhaps other potential home buyers with bad credit can do as we did. -- Vivian R.

DEAR VIVIAN: Thank you for sharing your success story. I've had similar experiences selling homes to buyers with bad credit who paid high mortgage interest rates for a year or two before refinancing at lower rates. The technique you explained works for bad credit risks who are willing to change their ways and pay on time.

DEAR BOB: I am 63, single and have never owned a house or condo. My employer recently offered me a very generous buyout to take early retirement. Although it's not a lot of money, it would be enough for me to buy a modest house or condo. I figure I can then afford the monthly payments from my Social Security and a small pension. Can you refer me to a mortgage company that will make me a mortgage loan at age 63? -- Herb C.

DEAR HERB: Any mortgage lender will be glad to do business with you if you can afford the monthly payments. Age is no barrier to buying a home. All that matters is your ability to make the monthly payments.

For example, my parents bought their condo in their mid-70s. Chances of their paying off a 30-year mortgage were slim. But the lender didn't care. Most home loans get paid off when the homeowner refinances or sells.

DEAR BOB: Nine months ago we made our final mortgage payment. Recently, we received the canceled loan papers in the mail. But there was a letter attached saying our title is lost. What should we do now? -- Jann W.

DEAR JANN: There are title procedures in every state to clear up title problems. If your lender held title to your home as security for your home, it might be possible for the lender that lost your title documents to execute a quitclaim deed to you. However, be sure the lender also buys you a title insurance policy to assure you hold marketable title.

A lender that waits nine months after your final mortgage payment to notify you there is a title problem is irresponsible. You must be a very patient person. Homeowners shouldn't have to wait more than 30 days after making a final mortgage payment to receive their documents from the lender.

You should consult a lawyer who is experienced with title problems. Go back to the title insurance company that insured you at the time of home purchase. It can probably give you the name of your town's best title attorney to clear up this problem. Be sure your lender pays for any legal costs caused by its incompetence.

DEAR BOB: We've owned our home for more than 25 years. Fortunately, it has greatly appreciated in market value. We recently learned of a beautiful nearby hilltop lot that is for sale. We could build our dream house there. However, if we sell our house, our net profit will be around $600,000. But only $500,000 of the profit would be tax-free. Is there some way we can avoid tax by trading our home for the lot and letting the lot seller worry about selling our home? -- Nick W.

DEAR NICK: Nice try, but the answer is no. The only tax avoidance break available for the sale of a principal residence is the Internal Revenue Code 121 tax exemption on up to $250,000 in profit (up to $500,000 for a married couple filing jointly).

To qualify, you must have owned and occupied your principal residence an "aggregate" of two out of the last five years before the sale. For details, consult a tax adviser.

DEAR BOB: What can I do about a neighbor who refuses to maintain his home? His dry grass is very tall, and his yard is littered with construction material. His house has been under renovation for at least three years. It is a mess. I contacted the city, but it refuses to act. Is there anything I or my neighbors can do (without violating the law)?

-- Ralph D.

DEAR RALPH: The situation you describe sounds like either a public or private nuisance. Many cities have code enforcement officers who can usually issue citations in such situations.

However, if your city refuses to act, it's up to you and your neighbors to take legal action to abate the public or private nuisance. A big problem is, even if you get the nuisance abated, the neighbor is not obligated to reimburse you for your legal expenses. Consult a real estate lawyer for details.

Readers with questions should write Robert J. Bruss at P.O. Box 280038, San Francisco, Calif. 94128, or contact him via e-mail at robertjbruss@aol.com.

{copy} 2002, Tribune Media Services Inc.