QDEAR BOB: A few months ago, my husband and I were having trouble getting pre-approved for a mortgage, as you often recommend. Then we saw a mortgage broker's newspaper ad that said "Loan problems welcome." It turned out our situation wasn't a big problem, though we thought it was. My husband's income varies from year to year because he is an independent equipment sales representative. In 2003 he earned more than $275,000, but the previous year his commissions were about $112,000. The mortgage broker had us pre-approved for a "no doc" stated income mortgage. Then we had no trouble shopping for a nice house. Now we are happily settled in our three-bedroom house with a fixed-rate mortgage at 6.12 percent interest. Why don't you tell your vast readership about these no-documentation stated income mortgages? -- Sharon V.

ADEAR SHARON: I should mention unusual mortgages more frequently. "No doc," or "stated income," mortgages are for unusual home-buyer income situations like yours. To qualify for your mortgage, your lender required a Fair Isaac Corp. credit score of at least 700. In addition, most stated income mortgage lenders require proof of adequate liquid reserves.

You pay your bills on time, which makes up for the wide fluctuations in income. Fortunately, FICO scores don't consider monthly cash flow of the borrower or liquid assets such as savings.

For prospective home buyers who want to check their credit report and FICO score, I recommend www.myfico.com. The charge is $12.95. It's smart to check your credit report before shopping for a home.

DEAR BOB: You frequently write about reverse mortgages for senior citizens. Where can I go to get one? I checked with several local banks, but the loan officers have either never heard of reverse mortgages or don't know where to get them. Your information will help me and my church members. -- Rev. Clifford W.

DEAR REV. CLIFFORD: The reverse-mortgage industry does a terrible job of explaining its wonderful mortgages and where to obtain them. Such loans are available to homeowners who are 62 or older.

There are only three nationwide reverse mortgage lenders, the Federal Housing Administration, Fannie Mae, and Financial Freedom Senior Funding Corp. But these mortgages are originated by mortgage brokers in every state.

The easiest way to find reputable reverse-mortgage representatives is at www.reversemortgage.org. Just click on your state to find nearby specialists.

DEAR BOB: I am a real estate broker and will soon be listing for sale a home that is occupied by a husband and wife. The husband is the pastor at a local church. The home is 60 percent owned by the church and 40 percent owned by the pastor and his wife. They have occupied the home more than five years. Would I be correct in assuming the husband and wife will be entitled to 40 percent of the $500,000 home-sale tax exemption of Internal Revenue Code 121 and the church gets zero exemption? -- Walt M.

DEAR WALT: No. Even though the pastor and his wife own 40 percent of the home, Internal Revenue Code 121 appears to give them the entire $500,000 tax exemption ($250,000 each). That presumes they both owned and occupied their home at least two of the last five years before the sale.

Obviously, the church doesn't qualify for the IRC 121 exemption. However, it is probably tax-exempt as a religious organization for its share of the sale profit. All owners should consult their tax advisers.

DEAR BOB: We recently completed a tax-deferred exchange of three rental properties to acquire a condo rental property. All the requirements of Internal Revenue Code 1031 were met, but two of the rental properties were acquired in 1978 and 1980. I recall reading in your articles that depreciation taken before 1997 would not be recaptured. My tax adviser is unaware of such a requirement. -- Curtis B.

DEAR CURTIS: Internal Revenue Code 121 specifies that rental depreciation deducted after May 6, 1997, shall be "recaptured" (that means taxed to us ordinary taxpayers when the property is sold). There is a special 25 percent federal tax rate for recaptured depreciation.

However, because you made a tax-deferred exchange, and there was no sale, you need not be concerned now about recapture of depreciation previously deducted.

When you eventually resell the rental condo, that's when the federal government will be waiting to tax the recaptured depreciation, unless you make another tax-deferred exchange. However, if you die while still owning the rental condo, there will never be any recapture tax due.

DEAR BOB: Why are you so harsh on us mortgage brokers? You blame us for "junk fees." These are usually a surprise to us, charged by the mortgage lender. We don't know about them until just prior to the loan closing. -- Kevin L.

DEAR KEVIN: A mortgage "junk fee" is generally any charge that was not disclosed to the borrower on the lender's "good-faith estimate" of loan costs, which was provided to the borrower within three days of loan application.

A different definition of junk fee is that it is any charge to the borrower that is not paid to a third-party service provider, such as for an appraisal, credit report, recording fee, attorney or escrow charge, etc.

Examples of negotiable junk fees that are not for a specific service to the borrower include document preparation fee, underwriting fee, processing charge, loan review fee, warehousing charge, administration fee and miscellaneous fee.

If the charge was disclosed on the borrower's "good-faith estimate," such as your loan fee, that's fine. The borrower either accepts or rejects it. But when borrowers are confronted with unexpected last-minute junk and garbage fees, that's what is unfair.

DEAR BOB: You had a recent item about increasing homeowner insurance deductibles to $2,000 to avoid too many policy claims. However, I discovered that mortgage loan servicers restrict homeowner insurance policy deductibles to a maximum 1 percent of the loan balance. That means a $2,000 insurance deductible would be allowed only if the mortgage balance is more than $200,000. Just thought you should know. -- Martha McC.

DEAR MARTHA: Thank you for that valuable information. I've always said I have the world's smartest readers and I greatly appreciate your contributions to this column.

DEAR BOB: I own about 35 apartments in several buildings and I own them free and clear. Although my wife and I greatly enjoy the monthly income, we don't like managing the tenants and our resident managers. We have tried two different professional property management firms, but we fired each one after just a few months. How can we find an honest, reliable property management company to manage our apartments so we can enjoy our semi-retirement? -- Jens W.

DEAR JENS: There are many excellent professional property management firms, but finding them is not easy. The best way is to ask fellow apartment building owners in your community for recommendations. Another quality indication is a certified property manager managing the firm. If there is a local rental property owner's association in your area, join and attend its monthly meetings. Ask the association officials and fellow members for names of property management firms they recommend.

DEAR BOB: As an avid reader, I know you don't like title insurance companies and you constantly deride them because they don't pay any claims. Well, I finally collected on a title insurance policy. When I bought my property about 12 years ago, I didn't pay much attention to my owner's title policy. About a year ago, a neighbor started building on what I thought was part of my property. It turns out it wasn't my property, although it was insured by my title policy. The title insurer paid me $47,000 for the chunk of my property, which was owned by the neighbor. -- Marco W.

DEAR MARCO: I have nothing against title insurance companies, but I am amazed you received a payment from a title insurance company. Recently, I received information from the American Land Title Association in Washington stating that in the first six months of 2004, title insurers paid 4.27 percent of premiums collected for title claims. The reason the payout is so low is that title insurers spend most of their premium income on researching titles before issuing title policies. Then they don't make mistakes, such as what occurred in your situation.

DEAR BOB: In January 2004, we refinanced our home mortgage and paid a $2,400 loan fee to the lender. When we had our 2003 income taxes prepared, we asked whether we would be able to deduct the loan fee on our 2004 tax returns. The tax preparer said no. She said we can deduct that $2,400 loan fee at only $80 per year for the next 30 years. Is this correct? -- Rolf R.

DEAR ROLF: Your tax preparer is correct. When you refinance a home mortgage, you can deduct any mortgage loan fee paid only over the life of the loan, presumably 30 years in your situation.

Now you know why I yell and scream that refinancing homeowners should never pay a mortgage loan fee, even if they have to pay a slightly higher tax-deductible mortgage interest rate.

DEAR BOB: My aunt recently died, but she didn't leave a will. I am her beneficiary on her insurance policies and she has a house. I am her only living relative. Is the house mine? -- Cindy B.

DEAR CINDY: When a person dies without a will or a living trust, their estate must go through probate court to be sure the deceased's assets are distributed to their closest surviving relatives. This is called the law of intestate succession.

The situation you describe will cause you unnecessary grief, plus costs and delays. It could have been avoided if your late aunt had left a written will or had placed her major assets into a living trust.

The house and other major assets should eventually become yours unless a closer relative is discovered. The assets must first be probated and your aunt's debts must be paid before the assets can be distributed to you. Consult a lawyer for details.

DEAR BOB: My father-in-law died in July and his wife died in 2003. I know her $250,000 home-sale exemption expired. His house needs to be sold, but must the house be sold this year to use his $250,000 exemption? -- Barb P.

DEAR BARB: The date of home sale is irrelevant. The reason is there is no capital gains tax to pay after a property owner dies. Uncle Sam forgives capital gains tax when the owner dies.

Instead, the house and other assets become part of the deceased's estate. If your father-in-law's estate is less than $1.5 million, it is exempt from federal estate tax. Unless your father-in-law left a total estate of more than $1.5 million, taxes are not a concern. Consult a tax adviser for details.

DEAR BOB: I bought my home for $20,000 in 1965. Amazing, huh? I am told by a real estate agent that it is worth $600,000 today. He said I can deduct my $20,000 cost, plus a single-owner home sale $250,000 tax exemption. But can I avoid tax on my remaining $330,000 profit by using the sales proceeds to buy a replacement home?

-- Kat C.

DEAR KAT: No. Your real estate agent is correct that you can subtract your $20,000 cost basis (plus the cost of any capital improvements you added during ownership) and your $250,000 home-sale tax exemption from the sales price to arrive at your $330,000 taxable capital gain. Also, you can subtract other sales costs, such as the real estate sales commission.

That presumes you owned and occupied the home as your principal residence an aggregate two of the last five years before its sale, as specified in Internal Revenue Code 121.

Using the sales proceeds to buy a replacement principal residence won't help you avoid tax on the remaining $330,000 capital gain. But the good news is the maximum federal tax rate on long-term capital gains is now only 15 percent.

DEAR BOB: About two months ago, we bought our first home. Shortly after we moved in, we discovered dampness around the bathroom baseboard. My husband tore out the baseboard and discovered that a water pipe is leaking. When we contacted the real estate agent who sold us the house, she reminded us there was no evidence of the leak when our professional home inspector checked the house. Also, the seller's disclosure said nothing about the bathroom dampness. To prevent further damage, we had the leaking copper pipe replaced and the baseboard restored at a total cost of $1,245. Our homeowner insurance doesn't cover the loss. Do we have any recourse against the home seller? -- Marge R.

DEAR MARGE: Probably not. The reason is that a home seller is not liable to the buyer for undisclosed defects unless the buyer can prove the seller knew of the defects affecting the market value or desirability of the property and fraudulently failed to disclose them.

If your home inspector didn't discover the dampness, it will be extremely difficult for you to prove the seller knew about it but failed to disclose this defect. I suggest you forget the matter.

DEAR BOB: I bought my condo in 2002 when I was single. I recently became engaged. The condo has appreciated in market value by about $200,000. After we marry, will our tax-exempt amount remain at $250,000 or will we then qualify for the $500,000? -- Daniel M.

DEAR DANIEL: If the condo is the principal residence of you and your new wife, after you each have occupied it as your principal residence at least two of the five years before its sale, you won't have to pay taxes on up to $500,000 in home-sale profits. This exemption is provided by Internal Revenue Code 121.

You need not add your wife's name to the title because the law requires only that title be held in one spouse's name if they file a joint income tax return in the year of home sale. Consult a tax adviser for details.

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

{copy} 2004, Inman News Service