QDEAR BOB: You ran a small item last summer about buying a house or condo for nothing down if you are "cash challenged," but have good credit. That's us. Last November I saw a newspaper ad for a new condo development that seemed ideal for us. I brought my husband to look at it. We liked it, but the unit we liked best wouldn't be available until January, but that was fine. The saleswoman assured us we could buy for nothing down if we have good jobs and good credit. Everything went like clockwork.

On Jan. 10 we moved into our brand-new condo with nothing down except for about $1,600 in closing costs. Thank you for encouraging us to become homeowners. -- Evelyn W.

ADEAR EVELYN: Congratulations. I'll presume you obtained a private mortgage insurance "nothing down" mortgage of up to $322,700. That's the Fannie Mae-Freddie Mac limit for no-down-payment mortgages. If you can do it, anybody can -- as long as they have good income and good credit.

DEAR BOB: My wife and I have lived in our home for three years. Because of a change in financial circumstances, we recently rented one of our four bedrooms to a college student. Because we now rent part of our house and will claim a depreciation tax deduction for the rental room, can we still qualify for that $250,000 to $500,000 principal-residence-sale tax exemption when we sell? -- Paul H.

DEAR PAUL: Yes. On Dec. 24 the IRS delivered an amazing tax present to homeowners like you who use part of your residence for tax-deductible business purposes, such as a home office or renting a room to a college student.

You might have missed this surprising gift to taxpayers. In IR-2002-142, which can be found on the IRS Web site, at www.irs.gov/newsroom, the IRS said a home seller need not divide up the capital gain between personal and business use of their principal residence when it is sold.

That means that if you and your wife meet the test of having owned and lived in your home an aggregate two of the five years before the sale, you can claim up to the full $500,000 (up to $250,000 for single homeowners) tax exemption on profits from the sale of your house. However, at the time of home sale, the depreciation you deduct for the home-business use of the rental room will be recaptured (that means taxed), but at only a 25 percent federal tax rate.

DEAR BOB: In late 2002 I acquired my first rental property. I plan to take a tax loss on Schedule E of my 2002 income tax return, although I had no rental income in 2002. Can I claim a home-office tax deduction for my fax line, cell phone and part of my home utilities? As a landlord, can I take a home-office deduction that I can report on my Schedule E? -- Torrey R.

DEAR TORREY: If you don't have any rental income, you can't claim any home-office business-expense deductions.

When you start receiving rental income in 2003, then you can begin claiming, on Schedule E, home-office business deductions for the area of your residence set aside for your rental business. DEAR BOB: In a recent column you said you "recommend avoiding escrow accounts whenever possible." I pay my property taxes and property insurance in one monthly mortgage payment. They are then paid out by the mortgage company to the county tax collector when due and the insurance company when billed. I do this for convenience. What are your reasons for avoiding escrow accounts? -- Susan H.

DEAR SUSAN: There are several major drawbacks to escrow impound accounts for property taxes and hazard insurance payments. Many mortgage lenders collect too much -- because they can earn investment income on it until it must be paid out -- or they fail to pay the property tax or insurance on time.

Last year I got rid of my last mortgage escrow account. The lender over-collected every year and then had to refund my excess payment. It was only a few hundred dollars each year, but multiply that by thousands of escrow accounts, and you can see why mortgage lenders love escrow accounts for the free use of borrower money. DEAR BOB: Both of my in-laws died recently and their will leaves everything to their three sons. The attorney who prepared the will has died, so we have the attorney who took his place. The house is in my in-laws' names. The attorney says the house must go through probate court. We feel the lawyer is taking us for a ride. My mother-in-law always said she didn't want anything to go through probate. What can we do? -- Suzanne H.

DEAR SUZANNE: Your late mother-in-law should have made certain her house and other major assets were in a living trust to avoid probate. Just saying you don't want your assets to go through probate court costs and delays is not enough.DEAR BOB: I have a tenant in a single-family house who has not paid rent for months. I served the proper notice to pay rent or quit on the tenant. Then I filed the unlawful detainer court action.

On the day of the court hearing, I was 10 minutes late and the judge dismissed my case even though the tenant didn't show up. My motion to reopen the case was disregarded.

It is now seven weeks later, and I'm back to square one. My lawyer says I have to send my tenant another notice to pay rent or quit and then file another unlawful detainer if she doesn't move out. Any advice on how to better utilize the system? -- Frustrated

DEAR FRUSTRATED: The best way to avoid eviction costs and delays, and to save money, is for the landlord to pay the tenant to move. I know it sounds repulsive, but paying a tenant $100 to $500 is far cheaper than most evictions. I tell a non-paying tenant it will cost me about $500 to evict him but that I prefer to pay him the $500 if he moves out within 24 hours. It's amazing how fast deadbeat tenants can move out.

Evicting a non-paying tenant is not a do-it-yourself situation. You should have hired an eviction attorney. Although I am a lawyer, on the rare occasion when I have to evict a non-paying tenant, I always hire a lawyer who specializes in evictions.

My cost is about $500 each time. But the legal fee is well worthwhile and can be deducted from the deadbeat tenant's security deposit. In the future, hire an eviction attorney rather than trying to evict the tenant yourself because one error can be very expensive.

DEAR BOB: Can a co-owner force the sale of a property if the other owner doesn't want to sell? Also, if I want to get my name off the title and off the mortgage, can I file a quitclaim deed? -- Jeanne O.

DEAR JEANNE: Quick answers: Yes. No.

When one co-owner wants to force the sale of a property that the other co-owner doesn't want to sell, a court partition lawsuit can be brought against the reluctant co-owner. Unless there is a compelling reason not to sell, the judge will usually order a partition sale, with the proceeds divided between the co-owners.

If you want to get your name off the property title, you can execute and record a quitclaim deed to your co-owner. But that won't get your name off the mortgage obligation. For more details, consult a local real estate lawyer. DEAR BOB: We spend six months every year in each of our two homes. How do we prove either home is our principal residence when we decide to sell it? -- Ann G.

DEAR ANN: In December the IRS came out with new regulations for determining your principal residence for purposes of Internal Revenue Code 121. The IRS now says the most important criterion is where you spend the most time each year.

However, when you spend six months annually in each of your two homes, that rule doesn't help much. The IRS adds additional criteria such as the taxpayer's place of employment, the principal place or abode of the taxpayer's family members, the address listed on the taxpayer's federal and state tax returns, driver's license, automobile registration, voter registration card, the taxpayer's mailing address for bills and correspondence, the location of the taxpayer's banks, and the location of religious organizations and recreational clubs with which the taxpayer is affiliated.

For details, consult a tax adviser.

DEAR BOB: I owe $145,000 at 7 percent interest on my home loan, which has 27 years remaining. My goal is to pay it off in 10 years. Should I refinance at 5.38 percent interest on a 15-year mortgage or pay an extra $300 per month on my current loan? -- Laurie A.

DEAR LAURIE: You should indeed refinance to reduce your interest rate substantially. But are you certain you can afford the greatly increased monthly payments of a 15-year loan?

Presuming you can afford the bigger monthly payments, you'll still have to add extra principal to each payment if you want to pay off the loan in 10 years.

My question to you is: Why? What's the hurry to pay off your home loan? You will then lose the mortgage interest tax deduction. You don't want to become property rich but cash poor.

DEAR BOB: It seems everyone I know is refinancing their home loans. But I am afraid to do it. My husband and I bought our home in 1998 with a 7 percent FHA 30-year fixed-rate mortgage. We always make our payments on time, adding the equivalent of one or two extra payments each year. But we constantly receive invitations to refinance, including letters from our own lender. What's in it for them? -- Lisa B.

DEAR LISA: Your FHA loan was probably sold, long ago, to Ginnie Mae (Government National Mortgage Association), Fannie Mae or Freddie Mac. The lender that collects your monthly mortgage payment is just a loan servicer.

That's why your loan servicer and other lenders are eager to refinance your mortgage. Their primary motivation is to collect the loan fees and other fees they charge for a refinance.

As I write this, you can reduce your mortgage interest rate to just below 6 percent. That can be a substantial reduction in your monthly mortgage payment and a big interest savings. But if you're happy with what you have, especially since you're making extra payments to save interest, a 7 percent interest rate isn't so bad.DEAR BOB: After my wife died, I became engaged to a widow. We have been counseled to sell each of our houses and buy a new one together to facilitate a fresh start as a family. We will be married in June.

We each will have capital gains of less than $50,000 on the sale of our houses. She has lived in her home about five years. I have lived in mine about three years. We presume that for 2003 we should file separate tax returns so we can each claim our $250,000 principal-residence-sale tax exemptions. Any pearls of wisdom? -- Jeff J.

DEAR JEFF: It appears you received excellent tax advice. After reading and re-reading Internal Revenue Code 121, I can find nothing that will disqualify each of you from selling your principal residences and claiming the $250,000 home-sale tax exemption. That's presuming you each owned and lived in your homes two of the five years before its sale.

However, I'm concerned about the limitation on using this tax exemption more often than once every 24 months. That's why it appears to me you should each sell your old homes before the marriage. For details, consult a tax adviser.

DEAR BOB: I sold my home last month. Do I have to reinvest my profits from the sale into another home within a year or two? What if I choose not to do so? -- Alan S.

DEAR ALAN: The 1997 Taxpayer Relief Act gave you a principal-residence-sale tax exemption of up to $250,000 (up to $500,000 if you're married). To qualify, you must have owned and occupied your principal residence an aggregate two of the five years before its sale. Presuming you qualify, you need not reinvest in another home.

DEAR BOB: In January 2002 I refinanced my home loan to take advantage of lower interest rates. I received a letter from my old lender, Chase Manhattan Bank, telling me I would receive a lien release within 60 to 90 days.

In April 2002 Chase sent me a letter stating it was having a problem obtaining the original document and other information and that it needed more time. But a year later I still have not received proof my old Chase loan was cleared from my title. What should I do? -- Patricia W.

DEAR PATRICIA: Contact the title insurance company that insured the new lender. This title insurance company insured your new loan as a first mortgage. It will be of great interest to that company that Chase failed to remove the old mortgage from your title.

Let the title insurance company go after Chase for its negligence. There is no valid excuse for a paid-off lender not clearing their mortgage or deed of trust from a borrower's title.

DEAR BOB: I own a large house. I want to sell it and find a smaller house with a larger yard. If I find a house to buy before I sell my current home, what options do I have? My current home has no mortgage. Can I get a loan against my present home to buy my new home? Can I rent the new house? I'm nervous about everything happening all at once. -- Judith S.

DEAR JUDITH: Don't worry. Thousands of homeowners have successfully survived situations like yours. My best advice is to sell your current home first. Then you won't be under pressure to sell quickly because you need the money to buy your new home.

Even if you have to move out of your home when the sale closes and temporarily live in an apartment, that's much better than buying a replacement home and hoping your old home sells fast.

As for renting a new home, you could get a lease with option to purchase. But negotiating a lease-option can be difficult, especially if you want it only for a few months. Your best bet is to sell your old home first, then buy another one.

DEAR BOB: I am temporarily unemployed but want to reduce my mortgage interest rate. A mortgage broker told me about a "no doc" loan. That means I don't have to provide any documentation. The new loan is based on my very good credit rating. I'm not getting any money out of the refinanced loan.

But my loan fees on a $317,000 mortgage will be $1,210 origination fee, $325 application fee, $195 underwriting fee, $550 settlement or closing fee, $475 processing fee, $1,129 hazard insurance premium (I already have a homeowners insurance policy), and $1,579 total paid to others (whatever that means). What can I do other than pay almost $7,000 in junk fees? -- Kathy S.

DEAR KATHY: Refuse to refinance if you don't like the loan charges. However, those loan fees look reasonable for a no-documentation loan. The $1,129 should be refunded or canceled if you already have hazard or homeowners insurance.

Just between us, I can think of refinance loan fees you should be paying that are not on that list. To illustrate, the new lender will require a lender's title insurance policy. Who is paying for that? If the lender is paying, you got a good deal.

Sign those loan papers soon, before the lender discovers what a bargain you are obtaining.DEAR BOB: Twenty years ago my husband and I bought two adjoining lots. We built our home on one lot and have lived there ever since. Now we plan to sell. I originally thought we would have to sell our house and the vacant lot to one buyer. But I recently read something in the newspaper about a new law that will let us sell the house and lot to separate buyers and still claim up to $500,000 tax-free profits. Is this true? -- Janet C.

DEAR JANET: Yes. On Dec. 24, the IRS gave home sellers a very generous present in the form of new regulations for Internal Revenue Code 121. You can read these new rules at www.irs.gov/newsroom.

To summarize the pertinent portion, you can separately sell the lot adjoining your principal residence within 24 months before or after the sale of your home and include its sale within your $500,000 exemption (up to $250,000 for a single home seller). For details, consult a tax adviser.

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.

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