Today's Top Real Estate News Provided by Inman News 9/9/2010  5:16:54 AM

Save $25K a year the frugal way Book Review: 'The Cheapskate Next Door' Tara-Nicholle Nelson Inman News Book Review Title: "The Cheapskate Next Door: The Surprising Secrets of Americans Living Happily Below Their Means" Author: Jeff Yeager Publisher: Broadway Books, 2010; 256 pages; $12.99 At the start of the recession, Jeff Yeager became well-known in personal finance circles as the self-proclaimed Ultimate Cheapskate, publishing his first book, "The Ultimate Cheapskate's Road Map to True Riches," and then walking his talk by bicycling the 3,000 miles of his book tour, crashing on couches and in tents the whole route. Apparently, during all those overnight stays in the rooms of children of cheapskate parents who hosted him, Yeager picked up a few secrets. He realized, he explains in his latest book, "The Cheapskate Next Door: The Surprising Secrets of Americans Living Happily Below Their Means," that his cheapskate hosts were very diverse in background and how they lived out their frugal philosophies, but they shared in common (a) "a set of vitally important practices and philosophies when it came to money and the role money played in their lives," and (b) they "were sleeping soundly at night at a time when so many Americans were losing sleep in an economy gone haywire." So, Yeager collected up a set of his fellow American cheapskates' insomnia-preventing frugality secrets and put them together in his take on the now-classic tome, "The Millionaire Next Door" (which paradoxically, was also about cheapskates -- cheapskates whose frugality has brought them undercover wealth). And voilà, "The Cheapskate Next Door" was born. If you're interested in shifting to a lifestyle of enjoyably living below your means, read this book -- but know going in that the differentiating element of Yeager's brand is his persona as a raconteur of comedic, bizarre and gross tales from the extreme edge of Cheapskate-land. I'm talking tales of eating testicles of some unnamed fauna, roasted whole over his pal Clive's cinderblock rotisserie. I'm talking stories of drinking some near-stranger's denture water while crashing on their (generously offered) couch overnight. I'm talking total strangers, uh, "eliminating" on top of Yeager's roadside tent-cum-motel room that wasn't tucked quite far enough under the bridge. But don't let this deter you. If you're on the prissy side (like myself), you might read the first few pages of this book and think, "Egads! Whatever that dude is doing is the opposite of how I want to live." But these tales are included for their entertainment value. The entire point of the book is to underscore that whoever you are -- whatever your personal style is -- there's a way for you to live well below your means. And Yeager proceeds to share how your fellow Americans are doing it -- most of them, without getting peed on. Who are these people? He tells of interior designers who live cheaply, yet in high style. Yeager speaks about cheapskate parents of large families, and 30-somethings planning upcoming retirements -- all powered by their frugality. He mentions college students and pastors -- all cheapskates. So, what makes them all cheapskates? They're used-car-buying, student-loan-eschewing, early-mortgage-paying, debt-avoiding folks who tend to use what they buy until the wheels fall off, get divorced at half the rate of non-cheapskates and are 100 times more likely to adopt a stray animal than to buy one. Yeager starts out by exploring the 16 idiosyncratic mindsets of a cheapskate, from not giving a rip about the Joneses, to preferring to shop for value, not for bargains -- because bargains cost time, and time is more important than money -- in the land of the cheapskate. He moves on to the habits and meticulous money management practices that characterize the personal finances of these cheapskates: "Admittedly, the cheapskates next door know far more about how to stay out of debt than they do about how to get out of debt." Next come chapters on how cheapskates raise financially savvy families, live green while minimizing the green they spend, avoid wasting food, and find freebies on everything from Internet access to foreign language instruction. Yeager walks readers through the basics of dining out on the cheap, bartering and negotiating, homeownership -- cheapskate-style, and the common food shopping and cooking philosophies shared by the cheapskates he encountered. Whether clothes, cars, health insurance or recreation, Yeager shares the cheapskate way of life when it comes to all these essentials. "The Cheapskate Next Door" is an enjoyable read with an extreme take on living frugally -- it offers hundreds of tips on saving every nickle and dime (including carrying around a yardstick to grab the fallen quarters beneath the vending machines you come across -- no joke). If that's not your style, though, it contains many very sound basics on how to approach the larger purchases and recurring expenses of life in a way that eliminates the debt monkey America seems to be tiring of carrying on its back, along with the inspirational stories of members of "The Cheapskate Next Door" community who are loving living their lives in this way. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.                                                     Contact Tara-Nicholle Nelson: Facebook Twitter E-mail Letter to the Editor Copyright 2010 Tara-Nicholle Nelson

5 tips for assessing a lowball offer Know when to counter, when to ignore Mary Umberger Inman News Your house is for sale for $350,000, and you're confident it's well-priced. You get an offer, but it's for $300,000, and you're stunned and disappointed by how low it is. If your first instinct is to feel insulted and to hurl an epithet -- don't, said Jeffrey Stanton, a real estate instructor based in Modesto, Calif., and Staten Island, N.Y. Stanton's company, Your Professional Development, teaches courses in negotiation techniques. That seller might still end up with an acceptable sale price, Stanton said: The key is being ready. Five things for home sellers to know about lowball offers: 1. It's critical in this market for sellers to be prepared for the possibility of an unacceptably low offer, Stanton said. This is the job of the seller's agent -- managing expectations and emotions -- and too often this particular educational task is overlooked, with uncomfortable, potentially time-wasting results for all, he said. "Most agents wait for an offer and say, 'Oh, shucks, now I'm going to have to present this to my seller,' " he said. Not only should the agents tell the homeowners to be prepared for a low offer, they need to come to agreement on just what constitutes "lowball." "Each market is going to be totally different. In one, it may be 5 to 10 percent below list. In a different market, it may be 30 percent below list," Stanton said. "That's a unique conversation that has to happen between agent and seller." 2. Lowball offers may have any number of motivations, and sellers shouldn't automatically presume they stem from somebody's desire to be insulting. "A lot of times, a lowball may be all the buyers can afford," he said. "It could be an investor or a buyer looking to steal the property, or a buyer who really likes your property and is just taking a shot at it, never knowing if you're going to say yes or no. "Just don't take it as them disrespecting you." 3. If the initial offer seems out of the question, should the seller just ignore it or make a counter? Stanton said that some negotiators suggest making no written response at all, which tells the would-be buyer that the offer isn't even being considered, in order to get across the point that the offer must increase considerably. The thinking is that the most powerful thing an individual can say is, "If it's that low, I'm not selling," Stanton said. But he suggests that buyers in such cases make a counteroffer. "You want to keep the negotiation lines open, so come back with something," he said. "If the house is listed for $350,000 and the offer is $300,000, the seller may want to counteroffer at $345,000, just to see what the buyer is going to say." 4. In such a case, the next move will be revealing, Stanton said. "One of the signs in negotiations is how much of a move they make," he said. "The smaller the move, the closer that person is to his goal." Take the aforementioned counteroffer of $345,000, he said. If the buyer responds to that one with $305,000, usually it can be interpreted as the buyer not having much price flexibility. But if that (buyer) response is $320,000, that's a big move, Stanton said. And if the countering continues but the buyer goes up only to $322,000, he's probably near his limit, he explained. 5. Another technique right at the beginning of the whole process might save everyone time, Stanton said. If the buyer's agent tells the listing agent that he or she is going to present an offer that's significantly below the asking price, "then I absolutely would require that the other agent present that offer in person -- I'd say, 'Be here tonight at 7 o'clock,' " Stanton said. If it's a true lowball offer where the buyer is just fishing for a price and the agent knows it, it might speed things along if the agent's presence is required, rather than just faxing the offer, Stanton said. "The buyer's agent will say, 'Let me get back to my buyers,' " Stanton said. "It's called a problem transfer. I'm going to take my problem -- that lowball offer -- and transfer it to the agent. All of a sudden, that $300,000 offer has turned into a $320,000 offer. "You'd be surprised how often that actually works," Stanton said. Mary Umberger is a freelance writer in Chicago.                                           Contact Inman News: E-mail Letter to the Editor   Copyright 2010 Inman News

Smokin' fireplace makeovers Replace brick with marble, stone or tile Bill and Kevin Burnett Inman News Q: I'd like to remove my fireplace brick, but it goes all the way up from the hearth to the ceiling. Is it possible to remove the brick and replace it with another material? After removal, what type of material should I use to cover things up? Is there something that I can use that will still allow me to use the fireplace? A: Yes, you can remove the brick facade and replace it with another material. And you will still be able to use the fireplace. The only restriction is that the material around the firebox must be noncombustible. Common choices are marble or some other type of stone or tile. Check your local building code to determine how far the hearth must extend in front of the firebox and the area on the sides and top of the opening that require noncombustible material. Expect 8 to 12 inches on the top and sides and a minimum of 18 inches for the hearth. When it comes to the hearth, the deeper, the better. There's nothing worse than a hot ember that burns a hole in the carpet. The remainder of the wall can be any material you want, from drywall to plaster to the rustic appearance of wood. The removal process is fairly labor intensive, but if you do the demolition yourself you'll save a bunch of money. Furthermore, if you do the whole job yourself, all you'll be out is the cost of materials. Go slowly, be careful, and you'll be fine. When you're done you'll have a spiffy new look for pennies on the dollar. You will need a hammer and a cold chisel. If you want to make quicker work of it, rent a small electric demolition hammer. Make sure to remove any breakable objects from the area and cover the floor. Dropping a brick from 8 or 9 feet in the air is not a good idea. Have a helper handy to receive and stack the bricks when you remove them. To remove the old brick, start at the top and work down. Begin by chiseling the mortar on the top line of brick. It might be a little tough to remove the first brick, but once you pry it out, the others should follow more easily. Remove one brick at a time. Work down the wall until all of the face bricks, including any mantel you might have, are removed. Then remove the bricks from the hearth. With the wall and the firebox opening stripped, you're ready to reface. It's vital to have a flat, solid surface on which to affix the new stone, tile or marble. For larger, flat pieces of tile or marble, you can either plaster a mortar bed over the existing brick to create a substrate or you can affix cement board such as Durock with thin-set mortar. Use concrete nails to hold the cement board in place. When the mortar dries, you'll have a solid, flat surface. If you use smaller, irregular material, such as individual stones, you can forgo the cement board. Just apply a thick layer of mortar and embed the new material. In both cases you will have to pretreat the old brick with a concrete adhesive to allow the new mortar to stick to the old brick. A word of caution: If you decide to use material that is very heavy, make sure the floor framing will support the weight. You might have to go into the crawl space to install a couple of concrete piers with a beam across the floor joists to support the added load. Also, if you decide on stone or another type of brick, you'll need a steel bar across the top span of the firebox to support that weight. Two final suggestions: This is a good time to have your fireplace inspected by a licensed, bonded chimney sweep. Also, it's likely that your project will require a building permit. Make sure you get one.                                       Contact Bill and Kevin Burnett: E-mail Letter to the Editor   Copyright 2010 Bill and Kevin Burnett

Judge denies Section 8 evictions Law of the Land Tara-Nicholle Nelson Inman News In March 2006, the landlord of the Morton Gardens apartment complex in Los Angeles sent tenant Debora Barrientos and her neighbors "Notice(s) of Withdrawal from Section 8 Assisted Housing Program and Notice of Change in Terms of Your Tenancy," which stated that the tenants' Section 8 tenancies were being terminated and that they would be charged full market rents going forward, according to court records. The notices went on to provide that "(t)he owner/agent for the owner wishes to remove the Subject Premises from the Federally Assisted Section 8 Housing Program, and intends to rent the unit at market rents," and stated that the tenants' options were to either pay the full market rent or move out. The owner's desire to remove the homes from the Section 8 program was the only reason provided for the change in terms/eviction. The tenants submitted the notices for review to the Los Angeles Housing Department, which rejected the notices. Then, the landlord sent new eviction notices to the tenants, elaborating that the rationale underlying the notice included terms in the contract and the Section 8 program guidelines that "allow(s) the landlord to terminate the rental agreement for a business or economic reason, including but not limited to, the desire to opt-out of the Tenant Based Section 8 Program and or the desire to lease the unit at a higher rental rate. "Prior to the service of this notice, the landlord made a business decision to no longer participate in the Section 8 voucher program for your unit." Because Section 8 is a federal program, the tenants filed suit to prevent their eviction in the federal district court, which ruled in their favor, finding the eviction notices to be invalid because they were not based on the permissible grounds for eviction under the Los Angeles Rent Stabilization Ordinance (LARSO). The landlord appealed the matter to the Ninth Circuit Court of Appeals, which affirmed the lower court's ruling. First, the Court of Appeals rejected the landlord's arguments that there were grounds for the evictions other than a desire to raise the rents, which is not a permissible grounds for eviction under the LARSO. While the lower court acknowledged that the revised notices did state some undefined "business or economic reason" motivating the evictions, at no time prior to the court proceedings did the landlord specify what this "reason" might be, nor did the landlord at any time provide any evidence as to what the costs of their participation in the Section 8 program were (despite the argument at trial that the burdensome cost of participating was the "other business or economic reason"). Further, the Court of Appeals explained, the only other grounds for the eviction specified in the notices -- the landlord's desire to opt out of participating in Section 8 -- is not a valid grounds for evicting a Section 8 tenant, given that Section 8 imposes a "good cause" requirement for evictions. Even if the landlord had clearly specified "other business and economic reasons" for the evictions, the Court of Appeals elaborated, they would also have failed under the LARSO. HUD's Section 8 regulations do provide that evictions for "business and economic reasons" are possible, out of an expressly stated legislative intent to allow courts to strike a balance, on a case-by-case basis, between the economic rights of a landlord and the rights of Section 8 tenants not to be evicted except for good cause. Where, as in this case, a local rent or eviction control ordinance applies, the Ninth Circuit declared, the good causes for Section 8 eviction are properly limited by a court to the good causes for eviction authorized under the local statute: the LARSO, in this matter. As the LARSO does not recognize "business and economic reasons," this would not have been a justifiable rationale for the evictions in this matter, even if the landlord had proven the costs of participating in Section 8 to be economically burdensome. Accordingly, the trial court's rejection of the eviction notices was upheld. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.                                                     Contact Tara-Nicholle Nelson: Facebook Twitter E-mail Letter to the Editor Copyright 2010 Tara-Nicholle Nelson

Inherit real estate without hiccups 2 options to take when holdout refuses to sign quitclaim deed Benny Kass Inman News DEAR BENNY: My wife has a problem you may be able to resolve. About 30 years ago her father died without a will. All the other six children had heard him repeatedly say he wanted the property to go to our daughter, who was a minor at the time. Five of them signed quitclaim deeds assigning the property to my wife, but one sibling who lives back east refused to sign. My wife now has a deed with six-sevenths ownership. However, the county where the property is located condemned the asset because the roof came off, making it too dangerous to occupy. After 10 years of having the property neglected, my wife and I began to restore the property, a small 2-bedroom home. We paid all the taxes for the last 30 years, and have put thousands of dollars into keeping up the property. Is there any way to get a clear deed to this property so she can liquidate the house? We would like to know how to proceed. Since her sister refused to help pay the taxes or renovation costs, is there a way to force her to sign a quitclaim deed? --Paul DEAR PAUL: Your father-in-law died many years ago without a last will and testament. Was his estate probated? In most states that I am familiar with, probate proceedings must be initiated so as to make sure that title is legally transferred to someone. You state that five of the seven children have deeded their interest to your wife. But did those other five siblings have legal title to the property? You should have the title searched, and consult a local attorney for specific advice. Assuming, however, that probate was accomplished, and title was vested in all seven children, you will most likely have to file a lawsuit against the seventh holdout. You basically have two options: You can file a suit against the seventh person, asking that she be required to pay one-seventh of the various costs you have incurred, such as insurance, real estate taxes and improvements. Keep in mind that every state has a statute of limitations, ranging from one to five years depending on the situation. You will have to confirm the number of years in your state with your attorney. But this means that you cannot sue beyond the statute of limitations period. You can also consider filing a suit for partition. Every state allows such a lawsuit when two or more people own property and one does not want to sell. However, such litigation is time-consuming and expensive. The best that could happen is that a court would grant your request and order that the property be sold. You will be able to ask the court to allow you to recoup your expenses (again subject to the applicable limitations statute). But, what is the property worth? It may not be productive to spend a lot of money and time on a partition lawsuit if the sales proceeds -- divided into seven parts -- is less than the litigation costs. DEAR BENNY: I have owned and lived in my house for 20-plus years. The duplex next door is a rental, and the owner lives in another town and doesn't do maintenance to the property until a tenant moves out or something breaks. Our homes are close together and his paved driveway runs in between. The driveway covers his property from the side of his house to the property line. I have about 2 to 3 feet of space that is mostly plant beds. The issue is the storm drain in the driveway. It is clogged and doesn't drain. The water will build up during a rainstorm and will start to drain into my basement coming under the foundation. This will continue until the water level has dropped. I have asked this absentee landlord several times to have it repaired, as it is impacting my house. His answer is that it doesn't impact him and if I want it fixed I can pay for it myself. What recourse do I have to get him to do the repair? --Harry DEAR HARRY: First, you have to make absolutely sure that the storm drain is not on your property. I assume that the "2 to 3 feet of space" you mention does not include the driveway. Next, although the drain is on private property, have you contacted the appropriate county (or city) government agency to determine if they can be of assistance? In some jurisdictions, a governmental agency can issue an order demanding that the homeowner clean the storm drain. However, if all else fails, I think you have only two courses of action to take: You can get an attorney to file suit, which is time-consuming and expensive, or you can take the initiative and clean the drain yourself. I recognize that my last suggestion is like rubbing salt in a wound; it's offensive for you to have to pay for a problem caused by your neighbor. But you want to protect your own property, and that may be your best solution. DEAR BENNY: I read the article about the man wanting to gift his house to his friend. If the man owned his house outright, why not sell it to his friend and carry the loan himself? He could then let his friend default on the loan. With no other action taken by either party, would this be a good deal for both? --Wolf DEAR WOLF: Yours is an interesting suggestion but there are too many tax consequences. First, the sale must be reported to the IRS, and the seller may have to pay capital gains tax. Next, the interest on the seller carryback loan must be reported as income to the seller and as a tax deduction to the buyer. And if the interest rate is too low (or even zero), the IRS will impute interest to both parties. And if there is a loan, will it be recorded on land records? Bottom line: It's a fraudulent transaction that I cannot recommend. DEAR BENNY: While working overseas, my husband and I bought a house that was to be our retirement home. But when we actually retired, we realized that it was too far from family so we sold it, taking the $250,000 exclusion. Long before we were married I bought a house that has been rented for 25 years. Now I wonder if this house, being in my name only, is eligible should I want to sell it? I see you mention $500,000, so is that for two people? We received only a $250,000 exclusion, so I wonder if another $250,000 might be eligible. --Carolyn DEAR CAROLYN: If you and your husband both owned and lived in the house for two out of the five years before you sold it (called the "ownership and use test") and if you filed a joint tax return, you are eligible for the up-to-$500,000 exclusion of gain. Please note the words "up to." That does not mean that you can automatically exclude all of the $500,000. If your gain was only $250,000, that's all you can exclude. I would talk with an accountant about your situation. Depending on how long ago you took the exclusion, you may be able to file an amended return, so that you can claim the correct amount. As for the rental property, it is not eligible for any exclusion. The exclusion authorized by Congress applies only when the ownership and use test described above is met. DEAR BENNY: In a recent column, you refer to a 2008 tax law on allocation. Can you please tell me what law that is? --Julia DEAR JULIA: The law is known as the Housing and Economic Recovery Act of 2008. Up until January 2009, if you moved into your second home that you had been renting for many years, and live in it for two out of the five years before you sell it, you can exclude up to $250,000 of any gain that you make (or if you are married and file a joint tax return, the exclusion is up to $500,000). But Congress, in an effort to offset other monetary losses that would be generated by the new law, decided to target second homes, which includes where you vacation every summer or your rental property. Effective for property sales after Jan. 1, 2009, you now have to allocate the percentage of time that you owned the property as compared to the time that it was not used as your principal residence. Simply put, after Jan. 1, 2009, when you sell your house that has not been used exclusively as your principal residence, you must "crunch the numbers" to determine any possible tax liability. Have your financial advisers do the numbers for you. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com. Contact Benny Kass: E-mail Letter to the Editor Copyright 2010 Benny L. Kass

Homebuyers, sellers still stuck in denial Mood of the Market Tara-Nicholle Nelson Inman News Recently, the folks over on GOOD magazine's blog asked the question: Which class in high school or college impacted you the most? Why? Now, I was a bona fide school fanatic -- three degrees over nine years, and I'd still be in school if I hadn't realized the need to make a living at some point! So, I've taken a lot of classes, with lots of teachers and loved a bunch of them (both classes and teachers). Nevertheless, my answer was clear: social psychology. Why? This class, which explored the interactions of people with each other, within and outside of groups, was probably the single course that changed my everyday interactions with people at home and at work in the most ways. To this day, many times a day I apply and exercise skills I picked up in that course, and I've heard and observed, hundreds of times, these interactions have the effect I wanted or needed them to. (Thanks, Dr. Noel!) Probably the most influential of the skills I picked up in that course, at the age of 18, was the skill of active listening -- a listening technique that facilitates focus on and understanding of what the speaker is saying, and also communicates to the speaker that the listener truly cares about and comprehends what he or she said. I won't get into the details, but suffice it to say that in order to use the technique of active listening, you do have to actually listen to what the speaker is saying to you. These days, I wish we could do a little active listening tutorial specifically for the various players in the real estate market. Because they just aren't listening! Of course, it's also quite possible that a little mini-course in abnormal psychology is also needed here. Because what I'm seeing is not only poor listening, but that familiar coping mechanism: denial. Buyers are not listening to their agents when they caution them about short sales. "They take a long time," the agents say, "really long, like six months or a year. And many of them never close -- ever. If you decide to get into contract on one, just don't get your hopes up." Yet and still, I get e-mail after e-mail from jilted short-sale buyers wondering whether it's strange that they've been in contract for four months with no word from the bank. Sellers aren't listening, either. I continually receive inquiries as to how much they should list their homes for, providing me all manner of detail about how much they need to move to their next house and how much they need to pay off their current mortgage and other bills, but omitting all information about what the similar homes in their area have sold for recently. Your home's value has zip to do with how much cash you need, sellers -- it's all about what a qualified buyer will pay for it, now, and the best indicator of that is what qualified buyers have been paying for similar homes recently. But many sellers are simply not hearing or are willfully denying the facts underlying their home's true market value, even when their agents bring them a sheaf of comparable sales documenting it. And, perhaps least surprisingly, legislators aren't hearing it. Everyone agrees that the homebuyer tax credits were somewhat effective at creating an urgency on the part of buyers, where it didn't otherwise exist. But in terms of long-term healing of the housing market, in terms of stimulating ongoing homebuying activity, it's not incentives America needs nearly as much as jobs. I watched "The Secret." I know there is a place for staying unerringly positive, and focusing on the things you want to happen, rather than on the outcomes you hope to avoid. But there's also a very large role in a mature approach to real estate decision-making and planning out your personal finances for operating in reality -- even if that reality is not exactly what you wanted, facing it empowers you to take control of the elements of your situation that you are in a position to control. Buyers can prioritize "regular" equity sales or short sales that are listed by agents with a strong record of successfully closing them, or can at least avoid the panicked, crazed feeling of being stuck in short-sale limbo without understanding why. Sellers can decide that this is not the right time to sell, or can get real with themselves about the aggressive pricing it will take to position their home competitively for sale against all the short sales and foreclosures on the market. Denial can be an effective coping mechanism, but the real estate reality will come home to roost, sooner or later. The sooner we all drop the denial, the more powerful we will all be. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.                                                     Contact Tara-Nicholle Nelson: Facebook Twitter E-mail Letter to the Editor Copyright 2010 Tara-Nicholle Nelson

A pro's take on attic ventilation A tip to properly exhaust hot air Paul Bianchina Inman News Q: My house currently has a continuous ridge vent in the attic and two gable vents (one on each end of the attic). However, it has no soffit vents at all. I'd like to install some but I'm not sure what kind are best. Is it bad to have more ventilation at the eaves than at the ridge? Any tips are appreciated. --Mike A: For the typical attic, ventilation is achieved by installing a series of low vents along the eaves or soffits of the roof, and a series of high vents along the roof's ridge or gable ends. Since the air in the attic is warmer at the ridge than it is at the eaves, the natural upward movement of the warmed air creates a current of moving air. The low vents act as air intake vents and the upper ones act as exhaust vents -- lower temperature air is drawn in through the low vents, pushing the higher temperature air out the high vents. Without the low ventilation, as is the case of your attic, you are dependent solely on wind pressure to move air in through one of the high vents and out through the other, which doesn't work very well. You want to use a ratio of approximately 1 square foot of ventilation area for every 300 square feet of attic area, including attached garages. That ventilation should be equally divided between high and low vents. So, simply divide the square footage of your attic by 300 to get the total amount of ventilation required, then halve that number to determine approximately how much should be high and how much should be low. Ideally, you want to keep the amount of high and low ventilation roughly equal, and you also want to keep the low vents roughly balanced on each side of the house. In other words, don't put all the low vents on one side and none on the other. However, as long as you install the correct total amount of ventilation required for the entire attic, if you have a little more low than high it won't matter. The type of soffit vents to use depends on the construction of your house. If you have open soffits, where you can look up and see the underside of the roof sheathing, you can remove some of the solid wood blocks between the rafters and replace them with screened eave vents. If you have a closed soffit, which means the underside of the rafters are covered, you need to cut a slot through the soffit and install long continuous soffit vents, of which there are several types on the market. And in addition to the new vents, make sure all your exhaust fans are vented to the outside to prevent moisture problems in the future! Q: We have two fairly new appliances (dishwasher and convection/microwave) that are bisque (color). Our present stove is bisque and the fridge has wood panels on the doors to match the cabinets. I have found a fridge and stove in bisque but now am beginning to wonder if the way to go is with stainless steel. Will the bisque "date" the house? (The brand of cabinets we now have) do have bisque laminate cabinets, but then I'm thinking everything bisque may be way over the top. This is the part I hate about doing anything in the house -- too many decisions! --Virginia B. A: I definitely sympathize! Too many decisions, and a lot of them -- especially when you're dealing with the kitchen -- can be quite expensive. As such, you need to make your decisions based on what's practical and affordable, not just on what's currently popular. Discarding perfectly good appliances doesn't make any sense. Stainless steel appliances are hot right now, and have been for several years. I suspect they'll remain so for quite awhile, since they look classy and they blend well with a wide variety of cabinets, counters and flooring. Black appliances tend to do the same thing, and while they're not currently a hot trend, they tend to remain relatively popular year after year. Bisque will probably date the house to some degree, but it's such a neutral color that I don't think it would be a huge turnoff to a potential buyer. One thing I would strongly recommend against is bisque cabinets! As you mention, that would be way over the top. What's currently popular in the way of cabinets is neutral, softer-grained woods such as maple and alder. Finally, try not to get too stressed. Don't look at too many options. After a while it all gets confusing and overwhelming, and it takes the fun and excitement out of remodeling. Remodeling and repair questions? E-mail Paul at paulbianchina@inman.com. All product reviews are based on the author's actual testing of free review samples provided by the manufacturers. Contact Paul Bianchina: E-mail Letter to the Editor Copyright 2010 Inman News

4 common real estate deal-killers Emotions take back seat to money in today's market Dian Hymer Inman News In May of this year, the sellers of an architect-designed home in the hills above Oakland, Calif., received two offers in less than two weeks. They accepted the offer from the buyers who seemed most committed to buying the house. In less than 12 hours, the buyers backed out. Although they had been looking for a home for months and thought they'd decided where they wanted to live, they had a change of heart -- not about the house, but about the location. Buyer's remorse is one reason transactions fail. The enthusiasm that permeated the home-sale market when the federal tax credits were available has waned. Economic news has been mixed at best. This has led to an increased reticence on the part of some homebuyers. HOUSE HUNTING TIP: An easily avoidable reason why contracts fail is failure of sellers to disclose a significant defect in the property before the buyers make an offer. Some sellers resist having presale inspections done because they don't want buyers to know too much about what's wrong with their home until they fall in love with it. This strategy might work for sellers in a hot market where prices are rising quickly. However, in today's market, buyers are diligent and cautious; falling in love takes a back seat to practicality. In one case, sellers withheld a report that revealed significant foundation problems that could be fixed only at great expense. The buyers, who were buying at the top of their price range, were furious. They wouldn't have made an offer had they known about the foundation upfront, particularly since the seller was unwilling to correct the defect. They wasted time and money on their own inspections. The deal fell apart and the sellers had to put the house back on the market. Often contacts are so loaded with conditions unacceptable to the sellers that they don't make it to first base. One seller refused to respond to an offer because the price was very low, the offer was contingent on the sale of the buyers' home that was not yet on the market, and the buyers wanted the sellers to take their home off the market until the buyers found a buyer for their home. Another culprit that can rattle a transaction, even one that's not full of unreasonable contingencies, are conditions pertaining to the buyers' financing. Well-qualified buyers were recently told by their lender that they had to increase their cash downpayment from 20 to 25 percent because of one late payment on their credit report. The buyers had enough cash to increase their downpayment. But, when defects were pointed out during inspections, the buyers didn't have enough cash left to make the repairs. They asked the seller to credit them money at closing. The seller agreed and the sale closed. However, this could have blown the deal if the seller was unwilling or unable to pay for repairs. Low appraisals have been a factor in keeping transactions from closing. The situation has improved recently due to a lift in home-sale activity in March and April. However, following the expiration of the tax credits on April 30, the National Association of Realtors reported a 30 percent drop in pending sales -- accepted offers that have not yet closed -- for May compared to the previous month. If pending sales continue to decline, this could have a negative impact on home prices, which could lead to more low appraisals. Lenders want appraisers to use comparable sales that occurred within the last three months.  THE CLOSING: Keep in mind that the home-sale market is a local business. Although national trends and consumer confidence impact local markets, prices tend to hold up well for well-priced homes in high-demand, low-inventory neighborhoods. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide." Contact Dian Hymer: E-mail Letter to the Editor Copyright 2010 Dian Hymer

Reap benefits from cash-in refinance Return on investment can beat other low-risk options Jack Guttentag Inman News Cash-in refinancing means putting cash into a transaction by paying down the balance, as opposed to cash-out refinancing where you take cash out by increasing the balance. Cash-in refinancing has become a hot topic recently because in the current market it is possible for mortgage borrowers to earn a very attractive rate of return on money invested in a balance paydown, at the same time that the returns available on other low-risk investments, such as government securities, CDs and money market funds, are lower than they have been at any time since the 1930s. The high returns available from cash-in refinancing reflect several features of the current financial scene. Interest rates on very low-risk mortgages have never been lower, creating large spreads between those rates and the rates now being paid by millions of borrowers on their existing loans. The problem is that the lowest rates on new mortgages are available only to borrowers who meet the risk requirements, which most do not. These requirements include not only good credit and adequate income, but homeowner equity of 20-25 percent, which translates into loan-to-value ratios (LTVs) of 75-80 percent on new loans. Many homeowners cannot meet the LTV requirement because of the decline in home prices that has occurred over the last four years. Further, mortgage insurance premiums on loans with LTVs above 80 percent have increased significantly for those without the very best credit. Cash-in refinancing makes the best rates available to borrowers who would otherwise qualify for them but don't have enough equity in their property. Paying down the loan balance reduces the loan-to-value ratio on the new loan, which reduces the interest rate, mortgage insurance premium, or both. The balance paydown, and the lower interest rate it makes possible, reduces both the monthly payment over the period the borrower expects to be in the house and the balance that has to be paid off at the end of the period. The principal question the borrower should ask is whether the rate of return on the money used to pay down the balance and cover the closing costs on the new loan exceeds the return on alternative investments available to the borrower. With Chuck Freedenberg, I developed a new calculator that shows the rate of return on an investment in a loan paydown in connection with a refinance. It is calculator 3f on my website. Here is an example: John has a 6 percent mortgage with 300 months to go and a $100,000 balance, but his house is worth only $100,000, which makes him ineligible for a refinance. However, if he pays down the balance to $80,000, he can refinance into a 4.5 percent loan with closing costs of 2 percent. If John stays in the house for five years, the rate of return on his investment, consisting of $20,000 in balance paydown plus $1,600 in closing costs, would be 9.98 percent. The return is riskless to the borrower. The rate of return depends on the size of the rate reduction, closing costs on the new loan, how much must be invested to get to an 80 percent LTV, and on how long the borrower expects to have the mortgage. To illustrate: If John's house is worth $118,000 rather than $100,000 so that he has to invest only $5,600 to get to an 80 percent LTV, his return would jump from 9.98 percent to 21.09 percent. If the new rate is 5.25 percent rather than 4.5 percent, the return would fall from 21.09 percent to 10.41 percent. If closing costs are 1 percent rather than 2 percent, the return would rise from 10.41 percent to 15.13 percent. And if John sells the house after only two years instead of five, his return would fall from 15.13 percent to 9.45 percent. You can find the returns applicable to your deal using calculator 3f. Readers who use calculator 3f will notice that it calculates two rates of return. The numbers cited above compare the paid-down mortgage with the current mortgage. The second return compares the paid-down mortgage with a new mortgage that does not have a paydown, and therefore will carry either a higher rate or a mortgage insurance premium. The second rate of return is for borrowers who can refinance profitably without a paydown, and are therefore not quite sure they want to invest the money in making the refinance more attractive. The return relative to the refinanced loan without a paydown will be lower. Suppose John's house in the example above is worth $111,200, so that his current balance of $100,000 is 90 percent of value. In this situation, he can refinance without a paydown by paying mortgage insurance, which I priced at $52 a month. Assuming a rate of 4.75 percent and closing costs of 1 percent with or without the paydown, the returns over five years on an investment in paydown are 14.06 percent relative to the current mortgage, and 10.75 percent relative to a refinance without paydown. Note that if the return relative to a new loan without paydown is higher, it means that a refinance without a paydown is a loser and should be avoided. The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com. Contact Jack Guttentag: E-mail Letter to the Editor Copyright 2010 Jack Guttentag

2 companies seeking short-sale strides New approaches to expediting process Steve Bergsman Inman News This past spring, the Treasury Department put into effect the Home Affordable Foreclosure Alternatives Program (HAFA), which provides incentives in connection with short sales or deeds-in-lieu of foreclosure in an attempt to provide a viable option for homeowners who were unable to keep their homes through the existing Home Affordable Modification Program (HAMP). For the past two years, short sales have been on the collective minds of everyone from the government to individual brokers hoping to find a way to keep people in their residences, but the process has been difficult and lengthy. So, I've been keeping an eye out for servicers who have instituted programs to help make the process go smoothly, or at least can be of aid to lenders or brokers who want to go in this direction. Recently, I've come across two much different types of real estate, back-office, service companies that have inserted themselves into the short-sale process: ClearMarkets LLC, a technology firm; and National Creditors Connection Inc., which offers loss mitigation services. Basically, the short sale happens when the proceeds from the sale of a property are less than the balance owed on the loan (secured by the property being sold). The key in all of this is the lender accepting a price that is less than the amount owed on the property -- and the lender would do that to avoid a foreclosure situation. The key players in all this are obviously the lender and the homeowner, and I'll start with NCCI of Lake Forest, Calif., first, because the company performs the most basic of services: the on-the-ground contact with homeowners who potentially can benefit from a short sale. NCCI boasts it has successfully conducted more than 2 million field contacts for more than 600 financial institutions throughout the U.S., and the company recently unveiled a "short sales" desk. The idea behind the new program is to help assess, on behalf of its servicer clients, whether delinquent borrowers are good candidates for HAFA programs, and it will do this by having its employees personally collect all the necessary documents from borrowers and work with Realtors in an "arm's length transaction." In short, the company will do the initial door-knock, document retrieval, signature gathering and the extracting of financial information. "After we hear from our client, we go to the home, knock on the door and tell the homeowners they have not qualified for HAMP or not made payments on time, but based on the data available, they could qualify for HAFA, which would be a short sale or deed-in-lieu," explained Bart Brainard, director of strategic default management for NCCI. "We will deliver the paperwork, mentioning to the homeowners that they have a specified time frame to respond back with yes or no." If the answer is positive, NCCI will move to the BPO (broker price opinion) process, determine the price of the home, engage a Realtor, assess any junior liens, negotiate with the junior lien holders and help get the home through the sale process. "It's a natural fit for our clients right now," said Brainard. "We do a lot of loss mitigation on their behalf. To get right to HAFA is a natural. For people we were dealing with on loss mitigation, we have already collected the documentation -- and if they don't qualify for HAMP, we can go right back and re-solicit them for the HAFA short-sale initiative." ClearMarkets LLC in New York is going more in an anti-HAFA direction. It has teamed up with LenderLive Network Inc., a provider of business process outservicing, and Keller Williams Global Property Solutions LLC to provide an end-to-end solution to address all components of the short-sale process. LenderLive unveiled in June its LenderLive Default Solutions for short sales using ClearMarkets technology for bid management and asset sales, marketing and reporting, while Keller Williams will provide agent training, education and certification. "We approach short sales from a non-HAFA perspective," said Robert D'Loren, ClearMarkets co-chairman. "We contact the borrower with a letter. Then the borrower is sent an opt-in package, including listing agreement with the local broker, an escrow agreement and contract of sale that has a purchase price in it. The borrower signs that contract and it sits in escrow and is only released if there is an offer above the reserve price." In the ClearMarkets approach, all parties including the bank have signed off on the price. With a clear eye to transparency, everyone knows when an offer has come in and at what price. ClearMarkets' non-HAFA short-sale process goes from start to finish in 45 days, as opposed to a HAFA program that could easily run 120 days. "All parties are locked in. We have already run a preliminary title, we know what clouds, if any, there are in the title, and we've run a BPO," said D'Loren. "The problem with a lot of short sales and the reason they take so long is that no one has agreed on the price and the banks are reluctant to give a price because there is no transparency in the offer process." The way most short sales work is that a broker identifies a house that is underwater in terms of debt. The broker first makes a deal with the seller and then tries to make a deal with the bank. Generally, there is not a lot of upfront buy-in from the lender, which makes the process iffy at best. "That's exactly what we don't want to do," D'Loren stressed. "It takes too long and too many of them fall out. We would rather get into a program with a bank, Fannie Mae or Freddie Mac, agree on what a price should be, and then go hire a broker and get to the borrower to make a deal." ClearMarkets expects to be very active in a few short weeks. As for NCCI, which had done just a limited amount of short-sale work in the past, its pipeline is growing. The short-sale market could finally get as active as everyone has wished and predicted it would be. Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade," has been ranked as a top-selling real estate investment book for the Amazon Kindle e-reader. Contact Steve Bergsman: E-mail Letter to the Editor Copyright 2010 Inman News

Bedbug problem bites at tenant Rent it Right Janet Portman Inman News Q: One unit in our fourplex has a bedbug problem. The landlord hired an exterminator, who found a bug in two other units, so he recommends treating the entire building. We're going to have to take time off from work to prepare our apartment, then spend a night in a motel. We didn't cause this problem. Shouldn't the landlord reimburse us for the time off work, in addition to our lodging costs? --Natalie B. A: Whether you can fairly (and legally) expect the landlord to cover your expenses depends on whether your state has addressed this situation. Unfortunately, very few have, though that is changing as the bedbugs are once again starting to bite. Maine has brand-new legislation that sensibly tackles this problem (Maine Rev. Stat. Ann. Section 6021-A). The legislation was crafted by a bipartisan group of interested landlords and tenants, and embraced by the governor. Under the law, landlords may not rent infested units; if a unit or adjacent unit is being treated for an infestation, the landlord must disclose this to prospective tenants; and if a tenant or prospective tenant asks, the landlord must disclose the last date the unit was inspected and found to be free of any infestation. Once a landlord is notified of the presence of bedbugs, the time periods for inspection and treatment are very short. Maine has also addressed the issue of "who pays?" when tenants must leave, though the law is not abundantly clear. First, tenants must comply with all remediation measures; if they don't, they can be held financially responsible for the cost of eradication. If the tenant can't comply with the inspections or control measures, the landlord must offer "reasonable assistance," including financial assistance. The landlord may charge the tenant a "reasonable amount for any such assistance, subject to a reasonable repayment schedule, not to exceed six months." This could mean that if the landlord fronts the cost of a night's stay in a motel, the tenant will be expected to pay the landlord back over the next six months. It's not so clear whether the value of lost time at work (time you'll be spending sorting through your stuff, for example, or making it available for inspection and treatment) is also contemplated by this legislation. Long story short: If you live in Maine, it's likely that you will have to cover the cost of your night away, but you might get a sort of short-term loan from the landlord to cover the expense. Tenants living in states that haven't passed laws like Maine's will have to depend on tried-and-true (but often difficult to apply) habitability laws. All states but Arkansas require the landlord to offer and maintain fit and habitable premises, which includes the responsibility to pay for repairs or upkeep when problems arise that are not the fault of the tenant. The challenge with bedbug infestations is that it's often very hard to figure out who is responsible for their presence. Consider a broken heater that breaks through no fault of the tenant, or the arrival of ants when heavy rains disturb their outside nests: Tackling these problems must be paid for by the landlord, because the tenant didn't do (or fail to do) anything to prevent them. But bedbugs don't just appear. Someone brings them in, and landlords understandably seek to identify the culprit and stick him or her with the bill. Trouble is, it's very hard to trace the infestation to a particular tenant. For this reason, landlords usually end up paying for the eradication efforts. But it's a much more significant burden to make landlords also pay even innocent tenants' costs to relocate. Perhaps that's why Maine stopped short of such a requirement. It would be surprising to find a judge willing to impose this cost on a landlord short of some proof that the landlord put off dealing with the bugs, which made the problem worse, resulting in drastic or repeated treatments (and nights away for his tenants). Q: I work for a management company and have been here six months -- I'm still in training. Part of my job is to accept rental applications and do a preliminary review. I looked at one the other day, given to me by a woman who came with four kids. She wanted to rent a small two-bedroom unit; it seemed too small to me. I wrote a note on the application for my boss, asking if I should direct her to a larger unit. He got real upset, and told me that this could trigger a fair housing lawsuit. I never meant any harm; I just didn't know whether the unit was big enough. Did I do anything wrong? --Henry C. A: Credit your boss with being super sensitive to the problem of discrimination against families, which often happens when landlords set occupancy standards that effectively eliminate families from consideration. In response to these practices, the federal government (HUD) has offered guidelines for landlords to follow when setting occupancy policies. That standard is "two per bedroom," but it is not absolute (for example, if a bedroom is unusually large, it might accommodate more). In addition, landlords may set more restrictive standards if the nature of the property or its systems cannot safely or reasonably handle the number of residents that would result from a "two-per-bedroom" rule. They may also have to adjust upwards -- for instance, the presence of an infant in the parents' bedroom results in three residents, but no one can seriously claim that the infant overcrowds the room. Many states have followed the federal rule, and a few have set more generous standards. In California, for example, the rule of thumb is "two per bedroom plus one." But in California, as with the federal rule, the reality of the setup can affect the calculation. Let's imagine that you, like most, are subject to the two-per-bedroom guideline. Technically, this family of five is over the limit, but as explained, each situation needs to be evaluated in light of the precise setup. If the rental is in California, the family would qualify. So much for theory. Now, to the heart of your question: Did you do anything wrong? I don't think you did, nor did you expose your boss to a likely charge of housing discrimination. Here's why. The fair housing laws are designed to prevent landlords from treating specific classes of persons differently (worse) than everyone else, whether by refusing to rent to them, setting more onerous terms and conditions of renting, or making statements that have the effect of discouraging them from living on the property. You did none of this. Instead, you asked your boss whether the unit you showed the applicant was too small, and whether you should suggest a bigger one. Critically, you didn't make that observation to the applicant herself, nor did you steer her to the bigger apartment. If you had, and if the original two-bedroom unit would have been appropriate under the occupancy standard of your state, the answer might be different. That's because your applicant could have concluded that you were trying to discourage her from living there, by telling her that a larger (and presumably more expensive) unit was the only one you'd offer. Think for a moment about the consequences if the answer were different. No one in your position -- someone learning the business, needing to ask questions of those in the know -- would dare ask a question, for fear of exposing the boss to legal trouble. When people don't ask questions, they don't learn. Without this opportunity to learn about occupancy standards and steering, you would go your merry way, possibly making risky (though well-meaning) remarks to applicants themselves, thereby discouraging families from renting and possibly violating the law. Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord's Legal Guide" and "Every Tenant's Legal Guide." She can be reached at janet@inman.com. Contact Janet Portman: E-mail Letter to the Editor Copyright 2010 Janet Portman

Buyer's deposit off-limits in failed sale REThink Real Estate Tara-Nicholle Nelson Inman News Q: The buyer of our home took us right up to one week before the closing date and backed out, stating he found another home he liked better. We had complied with all of his requests, including a quick closing date and home inspection, and he was preapproved for a loan. We purchased another home quickly due to his demands. We even packed up our whole home and had done minor repairs he demanded be done. Now we are told we are not entitled to the earnest money. Why? --Jan, Utah A: Well, Jan, you appear to have had your good faith taken advantage of by someone who knew your side was dozing a bit at the wheel. Clearly, I don't know all of the facts of your case, but there are some common misconceptions about deposit refunds and contingency periods that seem to have been present in your situation. So, virtually every real estate contract in every state has some sort of due diligence time period in which the buyer is able to back out and recoup his deposit for a certain number of days following the execution of the contract. (The number of days varies widely, and is something that is negotiated between the buyer and seller.) In some states, that time period is known as an objection period: the buyer has 20 days, for example, in which to object to the transaction for any number of reasons listed in the contract. Commonly specified grounds for backing out include the property's failure to appraise at the purchase price, or failure to pass muster after an inspection. If the buyer does not object within that time period and does not obtain an extension of his objection period from the seller before it expires, his earnest money deposit automatically becomes nonrefundable if he fails to close the transaction for any reason. In most states, though -- including California and Utah -- the time period for the buyer's due diligence is known as a contingency period. The contract sets forth a specific period of time -- often ranging from 10 to 20 days on today's market -- in which the buyer is supposed to obtain his inspections, finalize his financing, have the property appraised, and so forth. At the end of that time period, the buyer agrees to either exercise his contingencies and back out of the transaction, or remove them and notify the seller that he intends to do the deal. That is, in contingency states, the earnest money deposit is rendered nonrefundable only when the buyer actually signs and delivers to you or your agent his express removal of all contingencies. This nonrefundability is generally contained in a specific liquidated damages clause that provides that both buyer and seller agree that if the buyer breaches the contract by backing out of the deal, the seller can keep the earnest money deposit up to 3 percent of the purchase price. This specific clause must be initialed by both buyer and seller to apply, in addition to their signatures at the end of the contract. Despite the fact that the buyer's contingency period might have expired, if either (a) he or you failed to initial the liquidated damages clause in the contract, or (b) he never signed and delivered a document removing all of his contingencies, you do not have the right to keep his earnest money deposit. I'm assuming you had your own real estate broker or agent; if not, your situation is a crystal clear example of why it is advisable to have an experienced broker represent you even if you think you can get your home sold on your own. As part of the initial contract negotiations, many agents would have advised you about the importance of including the liquidated damages clause in the contract. And certainly, before you went out and bought another home, the average broker I know would have verified that the buyer's earnest money deposit check had cleared, and that he had expressly removed all his contingencies so that you would at least be able to retain the deposit if he backed out. While it sounds extremely rude, selfish and ungrateful for the buyer to flat out tell you the reason he's backing out is that he found another home, the reality is that so long as his inspection contingency is still in effect, he could simply state another, more robust grounds for backing out if pressed, and be well within his rights under the contract. Given the serious nature of the matter, I would encourage you to try to pinpoint exactly where things went wrong in more detail with your listing agent -- and his or her managing broker. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.                                                     Contact Tara-Nicholle Nelson: Facebook Twitter E-mail Letter to the Editor Copyright 2010 Tara-Nicholle Nelson

Buyer beware of underfunded HOA Home Sale Hindsight Tara-Nicholle Nelson Inman News Q: If I purchase a condo with a 97 percent occupancy in its complex with a monthly maintenance fee per owner of $500 per month, and three years later, due to the economy, the occupancy rate drops to 70 percent, do the remaining owners absorb the maintenance fees that are not being paid by the missing occupants? --Ken, California A: Probably the single most underreported effect of the foreclosure crisis is the tailspin into which it has sent many homeowners associations (HOAs) across the country. When HOA members stop paying their dues or, worse, stop paying their mortgages and lose their homes to foreclosure, it has an immediate and intensely negative trickle-down effect on their fellow HOA members. Most condo owners stop paying their HOA dues long before they stop paying their mortgage. So, by the time condos go into foreclosure, they are often many months or even years delinquent on their dues. While this seems like it's just the prudent thing to do from the homeowners' perspective -- not throw good HOA dues money after bad on a home that you know will not be yours much longer -- it can actually be devastating to the HOA's financials and those of the other HOA members. First off, to your question, it is the case that when an HOA is seriously underfunded because people are not paying their dues, the HOA will generally continue to collect funds from those owners who are not paying (in the case of foreclosed homes, the bank) while being forced to increase dues or even impose assessments on all the other owners to make up for the lost income. While many condo owners and buyers see HOA dues as just another bill, the fact is that the vast majority of the funds paid in as HOA dues go to cover actual expenses incurred for the maintenance of the property, such as landscaping, roof and boiler repairs and long-term upgrades; paying for the buildings' hazard insurance policy; and paying for shared utilities, like gas, water and garbage. When people stop paying dues, those expenses don't necessarily go away. However, I think you might be getting two issues confused. The occupancy rate is not a dues issue; even vacant (unoccupied) units are still owned by someone. The owner is legally obligated to pay HOA dues, whether or not he/she occupies the property. Even vacant foreclosures are owned by the bank, which means the bank is on the hook for the dues incurred by the unit during the time the bank owns the property -- do note, however, that even banks have a habit of falling delinquent on HOA dues on foreclosed units, waiting to pay the arrearage when they resell the home. Of course, as we just discussed, the fact that people are legally obligated to pay dues doesn't mean they do. And, as you suspect, the shortfalls created by delinquent dues are often passed onto the rest of the HOA's members. And, as an aside, complexes with greater than a 15 percent dues delinquency rate are very difficult to resell, as most mortgage lenders refuse to lend money on complexes with delinquent dues above that level. Condos that cannot be sold except to cash buyers drop in value very quickly and, often, very significantly. Lenders know that delinquent dues tend to snowball into full-blown HOA financial crises. The on-time-paying owners get frustrated and stop paying when they see their neighbors stop paying -- or they simply can't afford the rapidly escalating dues and assessments that result from the other owners' delinquencies, and stop paying for that reason. As such, you're right to be concerned if your HOA has a number of units for which dues are not being paid. Technically speaking, though, I think you might be confusing the issue of dues delinquencies with the issue of owner-occupancy. Every condo subdivision has an owner-occupancy rate, which the HOA tracks very closely, primarily because it also dramatically impacts the ability of units to be bought and sold and, as a result, their value. Most mortgage lenders have a guideline of lending only on condo units with 25 percent or less non-owner-occupied (i.e., rental) units. I think this might be what you're thinking of, as 90 percent is a very attractive owner-occupancy rate, while 70 percent is much less so. Owner-occupancy rates in many complexes have dropped due to foreclosures and delinquent dues rendering the homes able to be purchased only in cash, which makes them primarily attractive to investors who immediately rent the homes out after they buy them. However, in and of itself, a reduced owner-occupancy rate does not impact dues payment or cause any increase in fees allocated to the remaining owners. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.                                                     Contact Tara-Nicholle Nelson: Facebook Twitter E-mail Letter to the Editor Copyright 2010 Tara-Nicholle Nelson

Neighbor vents over water heater noise DIY pipe extension may do the trick Bill and Kevin Burnett Inman News Q: Our neighbor across the street is complaining about the loud humming sound coming from our water heater exhaust vent and is threatening to report us to the authorities. We installed a through-the-wall gas water heater about seven years ago (not sure why the sound is bothering the neighbor now). Because of space limitations, we had to vent the exhaust horizontally out to the front of the house using 2-inch PVC ducting. We have been unplugging the water heater every night because the neighbor said the sound was keeping him awake. Now he says the noise is also bothering him during the day. Would extending the vent around the front of the house and up to the roof lessen the sound? The only other solution we can think of is trying to build a sound barrier around the vent. Do you think this would be feasible, and should we let a professional handle this or can this be a do-it-yourself project? A: It's difficult for us to believe that the noise from the blower on top of the water heater is producing enough sound to irritate, much less keep someone awake -- especially if that someone lives across the street. The water heater you describe exhausts flue gases using a blower assembly that pumps gases directly out of the building. This eliminates the need for conventional chimneys or expensive flue systems. Your heater is different from conventional gas water heaters that discharge combustion gas by convection. The blower/motor assembly can discharge gas vertically or the unit can be rotated to allow for direct horizontal discharge of exhaust gases. Don't try to build a sound barrier around the vent. Obstructing the vent could result in damage to the blower or worse -- the backing up of carbon monoxide into the house. We think extending the vent is feasible. And yes, gluing PVC pipe together is a DIY project -- just make sure it's done according to the manufacturer's specifications. But you may not have to do anything at all. First, determine just how noisy the blower is. Most cities have noise ordinances that establish the number of decibels that constitute a nuisance. A decibel is a unit of sound and can be measured by a special meter. We'd be shocked if the noise from your water heater rises to the nuisance level. Give the city building department a call, explain your problem, and ask the city to send a worker to come out and take a noise measurement. If you're within the city noise guidelines you can tell the neighbor to get lost. If not, or if peace in the neighborhood is a goal, go to Plan B. Plan B: Directing the vent pipe around the front of the building to the side, then up, will work. The 2-inch PVC pipe limits you a bit, but our guess is that it's doable. Check the spec sheet for your model -- for one model we checked a 2-inch PVC vent pipe is limited to a total length of up to 30 feet with three 90-degree elbows. One elbow will direct the pipe to the side of the building, the second will get the pipe around the corner, and the final elbow will direct the pipe skyward. If you go this route, give a call to the manufacturer or distributor and get the OK for the installation. Finally, get a permit and have the job inspected.                                       Contact Bill and Kevin Burnett: E-mail Letter to the Editor   Copyright 2010 Bill and Kevin Burnett

Tax strategy for unused vacation home Convert to rental, then 1031 exchange to reap benefits Tom Kelly Inman News Mike and Claudia McIntosh have not spent one night in their mountain cabin in 2010. One of their sons was married in June; Claudia's family held a reunion in Michigan in late July; and Mike plans to take time off from work to move his mother into a retirement home in August, so there has been no time to get to the cabin. "We've heard for years about people who don't use their second home, and now we are those people," Mike said. "I think we would probably sell the place, but we always stop ourselves when we think about paying a capital gains tax on the place." One viable option is to convert the cabin to investment property status, rent it out for a couple of years and then sell it via a 1031 tax-free exchange to acquire another investment property closer to home that could produce a monthly cash flow, supplementing household income. The new property could ultimately be placed in the couple's estate or in a charitable trust. One of the more underestimated financial bonuses available to the average consumer is the ability to convert a primary residence or a second home into a rental property, and vice versa. Let's look at the McIntoshes' situation from another angle. The couple converts the mountain cabin to an investment property and rents it out for two years. During that time, they hear of a bargain property in Arizona that has the amenities they require for a retirement home but they are unsure if they would truly want to live there. They could sell the mountain cabin via a 1031 exchange, buy the Arizona property and rent it out. Tax-free exchanges must involve investment properties. If you eventually decided to live in the "replacement property" of the exchange -- as a primary residence or second home -- it would be difficult for the Internal Revenue Service to question. In this case, that's because the McIntoshes were unsure they wanted to live in the Arizona home when the exchange was made. If an exchange is contested, the IRS will examine the "objective manifestations of your intent" at the time you conducted the exchange to determine what the intention truly was. According to several accountants, the only gray issue is how long the property must be held as rental property before the coast is clear to deem it a primary residence. A home that has been a rental nest egg for decades is not an issue, but those that have been acquired in the past three years via a tax-free exchange can be. That's because no specific hold times have ever been written. Remember, intent at the time of the exchange should be toward another investment property. If taxpayers are going to convert the use of homes, it's best to have at least two tax years in the books. Let's say if the McIntoshes were to buy an Arizona rental today, it would best to keep it a rental at least through 2011. That way, the conversion would not appear on a tax return until the 2011 return, and then actually be viewed sometime in 2012. Since the Arizona home was acquired via a tax-deferred exchange, the McIntoshes will have to wait five years from the date of purchase to claim the $500,000 ($250,000 for a single person) tax-free exemption on the sale of a principal residence. Typically, in order to qualify for the $500,000 exclusion ($250,000 for single persons) homeowners must have owned and used the property as a principal residence for two out of five years prior to the date of sale. And, the owner must not have used this same exclusion in the two-year period prior to the sale. However, a 2004 law limited the scope because legislators did not believe the principal residence exclusion "was appropriate for properties that were recently acquired in like-kind exchanges." When homeowners convert the exchange property into a principal residence, the taxpayer often shelters some or all of the gain. Legislators were concerned about tax abuse and adopted the five-year law for exchange properties because it "balances the concerns associated with these provisions to reduce this tax shelter concern without unduly limiting the exclusion on sales or exchanges of principal residences." You have tax options with both your investment properties and your primary residences. Make sure you understand all the possibilities before you sell. Tom Kelly's book "Cashing In on a Second Home in Central America: How to Buy, Rent and Profit in the World's Bargain Zone" was written with Mitch Creekmore,  senior vice president of Stewart International, and Jeff Hornberger, the National Association of Realtors' international market development manager. The book is available in retail stores, on Amazon.com and on tomkelly.com.                                             Contact Tom Kelly: E-mail Letter to the Editor   Copyright 2010 Tom Kelly