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Ask Our Broker Mortgage Math for Today’s Market
In a tight real-estate

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climate, it’s paramount
to pinpoint the right type
of loan
My land-contract tenant abandoned
the property.What can I do? BY CHARLES SCUTT
CTW Features

Q: I have a land contract. My ten-

T
hinking about buying a
ant/buyer is supposed to pay $900 a new or existing home, but
suffering from pre-borrow-
month plus all utilities. They
ing anxiety? Despite the subprime
stopped paying rent and refused to mortgage meltdown, tighter lend-
return my calls. When I went to the ing restrictions and widening fore-
property 20 days after the rent was closure fears, the American dream
due the doors and windows were of home ownership still is attain-
wide open, so I called the police. able – so long as you know what
to expect in the current mortgage
I just received a letter from my tenant’s lawyer
loan climate.
that said they are not going to pay because of The good news, according to
harassment. Also, the attorney said that I could Michael LaCour-Little, a finance
buy out the tenant’s interest, and until this is professor at California State
resolved he will not pay me anything. The attor- University at Fullerton, is that
ney also said they did some improvements to “most borrowers – those with
good credit and some down pay-
the property and that they would let their labor
ment or significant housing equi-
and money they spent go if I buy them out. Also ty – should not have difficulty
they just filed their land contract with the coun- obtaining financing today. It’s the into the American dream,” documented income. Gone are Additionally, you can antici-
ty. What are my options? Do I have to foreclose no-money-down loans to bor- Mullins says.“The credit worthi- the days where you could get pate having to pay higher inter-
since it is not a lease? rowers with weak credit that ness of the borrower will secure away with providing a letter est rates nowadays if you seek a
will be very hard to come by.” favorable financing in today’s from your employer stating how nonconforming loan – one
Elisa M. Mullins, a broker and market.That will open the buyer much you make.” exceeding $417,000 – says
A: Let’s look at this one piece at a time. owner of Assist-2-Sell Premier to a lot of different mortgage Instead, you’ll need to provide LaCour-Little.
First, a land contract is an installment sale.The ten- Realty, St. Louis, says that the products that are not available to pay stubs with W-2 forms or tax What’s more, says Mullins, is
ant/buyer pays an additional sum each month and average borrower can weather credit-risky borrowers.” returns, Susman says.“If your that you should expect to have
does not receive title until some or all payments have the current financing storm, Nevertheless, today’s borrow- income is not documented and around 5 to 10 percent of the
been made. Unless the tenant has title, he has, at best, especially if they have good cred- er “will have to prove that they you have bad credit, you will not purchase price saved. If you can-
an equitable interest in the property. If the tenant does it, which typically equates to a can repay a loan without any be able to secure any mortgage not get the seller to credit the
credit score of 680 or higher. problems, says Gavin Susman, unless you are financing no more pre-paids and closing costs, then
not have actual title, then what is there to foreclose?
“They have the opportunity COO of Sky Development, Inc., than 70 percent of the value of you will need to have an ade-
Second, most rental agreements – and hopefully your to be in the driver’s seat and take Aventura, Fla.“They will have to the property,” he says.“Even quate down payment, the
land contract – provide that a tenant is not authorized a proactive approach toward abide by Fannie Mae’s guidelines then, you may have a hard time
to make improvements and that if improvements are their future to include buying for debt-to-income ratios utilizing getting the loan.” See MORTGAGE Page 2
made they automatically become “leasehold improve-
ments” 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
Looking for A Great Find
payment or no payment may allow the owner to seek
damages and other remedies. For the pennywise decorator, estate sales offer a jackpot ly and to clear out the entire con- sale merchandise is usually in
Fourth, typical land contract language provides that tents of the home, from curtains very good condition and of rea-
the tenant/buyer is making a bigger payment in BY KIT DAVEY garage sale in that it is held at a to gardening tools.The company sonable quality.
CTW Features private home in order to sell usually receives a percentage of Estate-sale holders organize
exchange for the option to buy the property. If the ten- unwanted possessions.The sale is proceeds (typically 20 to 35 per- and price every item and place
ant does not buy, then there is nothing to repay. FRUGAL DECORATORS ENJOY usually conducted by an estate- cent), or may pay a flat amount them in the rooms where you’d
Fifth, if you have not heard from a tenant in 20 days browsing garage sales, bidding at sale company hired by the heirs for the entire contents of the expect to find them – tools in
and the door to the property is wide open you have auctions and scouring the tables of a relative who has died.The home. the garage, dishes in the kitchen
good cause to call the police.You don’t know what at flea markets for unique décor relatives may not want anything – making shopping easier.You
and great deals. But if you’re tired in the home, may not have the ADVANTAGES can plug things in to see if they
happened to the tenants; they could need your help.
of fighting the crowds at, and time to clear the possessions out Buying at an estate sale has work, or try clothing on to see if
As well, you now have a police report and witnesses hate waiting for your lot to come themselves or may live in a dis- several advantages over other it fits. Because sale holders are
to verify your account. at auction, check out estate-sale tant state. budget venues. Sales are usually usually antique experts, or have a
You will need a local real estate attorney to provide shopping. Estate sales are often Estate-sale specialists assume held rain or shine on a Friday team of appraisers and special-
specific advice in this matter. Be aware that a number overlooked opportunities for the complex job of liquidating an and Saturday, cutting down on ists, you’re not likely to find an
unusual buys in a cozy setting. estate during a time when surviv- the competition with other bar- overlooked treasure, but you can
ing relatives are still grieving and gain hunters. Most sellers at flea still expect to pay 10 to 80 per-
See ASK OUR BROKER, Page 2 WHAT IS AN ESTATE SALE? overwhelmed.Their job is to market and garage sales are sell-
An estate sale is similar to a maximize the return to the fami- ing their rejects, whereas estate- See ESTATE Page 2

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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 intimidat-
ing 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 addi-
tional 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 sec-
tion 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 competi-
tive 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 LaCour-
Little, thanks to the recent
Federal Reserve cut in interest
rates. However, even though the
recent rate cut is likely to pro-
duce 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-
Garage and Estate
Sales to find one
near you. Or, check
the Yellow Pages
under Estate Sales,
call up a local com-
pany 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 num-
ber 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.
trols,” he says.
When mulling over your mort-
gage-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 profes-
sional who comes recommended
and whom you trust. Lastly, do
your homework and take action.
Times change, and so do financ-
ing 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.
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
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 time-
line 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 adjust-
ments, corrections and changes,
and all should be considered
when selecting the best mort-
gage-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
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send “preview” invitations, allow-
ing 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 some-
thing you collect.
© CTW Features
finally putting in some safe-
guards to help buyers recognize
when they should not be buying.
Get the tools you need to clean
up your credit and other person-
al situations before you decide to
take on any debt you can’t
afford.”
LaCour-Little says that approx-
imately 20 to 30 percent of mort-
gage-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 borrow-
ers.”
© CTW Features
Ask Our Broker
CONTINUED FROM PAGE 1
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
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 attor-
ney 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 vaca-
tion 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 prop-
erty for two of the past five years as a prime resi-
dence, thus it does not seem as though you have
grounds for the write-off.
It might have helped your situation had you consid-
ered 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 profes-
sional.
© 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 peter@ctwfeatures.com. Due to the
volume received, not all letters may be answered.