QDEAR BOB: We own two houses, our main home and our weekend townhouse, which we have never rented out. We have decided to sell the townhouse and replace it with a home in Florida. Can we use the $500,000 home-sale tax exclusion, or can we roll the proceeds of the sale into the Florida purchase to avoid tax liability? -- Carl D.

ADEAR CARL: Because you have not owned and occupied your townhouse as your primary home for at least two of the past five years before its sale, it does not qualify for the tax exemption of $250,000 per seller under Internal Revenue Code 121. And because it has not been rented to tenants, it does not qualify for an Internal Revenue Code 1031 tax-deferred exchange.

But you might consider renting it to tenants before selling, perhaps on a lease with option to buy, so it can qualify as investment rental property eligible for an IRC 1031(a)(3) Starker exchange.

If you do that, the acquired Florida property must be "like-kind" rental property. Most tax advisers suggest renting the acquired property at least a year before converting it to your personal residence. Consult a tax adviser for details.

DEAR BOB: Next year I will begin renting out my townhouse. It has two floors plus a basement apartment with separate front and back entrances. Would it be wise to take out a $30,000 home equity loan to remodel the basement apartment for a possible $1,000-per-month rent and then rent the upstairs for $2,000 or more? Or should I rent the entire townhouse as a single-family unit for about $2,500? My monthly mortgage payment is about $1,000. -- Traci P.

DEAR TRACI: While you are an owner-occupant, I suggest you obtain as large a home equity credit line as possible, even if you never use it. After you move out and the property becomes a rental, it will be more difficult and expensive to obtain the credit line.

Most banks love home equity credit lines because they are so profitable and the default rate is practically zero. They usually charge only about $50 annually for such a credit line, with no upfront fees.

Your credit line interest rate should be at prime rate or lower. It's great to have an extra financial cushion in case you decide to fix up that basement apartment, or for any other use.

As for upgrading that basement apartment, I suggest you consult several real estate agents who are familiar with rentals in your area. They can advise you whether your townhouse will rent more easily to one family or to two tenants.

DEAR BOB: We have a buyer interested in buying our home with a "quick claim deed." We have never heard of it. Should we go along? -- Matt M.

DEAR MATT: A quitclaim deed, (not quick claim deed) conveys whatever title the grantor owns in the property. The buyer should always obtain an owner's title insurance policy to be certain of receiving marketable title.

Be sure you have a written sales agreement and the quitclaim deed title transfer takes place at a title company or real estate lawyer's office so you don't get swindled by giving the buyer the quitclaim deed before you receive the money. Consult a lawyer for details.

DEAR BOB: Do you have a list of all the mortgage junk fees I should avoid when I close the purchase of my home in a few days? -- Rachel K.

DEAR RACHEL: There is no all-inclusive list because mortgage lenders are constantly dreaming up new names for these unnecessary fees, which they often charge buyers just before the transaction is ready to close.

A junk or garbage fee is a charge that is not for a specific service that benefits the borrower, and is not paid to a third party.

Examples of legitimate mortgage fees paid to a third party include appraisal fee, title fee, escrow or attorney fee, notary fee and credit report fee.

Examples of negotiable junk or garbage fees, which go to the lender or the mortgage broker, include underwriting fee, processing fee, loan review fee, administration fee, document preparation fee, and even (when the lender can't think of a name) miscellaneous fee.

If the junk fee wasn't disclosed to you on the lender's "good-faith estimate" provided within three days of your loan application, it can often be negotiated away.

DEAR BOB: How can I get my former mortgage lender to record the release of my loan, which I paid off almost 15 months ago? I have not received any evidence the loan was cleared from my title. I hired a lawyer to oversee the effort, but all he has done is call the lender many times, chewing up more than $400 in fees so far with no results. Is there a law requiring the lender to provide mortgage borrowers with proof the title has been cleared and return the promissory note? -- Jerome W.

DEAR JEROME: Your lawyer should tell you if your state law provides a time limit for the lender to record either a mortgage satisfaction or a deed of reconveyance to clear your title.

You are smart to make sure your title is cleared now, rather than waiting until you sell the property.

You might want to do what I did when I had a similar problem. Because my lender had no financial incentive, I didn't receive proof of title clearance after I paid off a second mortgage. I sued the mortgage lender in small-claims court for the maximum allowed for breach of contract. Before the case came up for trial, the lender recorded a deed of reconveyance and I dropped the lawsuit.

DEAR BOB: My husband and I have been looking for a townhouse for more than a year. We worked with a buyer's agent for three or four months, but she wasn't effective. My husband found a townhouse on the Internet and the listing agent said if we made our purchase offer through her, we could get a bargain price. We had no written contract with our buyer's agent, so we made our offer, which was accepted. Now our buyer's agent threatens to sue us for half the sales commission. Do you think we need a buyer's agent, and do we owe her a commission? -- Anita Y.

DEAR ANITA: It would be desirable for you to have a buyer's agent, but if yours was ineffective, I don't blame you for searching on your own. If she sues you, just reply that the statute of frauds requires a written contract, so you have no obligation to her.

DEAR BOB: If my tenant pays rent on the first of each month, can the tenant write me on the fifth of the month giving me a 30-day notice of moving out? -- Beth J.

DEAR BETH: Unless your month-to-month rental agreement says a move-out notice can be given only on the first day of the month, which is highly unlikely, either the tenant or the landlord can give a move-out notice on any day of the month.

State law determines the minimum number of days required before the tenant can move out, but the notice can usually be given on any day. Consult a local landlord-tenant lawyer for details.

DEAR BOB: Are homeowner association dues tax-deductible?

-- Robert R.

DEAR ROBERT: The answer depends on your situation. If you are an owner-occupant, your dues are non-deductible personal expenses. However, if you rent out the residence, the dues are deductible "ordinary and necessary" expenses. You should report those dues payments on Schedule E of your income tax return, the same place you report the rental income received.

DEAR BOB: Five years ago, my husband and I signed for a mortgage so our son and daughter-in-law, who had bad credit, could buy a house in upstate New York. No money was involved; our son made the down payment and continues to pay the mortgage and property taxes. Now we would like to remove our names. I don't think they can qualify for their own mortgage, and we cannot afford to pay it off. What should we do? -- Terry U.

DEAR TERRY: Getting your names off the title to the house is easy. All you do is execute a quitclaim deed to your son and daughter-in-law. Then record it in the county or city where the house is located.

However, getting your names off the mortgage is almost impossible. Mortgage lenders are extremely reluctant to release co-borrowers from the mortgage note. If the borrowers default and a foreclosure loss results, depending on the type of mortgage and state law, the lender might be able to obtain a deficiency judgment against you.

DEAR BOB: You advised against filing a small claim against homeowner insurance, but I have had my homeowner and car insurance with State Farm for many years and have never had a problem. Within the first few years of moving into our home, we had to file claims for a new roof because of hail damage, a new kitchen floor because of a leaking refrigerator and a leaking shower. I think an insurance agent who cautions a customer not to file a claim should be reported to the insurance company for unethical behavior. -- Elyse M.

DEAR ELYSE: You have been fortunate. Many insurance companies have been "nonrenewing" homeowner insurance policies when two or three claims were paid within a few years.

State insurance laws vary widely, often prohibiting insurers from refusing to renew because of too many claims. However, insurers can and do raise rates for excessive claims.

After a homeowner has been refused renewal by an insurer for filing too many claims, it can be difficult for that homeowner to obtain insurance except at high cost.

My recommendation is to raise your homeowner insurance policy deductible to as much as you can afford, such as $500, $1,000 or more, so you won't file small claims and risk nonrenewal.

DEAR BOB: I am negotiating to buy the house I rent, but the owner wants to retain the oil and mineral rights. Can she do that? How can I buy the house and obtain the oil and mineral rights? -- Patricia B.

DEAR PATRICIA: Your e-mail comes from an area where it is not unusual for a seller to retain oil and mineral rights. If you insist on obtaining fee simple absolute title, without allowing the seller to retain the oil and mineral rights, the seller can refuse to sell to you.

Chances of the seller ever attempting to extract minerals from under your house are slim, but it does happen. Consult a lawyer for details.

DEAR BOB: You advised the people who complained about a noisy dog kennel and a noisy gun club to contact a lawyer to have these nuisances abated, but the gun club and kennel were there before the residences were built. These home buyers are the same people who move into a deed-restricted community or near a noisy airport and expect to have the nuisance removed. Unless there is a law violation, preexisting nuisances should be allowed to exist. -- Marc S.

DEAR MARC: I have received a lot of mail about this issue. Most writers agree with you. However, when noise interferes with the owner's use of a property, that's a nuisance. If it affects many people, it is a public nuisance. If it affects only a few owners, it is a private nuisance.

Even if the nuisance property complies with local zoning, if it interferes with a property owner's enjoyment of his property, it is a nuisance, which is subject to court abatement. Just because the nuisance was there first is not a legal defense.

Often, a court weighs the harm against the benefit. Noisy airports are allowed to exist because they create employment and benefit the public. But airport operators have paid billions of dollars to buy or insulate nearby properties to minimize the noise nuisance. The same nuisance rules apply to the dog kennel and gun club, even though they existed before the residences were built.

DEAR BOB: My husband and I own several investment properties. We plan to transfer a piece of each property to our 20-year-old daughter soon. What is the best way to transfer the property without having to pay gift tax? Also, what is the gift tax rate on gifts exceeding $10,000? -- Janice L.

DEAR JANICE: Consult a tax adviser before you make a transfer. I think you are making a mistake transferring investment property to a 20-year-old who has not earned it. Such a gift is not smart and could cause major problems.

You and your husband must file federal gift tax returns for any gifts exceeding $11,000 per donor per donee per year. (Husband and wife can each give $11,000 annually to a donee without filing a gift tax return). No federal gift tax will be owed unless your lifetime gifts above the $11,000 annual limit per donee exceed $1 million per donor.

DEAR BOB: About four years ago, my then-24-year-old son begged me to co-sign on a mortgage so he could buy a condo. Like a good mother, I agreed. All went well until he got married. She spent more than they earned and piled up big credit card debts. They fell behind on the mortgage payments. Because I co-signed, my credit was ruined, so I couldn't refinance my own home to take advantage of the recent low mortgage interest rates. Now they are on the edge of bankruptcy and divorce. What can I do to get out of their mess? -- Mom

DEAR MOM: You can sign a quitclaim deed to your son to get off the title to the condo, but that won't get your name off the mortgage obligation. Every month the mortgage payment is late, that reflects badly on your credit. Your situation is a good lesson about the pitfalls of parents co-signing on a mortgage.

DEAR BOB: We recently refinanced our mortgage at 6.25 percent interest with no loan costs. However, the mortgage lender said if we don't want an escrow account for our property taxes and insurance, we would have to pay a $750 escrow waiver fee. We thought that was outrageous. Should we have paid? -- Henry R.

DEAR HENRY: No. Mortgage lenders have recently discovered they can charge borrowers an escrow waiver fee except on FHA, VA and private mortgage insurance loans that require property tax and insurance escrow impound accounts. Even in states with laws that prohibit lenders from demanding escrow accounts, such as California, escrow waiver fees are legal.

I don't blame you for wanting to pay your property taxes and insurance directly. Mortgage lenders often overcharge, or fail to pay escrowed property taxes and insurance on time.

However, saving $750 was more important. Be sure to keep a close eye on your mortgage lender to be certain your taxes and insurance are paid on time. If they are paid late, make sure the lender pays the late charge because some dishonest lenders steal late fees out of escrow accounts.

Readers with questions should write Robert J. Bruss at 251 Park Rd., Burlingame, Calif. 94010, or contact him through his Web site, www.bobbruss.com.

{copy} 2004, Inman News Service