What To Expect After The Mortgage Meltdown

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My land-contract tenant abandoned the property.What can I do? Q: I have a land contract. My tenant/buyer is supposed to pay $900 a month plus all utilities. They stopped paying rent and refused to return my calls. When I went to the property 20 days after the rent was due the doors and windows were wide open, so I called the police. I just received a letter from my tenant’s lawyer that said they are not going to pay because of harassment. Also, the attorney said that I could buy out the tenant’s interest, and until this is resolved he will not pay me anything. The attorney also said they did some improvements to the property and that they would let their labor and money they spent go if I buy them out. Also they just filed their land contract with the county. What are my options? Do I have to foreclose since it is not a lease? A: Let’s look at this one piece at a time. First, a land contract is an installment sale.The tenant/buyer pays an additional sum each month and does not receive title until some or all payments have been made. Unless the tenant has title, he has, at best, an equitable interest in the property. If the tenant does not have actual title, then what is there to foreclose? Second, most rental agreements – and hopefully your land contract – provide that a tenant is not authorized to make improvements and that if improvements are made they automatically become “leasehold improvements” and property of the owner. Third, a land contract is, well, a contract. Both parties have obligations. One of the core obligations of the tenant is to pay rent in full and on time. Making a late payment or no payment may allow the owner to seek damages and other remedies. Fourth, typical land contract language provides that the tenant/buyer is making a bigger payment in exchange for the option to buy the property. If the tenant does not buy, then there is nothing to repay. Fifth, if you have not heard from a tenant in 20 days and the door to the property is wide open you have good cause to call the police.You don’t know what happened to the tenants; they could need your help. As well, you now have a police report and witnesses to verify your account. You will need a local real estate attorney to provide specific advice in this matter. Be aware that a number See ASK OUR BROKER, Page 2

Mortgage Math for Today’s Market In a tight real-estate climate, it’s paramount to pinpoint the right type of loan

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BY CHARLES SCUTT CTW Features

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hinking about buying a new or existing home, but suffering from pre-borrowing anxiety? Despite the subprime mortgage meltdown, tighter lending restrictions and widening foreclosure fears, the American dream of home ownership still is attainable – so long as you know what to expect in the current mortgage loan climate. The good news, according to Michael LaCour-Little, a finance professor at California State University at Fullerton, is that “most borrowers – those with good credit and some down payment or significant housing equity – should not have difficulty obtaining financing today. It’s the no-money-down loans to borrowers with weak credit that will be very hard to come by.” Elisa M. Mullins, a broker and owner of Assist-2-Sell Premier Realty, St. Louis, says that the average borrower can weather the current financing storm, especially if they have good credit, which typically equates to a credit score of 680 or higher. “They have the opportunity to be in the driver’s seat and take a proactive approach toward their future to include buying

into the American dream,” Mullins says.“The credit worthiness of the borrower will secure favorable financing in today’s market.That will open the buyer to a lot of different mortgage products that are not available to credit-risky borrowers.” Nevertheless, today’s borrower “will have to prove that they can repay a loan without any problems, says Gavin Susman, COO of Sky Development, Inc., Aventura, Fla.“They will have to abide by Fannie Mae’s guidelines for debt-to-income ratios utilizing

documented income. Gone are the days where you could get away with providing a letter from your employer stating how much you make.” Instead, you’ll need to provide pay stubs with W-2 forms or tax returns, Susman says.“If your income is not documented and you have bad credit, you will not be able to secure any mortgage unless you are financing no more than 70 percent of the value of the property,” he says.“Even then, you may have a hard time getting the loan.”

Additionally, you can anticipate having to pay higher interest rates nowadays if you seek a nonconforming loan – one exceeding $417,000 – says LaCour-Little. What’s more, says Mullins, is that you should expect to have around 5 to 10 percent of the purchase price saved. If you cannot get the seller to credit the pre-paids and closing costs, then you will need to have an adequate down payment, the

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Looking for A Great Find For the pennywise decorator, estate sales offer a jackpot BY KIT DAVEY CTW Features FRUGAL DECORATORS ENJOY browsing garage sales, bidding at auctions and scouring the tables at flea markets for unique décor and great deals. But if you’re tired of fighting the crowds at, and hate waiting for your lot to come at auction, check out estate-sale shopping. Estate sales are often overlooked opportunities for unusual buys in a cozy setting. WHAT IS AN ESTATE SALE? An estate sale is similar to a

garage sale in that it is held at a private home in order to sell unwanted possessions.The sale is usually conducted by an estatesale company hired by the heirs of a relative who has died.The relatives may not want anything in the home, may not have the time to clear the possessions out themselves or may live in a distant state. Estate-sale specialists assume the complex job of liquidating an estate during a time when surviving relatives are still grieving and overwhelmed.Their job is to maximize the return to the fami-

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ly and to clear out the entire contents of the home, from curtains to gardening tools.The company usually receives a percentage of proceeds (typically 20 to 35 percent), or may pay a flat amount for the entire contents of the home. ADVANTAGES Buying at an estate sale has several advantages over other budget venues. Sales are usually held rain or shine on a Friday and Saturday, cutting down on the competition with other bargain hunters. Most sellers at flea market and garage sales are selling their rejects, whereas estate-

sale merchandise is usually in very good condition and of reasonable quality. Estate-sale holders organize and price every item and place them in the rooms where you’d expect to find them – tools in the garage, dishes in the kitchen – making shopping easier.You can plug things in to see if they work, or try clothing on to see if it fits. Because sale holders are usually antique experts, or have a team of appraisers and specialists, you’re not likely to find an overlooked treasure, but you can still expect to pay 10 to 80 per-

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ESTATE Shop till you drop CONTINUED FROM PAGE 1 cent of retail. Auctions are great places to find estate items, but there are some drawbacks.You have to show up early to preview each “lot” and then wait, sometimes for hours, for it to come up to be sold. Often the item you are interested in is mixed in with other items, so you can end up with a box full stuff you don’t want. Bidding can be intimidating and can build anxiety, so it’s easy to pay more than you want to, or pass on something you shouldn’t have.There’s an additional percentage owed to the auction house when you pay for your merchandise. Estate sale shopping can be competitive, but you’ll never have to pay more than what the price tag says. HOW TO ESTATE-SALE SHOP Check out the classified section of your local paper under

MORTGAGE Times are changing CONTINUED FROM PAGE 1 amount of which is contingent on your creditworthiness. With lenders adding more restrictions, be prepared to pay more in borrowing fees as well, says Mullins.With fewer lenders out there today than in years past,“it makes it more competitive among lenders.The fees will go up naturally as a result.” On a side note, while there may be fewer lenders today, greater loan availability may be on the horizon, says LaCourLittle, thanks to the recent Federal Reserve cut in interest rates. However, even though the recent rate cut is likely to produce greater liquidity in the mortgage market,“the rate cut itself is not likely to reduce most mortgage rates, since they tend to be tied to longer-term rates rather than the federal funds rate that the Federal Reserve con-

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Garage and Estate Sales to find one near you. Or, check the Yellow Pages under Estate Sales, call up a local company and ask for the date and address of their next sale.The night before the sale, find the address on a map and gather supplies. Take along a handful of change and bills, a list of items you’re looking for, with dimensions and color swatches. If you arrive at the sale before or at the advertised start you are likely to encounter a crowd, will be given a number and have to wait to enter.The sale operators control the number of people in the house to prevent overcrowding and keep the check-out line manageable. Later shoppers won’t have to wait, but might miss some unique items.

There’s usually no deal-making on the first day of a sale, so expect to pay the stickered price. But, if you shop in the last couple hours of the sale you might be able to wrangle a better price. If you want to be notified in advance get on the company’s mailing list. Some companies

send “preview” invitations, allowing you to shop ahead of the crowd. If you are a real collector, it’s a good idea to befriend the estate sale company owner so s/he can call you for a private visit when s/he runs into something you collect.

trols,” he says. When mulling over your mortgage-loan options, it’s important to scrutinize several key criteria, says Scott Christiansen, a senior mortgage professional with WestCal Mortgage Corp., Orange, Calif. “Consider your income today versus income in the future,” he says.“Look at potential tax breaks, and spread out your investments – the amount of money you put into your home versus other investment vehicles. Work with a mortgage professional who comes recommended and whom you trust. Lastly, do your homework and take action. Times change, and so do financing programs, so what is available this week may not be next week.” Doing your homework inevitably involves checking your credit score and analyzing your credit report carefully, says LaCour-Little. If you do identify any problems, you can hopefully resolve them before applying for a loan.

Though they’ve gotten a lot of bad press lately, don’t be too quick to dismiss adjustable-rate mortgage options, says Christiansen. “ARMs are still a great option for the informed borrower,” Christiansen says.“ARMs are designed to fit a borrower’s timeline and payment range. If you’re going to live in a home for three to five years, look at a five- to seven-year ARM. If you plan on living in a home for 20 years, and you elect to go with a five- or seven-year ARM, then you run the risk of the rate being higher at the adjustment period. Many lenders and borrowers went about the last few years as if the housing market could do nothing but grow.There are always adjustments, corrections and changes, and all should be considered when selecting the best mortgage-financing solution.” If you get turned down by a lender, don’t despair, says Mullins. “This is a sign of the times – a good sign,” she says.“Lenders are

finally putting in some safeguards to help buyers recognize when they should not be buying. Get the tools you need to clean up your credit and other personal situations before you decide to take on any debt you can’t afford.” LaCour-Little says that approximately 20 to 30 percent of mortgage-loan applications are declined each year.“It’s not the end of the world,” he says. “Different lenders have different underwriting guidelines, so you may simply need to apply to another lender.” Ultimately, remember that “banks make money lending money,” says Christiansen.“The days of a real estate investor coming in without a job, with terrible credit and almost no money in the bank and buying homes and apartments may very well be over. But smart money is still available to smart borrowers.”

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of states have strengthened rules for land contracts to assure that tenants get a fair opportunity to buy. That said, tenants have an obligation to pay their rent and appropriately maintain the property.

Q: I own a small house with another person. I would like to sell my half, but my co-owner does not want to buy me out. I have offered to sell my half at a huge discount, but she was not interested. Can I force the sale of the house? Can I force my co-owner to place her half of the house on the market along with mine?

A: It would be best if the co-owner would buy

© CTW Features

© CTW Features

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from you. However if that’s not the case you can seek a suit for “partition.”This means you go to a judge, the judge will see if the other party wants to buy you out and, if not, can require the sale of the property.When the property is sold, all liens and selling costs will be paid off and any remainder will be divided among the former owners. For specifics, speak with an attorney in the jurisdiction where the property is located.

Q: I bought a house in 1975 from a relative for $1. I’ve lived with my mother through the years and used the home I purchased as a vacation home. I’m selling this second home and making settlement this month. How do I find out the house value at that time to determine the capital gains. I assume $250,000 is tax exempt.

A: To qualify for the $250,000 residential capital gains write-off you need to have occupied the property for two of the past five years as a prime residence, thus it does not seem as though you have grounds for the write-off. It might have helped your situation had you considered a tax-deferred exchange. Such a trade might have given you more income and depreciation than the current property, plus delayed any tax bill. For specifics, see IRS Publications 527 “Residential Rental Property” and 544 “Sales and Other Dispositions of Assets” and speak with a tax professional. © CTW Features Need real estate advice? Peter G. Miller, author of “The Common-Sense Mortgage,” would love to hear from you. Send your questions to [email protected]. Due to the volume received, not all letters may be answered.