Today's Top Real Estate News

Q: The rental market in my city is tight, and it's common for applicants to offer many months' prepaid rent as an incentive for landlords to rent to them. I accepted six months' rent from a couple who signed a year's lease, then left after a few months. The damage they left behind was more than the security deposit could cover. Can I use the balance of the prepaid rent to make up the difference? --Judd T.

A: Sorry to begin on a note of disappointment, but I sure wish you had told us that your lease specifically states that prepaid rent may be applied to rent and to any other sums due under the lease. If the lease had included a provision like this, then you would be able to use the prepaid rent to cover damage caused by the tenants.

Because the lease makes the tenants financially responsible for damage, the cost to repair that damage becomes a "sum due under the lease."

But we'll have to assume that you didn't specify how the prepaid rent could be used -- in other words, that the lease simply described it as prepaid rent. The law is clear that you can use that money for rent.

Even if your state requires landlords to use reasonable efforts to re-rent when tenants break their leases, you are within your rights to keep the unit vacant through the last month for which the rent was prepaid and use that money to pay yourself rent.

But consistent with your duty to re-rent, you will need to begin looking for a replacement tenant to take over as of the day the prepaid rent runs out. If you can't rent it by that date, your tenants owe you for the additional time it stays vacant, up to the end of their original lease term.

Of course, you'll have to find them -- and sue them -- to recover the rent you lost beyond the amount they paid in advance, as well as for the damage that the deposit didn't cover.

Rather than letting the place sit empty, it might make more sense to try to find a new tenant right away. After all, few landlords like to leave properties vacant, for very commonsense reasons. If, as you say, the market is hot, you might get a renter quickly, leaving you with only a month or two of vacancy. You can use the prepaid rent to cover these vacant months.

If a new tenant moves in during a time period that's covered by the prepaid rent, you don't get a windfall: Collecting double rent is not permitted in a "reasonable efforts to re-rent" state. So now we have to answer the harder part of your question: Can you use that extra prepaid rent not as rent, but as a source of money to pay for damage caused by the tenant?

You're asking whether, in legal terms, you can apply a set-off, using the tenants' rent money to pay for repairing the damage they caused.

A set-off involves settling accounts between two parties, each of which owes the other money. The right of set-off is often captured in statutes, allowing banks, for example, to set off a general deposit against a depositor's matured debt or take money from your savings account to pay overdrawn amounts on your checking account.

The right to set off may also be expressly included in the contract between the parties -- my wishful thinking at the start of this column was that you had such a provision in your lease.

But luckily for you, there's another right of set-off, contained in good old English (and American) common law.

As long ago as 1841, the Supreme Court described a set-off as a person's right "to apply the unappropriated moneys of his debtor, in his hands, in extinguishment of the debts due to him." (See: Gratiot v. United States, 40 U.S. 336, 370; 1841.)

Importantly, you can't use this money as a source of funds to pay future debts; you must use it now when the debt is already owed and the amount of the debt is certain.

There are certainly lawyers who would argue against using a set-off, pointing out that it's safer from a legal perspective to return the rent and then sue in small claims court for the cost of repairs that exceeded the security deposit. But let's step into the real world for a moment: Suppose you use the prepaid rent, or some of it, to cover the uncompensated damage costs.

If your tenants want that money back, they will have to file a lawsuit in small claims court. If they sue you for improper use of their prepaid rent, you can countersue for the costs of repairing the damage they caused -- and everyone will have as much money at the end of the lawsuit as they did at the beginning.

In short, if the tenants object to your use of their prepaid rent, they can force the small claims court lawsuit that you may choose now if you wish. Most landlords will use the money as needed (returning any balance to the tenants) and wait to see whether they're hauled into court.

Q: I'm nearing the end of my year's lease, and have been told by my landlady that I have to be out by the 20th day of the last month. I checked my lease and just realized that this is in there -- on that date of the last month, my lease ends. But I'm supposed to pay full rent for this last month, and my new place isn't available until the first of the following month. Is this legal? --Ashley J.

A: You get the prize for the question of the month -- I've never heard of a landlord using such a clause. Doubtless, your landlady hopes to have your apartment rented by the time you leave, by someone ready to move in 10 days after you depart. She's also assuming that you will leave it clean and undamaged -- or at least clean and tidy enough so that she can have it ready within 10 days. Voila! No lapse in rent payments. That's a pretty nifty scheme.

Alas, your question is also the perfect illustration of the need to read what you sign -- before you sign it. That's because there's nothing illegal in this arrangement. There's nothing wrong with ending your lease before the end of the 12th month, and charging you full fare for that short last month.

Had you noticed this clause before signing, you would have doubtless objected; and at that point, your landlady would have had to choose between changing the clause or losing you and starting all over (hopefully with someone who would not read the lease).

Her decision would doubtless be driven by her experiences and the market -- in a soft market, she might figure that she stands to lose more than 10 days' rent if she starts her search over again; but in a tight market, she might decide that she can get a gullible replacement right away.

This chiding doesn't do you any good now, I realize. If you have nowhere to live for the 10 days until your next rental begins, how about raising that with her? Perhaps she hasn't found someone who is ready to move in on the first. But if she has, think carefully if you decide to stay on anyway.

She may not take the time and expense to file an eviction lawsuit against you, because she knows you will be gone in 10 days, but she will take 10 days' worth of prorated rent out of your security deposit, and may even try to keep some of it to use as compensation for the new tenant who won't be able to move in (whether this last ploy is legal is another matter).

The bottom line for you is that things could get messy. I realize that the cost of storing your belongings and living elsewhere for 10 days is not minor -- it's a heavy price to pay for not reading your lease before you signed it.

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.

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It's an all too common situation. You find a perfect home for sale in an ideal neighborhood. It's been beautifully remodeled, and it has everything you've been searching for. Even the price is right. Something tells you it might be too good to be true, but you put in an offer anyway, and it's accepted.

You start doing all the paperwork, and sure enough you discover the catch that you always somehow suspected was there. The sellers did all of that remodeling work without any building permits.

So now you're faced with a dilemma. You really want this house. The sellers insist that all the work was done by licensed contractors, and that they have full documentation and photographs of all the work as it was being done.

The sellers also tell you that they're willing to allow any type of inspection on the home that you'd like -- except for one by the city.

They explain that they had a bad experience with a building inspector on a previous home, or that they have an ongoing feud with the city over their water bill, or they're protesting the fact that the city hasn't fixed the pothole on Main Street yet, or some other reason that they refuse to become involved with the local municipality.

Through all this, you still want the house. Red flags are waving, but you're trying to ignore them. After all, the remodeling really does look like it was done well, and you can certainly understand why the sellers would be protesting that big pothole, rather than trying to cover up bad workmanship on their own remodeling.

Perhaps you decide to go one step further and pay for inspections on the home, in the hope that someone is going to tell you that all is well, despite the lack of permits. You may even think that you can write some provisions into your sales contract that will offer some future protection for yourself.

Unfortunately, it's probably time to walk away from this "too good to be true deal."

A few hard realities

If the sellers are telling the truth about all of the work having been done by "licensed contractors," then they should be willing to provide you with a list of all of their names, so that's one of the first things you should ask for. It's doubtful you'll get it, because in most states those contractors are risking hefty fines and even the loss of their licenses for doing remodeling work without a permit.

If the sellers are "open to any type of inspection," ask if they're willing to have all the walls opened up at their expense so your electrician and your plumber can thoroughly inspect the condition of the wiring and the pipes inside all of the concealed spaces.

This is what the city building inspectors that they were so anxious to avoid would have done. And this is what you, as the buyer, now have no access to. That's one of the big problems here: If you decide to buy this house, you have no idea what's hiding inside those walls.

If, at a later date, you have a fire or a water loss that's related to some defect that's been hidden somewhere by the seller or one of his contractors as part of this unpermitted work, your insurance company could deny all or part of your claim as a result.

I've personally been on jobs where that's happened. Can you even imagine having a loss in your home that runs into the tens or even the hundreds of thousands of dollars, and then finding out it's not covered because the previous owner didn't like city building inspectors?

Still can't live without that particular house? Then here's what you need to do to protect yourself:

• The sellers need to provide all necessary building permits for the remodeling work.
• If they can't do that, then they need to pay for a licensed structural engineer, a licensed electrician, a licensed plumber, and any other necessary professionals to inspect the work and issue letters stating that the structure currently meets or exceeds all current building codes. Using those letters, the sellers then need to contact the city building officials and obtain whatever the equivalent would be to a completed building permit.
• Once you have that paperwork, show it to your attorney and your homeowners insurance company to be certain it's sufficient protection, and be sure that a copy of it is recorded with the escrow company.

Remodeling and repair questions? E-mail Paul at paulbianchina@inman.com.

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When it comes to aesthetic matters, some men seem almost embarrassed to express their opinions. That's not too surprising, considering the longstanding stereotype of males who deal with the look of things.

Architects, designers and other aesthetes are typically seen as being, shall we say, a long way from the guy on the Brawny package. You needn't look any further than the popular media to find them routinely depicted as effete prima donnas.

Rather than risk such associations, many males feign disinterest in how things look, and instead make a pretense of concern for the more manly nuts and bolts of building. They feel compelled to ask questions about lumber grades or circuit breakers, pointedly leaving those sissified aesthetic judgments to their fairer partners.

This is all pure swagger, of course. Men are at least as susceptible to appearances as women are, and one look at the things typically bought or used by males will confirm this. Power tools, pickup trucks, bulldozers -- even items that ostensibly are pure function, such as jet fighters -- are all carefully designed to include the aggressive styling cues that are known to push men's buttons.

Strong colors, chunky lines, and a visual suggestion of weight are all used to impart a look of masculine toughness and durability that panders to the male's own wishful self-image.

Nor is it accidental that so many tools have names suggesting firearms or other things that explode -- hence the names nail gun, screw gun, caulking gun, spray gun, heat gun, drywall bazooka, water blaster.

I own an electric drill -- a relatively harmless tool as these things go -- that's nevertheless sold under the name "Magnum Hole Shooter." Well, hell yes, pardner -- what kind of pasty-faced wimp would settle for just drilling when he could be out shootin' himself some magnum holes?

The point is that men are just as easily moved by a certain curve or color as women are -- we just feel weird admitting it. We might buy that Magnum Hole Shooter for its fire-engine-red case, or its muscle-bound styling, or even its swagger-filled name, but we'll never admit as much.

Instead, we'll mumble something about how Dad's old Hole Shooter lasted for 30 years, and even then it was only the switch that busted.

Given all this macho posturing, it's no wonder that when it comes to the aesthetics of his own home, many a man will pointedly stay out of the conversation. He'll leave it to his gentler partner to hobnob with the architect, who's probably been classed as a bit deficient in the macho column anyway. And he'll profess that he doesn't much care what the place looks like, as long as the garage will fit his table saw.

This reluctance to take an aesthetic stand is too bad, really. After all, a home, beside being a man's castle, is very likely also the biggest investment he'll ever make. Since he's going to have to live in the place, he needn't fear having an opinion on how it should look -- even if he comes off a little pasty-faced now and then.

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The federal homebuyer tax credit is fading away, and it won't be missed by all.

It looked good on paper: an $8,000 tax credit for first-time buyers and $6,500 for existing homeowners buying a new house.

And, the general consensus is the tax credit helped a lot of first-time buyers enter into homeownership, which a majority of folks still think is a good idea -- despite the destruction of the financial markets and encompassing recession that has forced millions into foreclosure.

So the stimulus did its job, but it couldn't last forever. And if the housing market at this point in the cycle can't push into the positive on its own momentum, there are serious structural problems in the homeownership business and another stimulus would only forestall a reckoning.

In addition, the tax credit literally skipped past a number of individual metros, leaving barely a footprint, so in those particular markets the exit of the tax credit will really not be noticed.

It's going to just take a few months to figure out where we stand, but most believe the housing market has been stabilized and will get stronger before the end of the year.

Before the tax credit headed into the sunset (contracts needed to be signed by April 30 and loans need to close by Sept. 30 -- the closing deadline was extended past the original June 30 expiration), there was a surge of buyers trying to wrap up sales before the contract deadline.

That's going to lead to a drop in sales over the summer months, and normal purchase levels should be reached again in September.

"We got a tremendous jump, both times, when it looked like the tax credits were ending, then there was a fall-off in pending sales," said Jed Smith, managing director of quantitative research at the National Association of Realtors.

According to the Wall Street Journal, the sales decline attributed to the contract deadline for the tax credits was more severe than expected, with some markets showing a drop-off of 25 percent to 30 percent.

In the past, that fall-off was short-lived -- two to three months at the most -- and Smith suspects there will be a pick-up in home sales in August. (According to his data, the fall-off began in May.)

Smith projects home transactions for 2010 will come in around 5.3 million sales, which is where the market has been trending for the last 12 months.

Those are national projections, which, when viewed in isolation, mask a number of anomalies in the tax credit program's implementation.

A few months back, when I interviewed Glenn Plantone -- a Las Vegas real estate investment adviser who founded the Real Estate Insider Club of Las Vegas -- about investor interest in Las Vegas' single-family home market, he alluded to the fact that the tax credit made little impact in his town for the simple reason that so much of the homebuying has been by third-parties (investors) paying cash.

Investors had little use for the tax credit because deals are driven by returns and cap rates.

"Last year, 50 percent of the home purchases were with cash and this year it's 34 percent," said Plantone. "The next largest percentage was by buyers putting down 20 percent or greater of the total cost. The number of buyers actually taking advantage of the tax credit might only be 5 percent to 15 percent."

He added, "last year I sold 14 homes to one buyer and 10 homes to another. I know other Realtors here that have sold 10-20 homes to just one person. That being said, I don't think the tax credit has had as big an effect in this local market as maybe some other markets."

Sales in Las Vegas were down in June (3,360 homes sold that month vs. 4,186 homes sold in May), but that could have been because of hot weather, said Plantone. "We need to see what happens over a few months."

One must also clarify the data points. House sales in Las Vegas may have declined on a month-to-month basis going into the spring, but if one compares May 2010 sales to May 2009 sales they are roughly flat.

Miami has experienced the same "cash" phenomenon as Las Vegas, with some local twists.

"Our typical buyers this year are individuals with a lot cash and foreign nationals who have no interest and no idea about the tax credit," said Patrick O'Connell, a senior vice president with EWM Realtors in Coral Gables, Fla.

The tax credit was not really a buying decision for his clients, O'Connell, said, adding that he could see where it was important elsewhere.

"My brother lives in Cincinnati and he recently bought a $92,000 house. That $8,000 tax credit meant a new healing and cooling system for the house," he said. "That was one of the reasons why (he) bought now."

The tax credit was a lesser factor in some high-end markets. When someone is paying $1 million-plus for a condominium in Manhattan or a home in Newport Beach, Calif., that $8,000 tax credit is negligible.

In June, when the National Association of Realtors reported a sales decline compared to May, home prices in the generally expensive Northeast popped 7.9 percent.

Markets in recovery, and especially those beaten down (like Las Vegas), didn't get the full effect of the tax credits either, said NAR's Smith. "The tax credits might have helped a little bit, but the volume would have picked up regardless of the tax credits."

There is little chance for another round of tax credits because the general feeling is that the country is past the point of getting things stabilized. And for expansion to occur, people need to go back to work. Employment levels, not government programs, will be the key growth factor for the housing market in the months ahead.

"The big issue in buying a house is jobs," Smith asserts. "If the job market is declining, regardless of what incentives you offer people, you are not going to get a lot of sales."

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.

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Q: I signed a contract to buy a short sale in January 2010. The owners filed for bankruptcy and I was told that the agent was a short sale specialist and they had a bankruptcy lawyer.

The sellers' bankruptcy went to court and was made official a few months ago. Last month, the contract was approved (by the bank), but I was just now told of a second lien for over $100,000 with (another company)! Now, I'm told we're waiting to see if the other company will approve the short sale.

A month has lapsed, with no word from anyone. I was told that the bank offered the (second lender) $3,000 to pay off the second mortgage, which seems to be the norm. I have basically no input on this deal and I am pretty much left in the dark. So here are my questions:

1. It has been one month since the bank approved the loan -- how long will it wait until it forecloses on the home?

2. I have been told this deal has to happen because of the bankruptcy, but it just takes time. Is this true?

3. Is it possible to talk with the second lien holder and offer more money if the bank approves? If so, how can I communicate with that company?

4.The contract has expired with no addendum to prolong it. Should I extend it? I was told this was a good thing because I can look at other homes in the meantime, but can I lose this deal because the contract is invalid?

Am I being taken for a ride?

A: Lots of questions, but all very insightful ones -- the mark of an informed and proactive consumer. Kudos on being so inquisitive and trying to make educated and smart decisions. Let's dive right in.

1. Most often, short-sale approval letters from the major banks are good for 90 days from their issuance. However, many times, this can be extended if necessary to get the deal done, by requesting an extension from the short sale negotiator.

The foreclosure time frame is not related to the approval letter time frame at all; rather, foreclosure time frames run relative to when the seller stopped making the mortgage payments and when the lender issued the notices of default and foreclosure sale, as dictated in your state.

If the property was part of the bankruptcy, though, the lender may not be able to even initiate foreclosure proceedings without the permission of the bankruptcy court.

Be aware that the fact that you have a valid and/or approved contract with the primary lender in no way stops them from foreclosing on the home, legally speaking. The bank may simply refrain from doing so in an effort to let the short sale be completed, or it may have agreed or been ordered to refrain from doing so.

But nothing about your contract with the seller legally binds the bank from foreclosing on the home under the laws of your state.

2. It is possible that one or both lenders agreed to or were ordered to liquidate the property via a short sale during the sellers' bankruptcy proceedings.

3. It is also quite possible for you, the buyer, to add a contribution to the $3,000 payoff that the first lender has allocated to the second lender. However, it can be tricky. What frequently happens is the second lender refuses to take such a paltry payoff.

If you simply counter by instructing your agent to add a few thousand dollars to your offer and asking the listing agent to up the payoff offered to the second lender by the amount you're willing to contribute, you run the very high risk that when the first lender gets wind of it, that negotiator will want to grab that extra cash you tacked onto the offer price for the first lender!

This is why buyer contributions to second or other junior liens are very tricky. Ideally, they are included in the original offer before it is sent to the first lender for approval.

Yet and still, you may want to ask your agent to write up an addendum not offering to increase the purchase price -- simply offering to pay a cash contribution in the amount of X dollars to the second lender as part of your closing costs.

The listing agent should get the green light on this plan from the bankruptcy trustee managing the matter and the first lender, in addition to the second lender.

4. Under most states' short-sale addendum forms, your contingency periods do not begin to run and you may even expressly have reserved the right to look for other properties until all lien holders on the property have approved the short sale.

Signing an extension does not do anything to prohibit you from continuing to look at additional properties, which most short sale buyers do, in any event, until all of the sellers' lenders/lien holders have green-lit the deal to proceed to closing.

In my opinion, it would be wise to get the contract extension. First off, the first or second lender will eventually require it before you can close the transaction. But more importantly, what do you think will happen if another buyer comes around and wants to pay more (believe me -- it happens)?

Right this moment, there is nothing legally prohibiting the sellers from just taking their offer -- the sellers are not in contract with you! Short-sale buyers have so few rights as it is, it makes zero sense to me to let the only legal connection you have to this property -- your contract -- lapse.

If I were your real estate broker, I would advise you to obtain an extension of the contract without further ado.

5. You didn't ask for this, but it is very likely a legitimate reality for the short-sale approval from the second lien holder to take a month or longer -- sometimes much longer. Realistic agents may not even request the second lien holder's approval until receiving the approval of the first lender, and that bank's allowance toward the second lender's payoff.

Read up on short sales online and you'll see that there's essentially no mandatory or even standard time frame that bank approvals follow. One month is certainly not out of line.

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.

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Q: We are trying to decide how to proceed on a possible roof repair. Our shake roof is a little more than 20 years old, and one roofer said he thought it would last five more years.

A few years ago we had a handyman replace a row of ridge caps that were missing or broken. We noticed recently that some more ridge cap shakes were split or damaged, and we contacted a licensed roofing contractor to replace these.

He only replaced a few ridge caps in each area instead of the whole row. He also nailed down some of the older caps that were split next to the shingles he replaced.

We spoke to another roofer who said that it is not good to replace individual ridge cap shingles. He said the whole row should have been replaced. This contractor is going to take a look and give us a bid on replacing all the ridge caps.

Which of these approaches is correct? How do we know when we need a new roof and what kind of repairs are needed to prolong the life of our shake roof?

A: You'll know you need a new roof when it starts to leak. Take a trip into the attic each year after the first good rain and look for signs of water stains on the sheeting (the wood that is attached to the rafters). If you see signs of water, the roof is about dead.

You'll probably be able to have the problem area patched, but that will be only a short-term fix -- a new roof is in your near future.

Although both are almost always cut from Western red cedar, the terms shake and shingle are not interchangeable. Shingles are thinner than shakes and are smooth-sawn.

Shakes are thicker and may be smooth-sawn for a more formal look or hand-split for a more rustic look. In a roofing application, shakes will last at least 50 percent longer than shingles.

We agree with the roofer who suggested replacement of the entire ridge cap. Here's why: The ridge cap -- the point where two flat sections join -- is the weak link in an otherwise properly installed shake roof.

Kevin has a taper-sawn shake roof on his house. It's a gable roof on both the garage and the main building. The roof is 15 years old and mostly in great shape. But the ridge cap needs some help.

When a cedar shake roof is brand-spanking new, the wood has high moisture content. As the roof ages, the shakes acclimatize and lose moisture. They expand and contract with the weather.

In the rainy season the wood swells; in the hot summer sun the shakes shrink (say that 10 times fast).

Eventually, the movement causes cracks in the shakes. In addition, exposing the surface of the shakes to the ultraviolet rays of the sun causes decomposition and the shakes lose some surface over time.

The average useful life of a cedar shake roof is 25 to 30 years, depending on the climate, although we've seen some last as long as 50 years. This longevity is due to the natural decay resistance of cedar and the roof application process.

Cedar naturally contains tannins that resist fungus and insects. As to the application process, when properly done, each course of shakes is interwoven with roofing felt, which creates a three-ply wood roof with tarpaper between each ply.

On gable, gambrel or hip roofs, the point where two flat sections of roof meet is the ridge. While the rest of the roof consists of layers of flat shakes, the ridge is made of two shakes stapled together and overlapped to cover the point where the two sections of roof meet. The joint where those shakes are stapled together is the weak spot.

Over the years, with the inevitable expansion and contraction, the ends of the shingles crack and the staples fail. When this happens, there's a fair to middlin' chance the roof will leak at the ridge.

When ridge cap pieces become so deteriorated they need replacement, we think the best practice is to replace the entire run. Replacing ridge shakes piecemeal will most likely require revisiting the project many times, which invites damaging material that is in good shape.

It's better to do the job once and right than to continue to replace material that was going to fail anyway.

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The checkered beginnings of reverse mortgages made them a difficult sales proposition to seniors. In the early years, some programs gave the lender a bigger share in the home than the homeowner, the amount of available money that could be tapped was too low, and the fees were too high.

Toss in the fact that seniors are wary by nature, often have little to risk, and view paying off the roof over their head as the ultimate measure of success and pride.

Now, many of the chuckholes on the road to reverse mortgage acceptability have been filled. If you doubt that, simply check with the investors on Wall Street, who are more than willing to pay a premium to buy these assets, creating a secondary mortgage market for the once-orphaned loans.

A reverse mortgage historically has enabled senior homeowners to convert part of the equity in their homes into tax-free funds without having to sell the home, give up title, or take on a new monthly mortgage payment.

Reverse mortgages are available to individuals 62 and up who own their home. Funds obtained from the reverse mortgage are tax-free.

The biggest lift to reverse-mortgage credibility came in 1989, when the Federal Housing Administration agreed to insure the Home Equity Conversion Mortgage (HECM), which not only allowed owners over 62 to stay in their homes for as long as they wished but also protected the owner in the event the lender went out of business.

HECMs now account for nearly every reverse mortgage written today. Other private reverse-mortgage "jumbo" funds have virtually evaporated given the present credit crisis. More than 130,000 HECMs were originated last year.

AARP reported that approximately 93 percent of applicants were satisfied with the process.

The next boost for reverse mortgages toward acceptance was a single national loan limit (presently $625,500) and then onset of fixed-rate products (presently about 5.5 percent).

However, not every homeowner qualifies for the maximum. A borrower's age, along with prevailing interest rates, determine the actual amount of the HECM. Older borrowers qualify for the greatest amounts.

The Housing and Economic Recovery Act of 2008 approved the HECM for purchase program. The move allows older homeowners to make a large downpayment on a new home and then utilize the reverse mortgage as permanent financing.

The same law reduced the maximum loan fee on reverse mortgages to 2 percent on the initial $200,000 of the home's value and 1 percent on the balance thereafter, with a cap of $6,000. Previously, HECM fees were capped at 2 percent of the home's value or the county lending limit, whichever was lower.

However, given investors' appetite for reverse mortgage securities, many of those fees have been eliminated or significantly reduced. Why did this happen and what does it mean for consumers?

In a nutshell, Wall Street sees reverse mortgages as a more predictable asset class, and the mortgages have finally reached a supply threshold that allows for group discounts to lenders -- many of whom pass the savings on to consumers.

For example, national lender Seattle Mortgage offers several new products on the fixed-rated HECM:

• No servicing fee (approx $3,000 in additional cash available).
• Reduced upfront mortgage insurance premium (can be up to 2 percent of claim amount).
• No origination fee/no servicing fee (equal to up to $6,000 in origination fee, and $3,000 in servicing fee savings).

The savings to a borrower vary depending upon home value, but all options result in greater loan proceeds to the borrower.

Sunwest Mortgage Company is among a variety of lenders to announce reductions in fees for servicing, origination, mortgage insurance premium (MIP), and title insurance fees.

"The reduced fee options aren't necessarily going to be available for long," said Sarah Hulbert, senior vice president and reverse-mortgage manager at Seattle Mortgage.

"It's a great time for seniors contemplating a reverse mortgage to begin the process. It's all a function of how the secondary markets value reverse mortgages. If they begin paying less for the fixed-rate HECM, we very well may see some of the fees return."

If you are senior in the market for a reverse mortgage, or an adult child doing the research for Mom or Dad, the good news is that fees have come down dramatically. The puzzling news (not to be confused with "bad") is that there could well be some costs in today's advertised "no-cost reverse mortgages."

Make sure you understand the up-front costs and those incurred down the road.

Reverse mortgages have hit the mainstream. With that comes a variety of combinations and sliding scales.

Tom Kelly's book "Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit from Property South of the Border" was written with Mitch Creekmore, senior vice president of Stewart International. The book is available in retail stores, on Amazon.com and on tomkelly.com.

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Q: If I sign a "Buyer Representation Agreement -- Exclusive" (form), can I cancel it at a later date? --Igor, California

A: That depends. Every year, more and more buyer's brokers require their clients to sign an exclusive buyer representation agreement before they invest lots of time and gas money into the enterprise of helping them house hunt.

Sometimes this is because the agent has been burned by disloyal clients seeing a home with them, but then writing the offer with their cousin the agent, or with the listing agent, in an effort to get a rebate.

Other times, it's because the broker's office requires it, or because the agreement (like the California form you reference, the "Buyer Representation Agreement -- Exclusive" form) very clearly specifies the things an agent does and doesn't do, and allows the buyer and broker to agree in advance to forms of alternative dispute resolution, like mediation and arbitration.

In other cases, agents simply use these forms as a convenient, logical entree to the discussion of how agents get paid, why it's important for the agent to actually write the offer, and other details of the buyer-broker relationship, so that the buyer is clear on exactly how it all works (and many homebuyers are not clear on this at the outset!).

On my very first transaction, the buyers (friends of mine) decided to go window shopping at open houses one Sunday when I was going out of town. I offered them a stack of my business cards, but they said, "No, no, we're just looking. We're not serious yet." They went out and -- pursuant to Murphy's Law -- found the home of their dreams.

Despite their expression that they had an agent, the listing agent wrote up an offer on their behalf. Immediately, they left and ran to call me in their excitement!

They were thrilled, and knew I would be, too -- they didn't have the faintest clue that, by writing the offer with the listing agent, they had essentially decided they would no longer be working with me. They were flabbergasted, dismayed and apologetic when I explained what had happened to them.

They didn't get the house, so it ended up being a non-issue. But forever after, I informed my clients up front how real estate relationships and compensation worked.

Perhaps the best feature of the form you're considering whether to sign is its flexibility. In the first paragraph, it allows you and your agent to enter start and end dates for the contract. I'd encourage you to start out with a very short-term agreement, especially if you have doubts as to whether this agent is "your" agent.

To satisfy your agent's (realistic) concern about being used to show houses, and then you buying a house with another agent, why don't you sign the first agreement with a very short term -- a weekend, say, or even a couple of weeks.

That way, you can have a clear conversation that this is really a trial, relationship-building period for you both. Then, when you feel a bit more comfortable, you can sign one for a longer period of time.

Most agents I know who use these agreements agree that they would never want to work with a client who decided not to work with them, and they have a professional policy of releasing clients upon request.

However, I'd encourage you to negotiate and sign an addendum that gives both you and the broker a 48-hour exit clause. If either one of you feels like breaking up with the other, you give a notice. That would provide 48 hours for the disgruntled party to cool off and make an effort to work it out, but would not bind either of you unreasonably to someone you don't want to work with.

Happy house hunting!

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:
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In the heady days of the housing boom, so-called FHA loans ended up being the lonely guy sitting on the sidelines.

After all, at that time the mortgage market had a free-flowing and apparently limitless pipeline of funds for borrowers who had little to no money for a downpayment. Demand for the Federal Housing Administration's programs to help first-time and low-income buyers dwindled.

That was then, as they say. This is now, when lending policies have gotten considerably more stringent in the wake of the housing downturn.

Suddenly, the government program that's been around since 1934 is looking a lot more attractive to a lot more people: The agency went from being involved with just 464,000 loans in 2007 to 2 million loans in fiscal 2009, according to a recent speech by its commissioner, David Stevens.

Its share of the market, depending on the region, is 30 to 50 percent.

So, for many homebuyers, FHA is the name of the game these days. Five things to know about FHA mortgages:

1. The FHA doesn't make loans, it insures them. Participants in FHA-insured mortgages get their loans through conventional lenders whose standards meet the FHA's.

The agency's guarantees mean that lenders can be confident that they won't lose money on the loans and can make more of them -- thus, in theory, helping to keep the housing market flowing.

2. FHA loans are attractive to many borrowers because they require as little as 3.5 percent down, compared to the so-called conventional market, which these days typically requires 10 percent down or more for competitively priced rates.

They're relatively easy to qualify for: The FHA places no income restrictions. Borrowers can have middling credit histories. In addition, FHA policies allow borrowers to include gifts from family members in their downpayments.

Currently, the FHA doesn't set a qualifying credit score for borrowers, according to FHA spokesman Lemar Wooley.

"We don't really have a hard minimum score requirement," he said. "We ask our lenders to look at the entire credit picture, with the major requirement being the ability to repay the loan."

However, Wooley said, a 580 score (on an 850-point scale) is set to become the minimal requirement, though an implementation date has not been set. Currently, applicants with scores below 500 do need to increase their downpayments to 10 percent, he said.

The FHA allows borrowers to allocate as much as 43 percent of their income to housing and long-term debt costs, which in the mortgage business is called a back-end ratio; conventional loans vary slightly in that cap, although they generally limit their borrowers to a back-end allocation that's several percent less.

3. FHA's insurance isn't free: Homebuyers with FHA-insured loans will pay an upfront premium at the time of closing (2.25 percent of the purchase price) and then for an extended period will make monthly payments to cover the annual cost of the insurance, 0.5 percent of the amount of the loan, Wooley said.

4. As popular as they are these days, FHA-insured loans aren't for all borrowers.

"I'm not a big fan of government loans," said Dale Robyn Siegel, a White Plains, N.Y., mortgage broker and author of "The New Rules for Mortgages" (Penguin/Alpha).

Siegel says that if conventional loan paperwork is significant, the FHA's is even more daunting. In addition, the FHA is strict about the physical state of the home that's being purchased.

"If the property isn't in good condition, FHA might reject it," Siegel said. "If the FHA borrower is lower-income, and then has lower savings after they close (on the house), you have less money to fix it. So the house needs to be in better condition, out of the gate."

Another potential roadblock: FHA limits the sizes of loans it will insure, from about $271,000 in low-cost areas to nearly $730,000 in high-cost areas.

5. Many borrowers these days think FHA is the only game in town, but it isn't, Siegel said.

"I would always say, 'Get a second opinion,' " she said.

She said some borrowers with bruised credit presume they'd be ineligible for loans in the conventional market, though that's not necessarily so. Borrowers with downpayments of less than 20 percent from those lenders still would have to get mortgage insurance from a private source, she said.

Siegel said the threshold for getting an FHA loan sounds more generous than it would turn out to be in the marketplace. "The FICO score (that FHA will permit) is 580, but good luck, try and get it approved," she said.

More information on FHA-insured mortgages, including its state-by-state listings of mortgage limits, is available at fha.gov.

In the heady days of the housing boom, so-called FHA loans ended up being the lonely guy sitting on the sidelines.

After all, at that time the mortgage market had a free-flowing and apparently limitless pipeline of funds for borrowers who had little to no money for a downpayment. Demand for the Federal Housing Administration's programs to help first-time and low-income buyers dwindled.

That was then, as they say. This is now, when lending policies have gotten considerably more stringent in the wake of the housing downturn.

Suddenly, the government program that's been around since 1934 is looking a lot more attractive to a lot more people: The agency went from being involved with just 464,000 loans in 2007 to 2 million loans in fiscal 2009, according to a recent speech by its commissioner, David Stevens.

Its share of the market, depending on the region, is 30 to 50 percent.

So, for many homebuyers, FHA is the name of the game these days. Five things to know about FHA mortgages:

1. The FHA doesn't make loans, it insures them. Participants in FHA-insured mortgages get their loans through conventional lenders whose standards meet the FHA's.

The agency's guarantees mean that lenders can be confident that they won't lose money on the loans and can make more of them -- thus, in theory, helping to keep the housing market flowing.

2. FHA loans are attractive to many borrowers because they require as little as 3.5 percent down, compared to the so-called conventional market, which these days typically requires 10 percent down or more for competitively priced rates.

They're relatively easy to qualify for: The FHA places no income restrictions. Borrowers can have middling credit histories. In addition, FHA policies allow borrowers to include gifts from family members in their downpayments.

Currently, the FHA doesn't set a qualifying credit score for borrowers, according to FHA spokesman Lemar Wooley.

"We don't really have a hard minimum score requirement," he said. "We ask our lenders to look at the entire credit picture, with the major requirement being the ability to repay the loan."

However, Wooley said, a 580 score (on an 850-point scale) is set to become the minimal requirement, though an implementation date has not been set. Currently, applicants with scores below 500 do need to increase their downpayments to 10 percent, he said.

The FHA allows borrowers to allocate as much as 43 percent of their income to housing and long-term debt costs, which in the mortgage business is called a back-end ratio; conventional loans vary slightly in that cap, although they generally limit their borrowers to a back-end allocation that's several percent less.

3. FHA's insurance isn't free: Homebuyers with FHA-insured loans will pay an upfront premium at the time of closing (2.25 percent of the purchase price) and then for an extended period will make monthly payments to cover the annual cost of the insurance, 0.5 percent of the amount of the loan, Wooley said.

4. As popular as they are these days, FHA-insured loans aren't for all borrowers.

"I'm not a big fan of government loans," said Dale Robyn Siegel, a White Plains, N.Y., mortgage broker and author of "The New Rules for Mortgages" (Penguin/Alpha).

Siegel says that if conventional loan paperwork is significant, the FHA's is even more daunting. In addition, the FHA is strict about the physical state of the home that's being purchased.

"If the property isn't in good condition, FHA might reject it," Siegel said. "If the FHA borrower is lower-income, and then has lower savings after they close (on the house), you have less money to fix it. So the house needs to be in better condition, out of the gate."

Another potential roadblock: FHA limits the sizes of loans it will insure, from about $271,000 in low-cost areas to nearly $730,000 in high-cost areas.

5. Many borrowers these days think FHA is the only game in town, but it isn't, Siegel said.

"I would always say, 'Get a second opinion,' " she said.

She said some borrowers with bruised credit presume they'd be ineligible for loans in the conventional market, though that's not necessarily so. Borrowers with downpayments of less than 20 percent from those lenders still would have to get mortgage insurance from a private source, she said.

Siegel said the threshold for getting an FHA loan sounds more generous than it would turn out to be in the marketplace. "The FICO score (that FHA will permit) is 580, but good luck, try and get it approved," she said.

More information on FHA-insured mortgages, including its state-by-state listings of mortgage limits, is available at fha.gov.

Contact Inman News:
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In May 2009, Candace Booth filed a Chapter 7 bankruptcy petition. Her outstanding debts were mortgages against a home she was in the process of trying to rent or sell, credit cards and an auto loan.

Booth had paid cash outright for her personal residence in March, 2009 by liquidating her retirement and brokerage accounts and obtaining a small amount of money from her daughter, according to court records.

In her bankruptcy petition, Booth listed her personal residence as being protected as a fully exempt homestead property under Florida Constitution Article X, Section 4(a)(1) and Florida Statute Sections 222.01 and 222.02.

Prior to the recession, Booth had been in business as a natural health consultant and also received some income via social security. Her business reportedly dried up during the recession, and by the time she filed for bankruptcy relief, she was earning $8 an hour working part-time in her daughter's business, and had a negative net monthly income, according to court records.

After the evidentiary hearing in the bankruptcy court, the bankruptcy trustee filed an objection to Booth's bid for homestead protection of her residence.

The trustee argued that Booth had purchased the property using non-exempt assets with the intent to "hinder, delay, or defraud" her creditors, as barred by 11 U.S. Code Section 522(o).

The federal bankruptcy court for the Middle District of Florida overruled the trustee's objection and found that Booth's personal home did in fact have homestead protection and could not be liquidated to pay her creditors.

First, the court explained that to defeat Florida's homestead protection, the Trustee would have to show one or more "badges," or indicators, of fraud and extrinsic evidence of Booth's intention to defraud her creditors at the time she purchased the home.

The court rejected the trustee's argument that the following actions of Booth provided sufficient indicia of her intent to "hinder, delay or defraud her creditors," so as to invalidate homestead protection on her personal residence.

Recounting the unraveling of Booth's financial stability fact-by-fact, the court determined that the sequence of events showed Booth's innocent intent. Booth had obtained the home equity line of credit for her daughter's use in financing her business; and her daughter had committed to making the monthly credit line payments, the court found.

Only when the economic downturn impacted her daughter's business and prevented her from continuing to make the payments did Booth realized that the indebtedness on the line of credit had risen to $39,000, the court also found.

Booth quickly realized that she could not make the payments on the mortgage and the line of credit on her then-home and still cover her living expenses. She consulted a mortgage broker and was advised that she could not refinance the home due to its drop in value; a real estate broker she talked with advised her to sell or rent that home, and instructed her to move out of the property to maximize the chances of it selling.

He also reportedly advised her to purchase the second home to ensure herself a place to live. She was never advised by either professional that the option of a short sale existed, according to court documents.

Booth charged some living expenses and expenses of preparing the home for sale to her credit cards, but the court found that she did so with the full intention of repaying them.

When her own business deteriorated in April and May of 2009, she became unable to pay her bills. Booth, a 64-year-old woman, testified that she was panicked about having a place to live and didn't think the matter through properly when she decided to buy a new home rather than simply pay off her mortgages with the funds from her liquidated retirement and brokerage accounts.

Because the court found Booth's testimony to be credible, it refused to find that she had the intent to defraud her creditors when she purchased her personal residence. Accordingly, the trustee's objection to Booth's home's protection from her creditors under the Florida homestead statute was overruled.

DEAR BENNY: I fell behind on my mortgage last fall due to the replacement of an HVAC system. I thought I missed two payments. I called my lender and asked for some help. (The lender) told me that I did not qualify. I made two full payments, but my last payment was returned.

Approximately one week later I received a notice from a law firm that I was in foreclosure with a sale date coming up in less than one month.

Although I have asked, I have never received a statement from my lender detailing my payment history. I sent a note to the law firm disputing the debt and requested a copy of the original loan documents, along with the amount past due. Does the lender have to produce the original document prior to a foreclosure sale? The foreclosing attorney seemed to feel that this was a non-issue. --Preston

DEAR PRESTON: You have raised several issues. First, you disputed the debt. Under the Fair Debt Collection Practices Act (FDCPA), if a consumer gets a letter from a debt collector (which includes lawyers), that letter must state:

"This letter is an attempt to collect a debt. Any information obtained will be used for that purpose. Federal law gives you 30 days after you receive this letter to dispute the validity of the debt or any part of the debt. If you do not dispute the validity of the debt, or any portion thereof, the debt will be assumed to be valid by this office.

"If you do dispute it -- by notifying me in writing within the 30-day period -- we will, as required by law, obtain and mail to you verification of the debt."

So, in your case, if this was the first letter you received about the default, it would appear that the lawyer violated the law. You may still be in default on your loan, but it may help you to at least postpone the foreclosure sale. You should write the lawyer, advising him or her that there is a violation of FDCPA, and that you insist on getting verification of the debt.

If that does not work, you should immediately get an attorney to assist you. You may have to file suit not only to enjoin the foreclosure sale, but to add a complaint against the attorney. The law provides monetary relief for violations of the act, as well as attorney fees should you succeed.

Next, you asked whether the lender must have the original loan documents -- especially the promissory note that you signed when you first obtained the mortgage loan. This is a hotly debated legal issue all over the United States. In the past, mortgage lenders would bundle a number of loans and sell them to such organizations as Fannie Mae and Freddie Mac.

It is called "securitization." In many instances, no one really knows where the original notes are; they may be buried in some New York City vault, or for that matter anywhere in the world where an investor purchased the bundle.

Although securitization was one of the factors that caused the mortgage meltdown a couple of years, I won't discuss this in my column. However, many judges throughout the country have taken the position: "No note, no foreclosure"

This is not universal, since some judges have not agreed with that position. Perhaps some day, the U.S. Supreme Court will tackle that issue. But in the meantime, get a lawyer in your state to review your state law (including any cases in this area). If there are cases in your state that will assist you, by all means use this as a defense to the foreclosure action.

DEAR BENNY: I am fed up with paying taxes to our greedy and burdensome governments. If I can find somebody I trust and we both don't have liens, can I sell my property for a minuscule amount and the second party sell his to me for a minuscule amount to reduce property taxes? In a year or less, we could sell back to each other. Is this legal? --Willard

DEAR WILLARD: I understand and feel your pain about having to pay taxes. However, if you go this route, you and your trusted friend may end up with a smaller place in which to live -- namely, a prison cell.

No, it is not at all legal. You are defrauding the government, and both parties to such a scheme could face prosecution.

My understanding of most state recorders of deeds is that they will impose a recordation/transfer tax on the assessed value of the property, and not necessarily on the actual sales price. In your case, unless you can explain why you are selling your house for such a low (minuscule) price, you both will still have to pay the full transfer and recordation tax in order to swap properties.

Next, regarding the property tax, once again, my understanding is that taxing authorities use their assessed value -- and not necessarily the purchase price. So I am not at all sure you would be gaining anything by using this process.

And, more important, if you both were to re-exchange properties within a short period of time (say one or two years), I suspect that you will get caught. With every jurisdiction now using computerized programs, it is a lot easier for the government to find out what you both have done.

Equally important: You will have to file your annual federal income tax showing your new address. The IRS will want to know about the sale, and that will also trigger a possible investigation.

It is a creative idea, but I cannot recommend it.

DEAR BENNY: In a recent article, a reader wanted to know whether it is better to make extra monthly mortgage payments or pay a larger sum at the end of the year. I suggest monthly payments. However, you failed to advise the reader to check to make sure there is no prepayment penalty in the contract.

If there isn't a prepayment penalty, I would suggest they ask for an amortization schedule and verify the balance of their loans before making extra payments. This way they can follow along on their amortization schedule to make sure that they and the bank continue to have the same balance during the existence of the loan.

This is how they should go about making payments. Once they have their amortization schedule, verified the balance with the bank and made sure there is no prepayment penalty, they should make their regular payment monthly and then pay the principal payment of the next month's scheduled payment and show "PP" for prepayment beside that payment on their schedule.

At the beginning of the loan the principal payment is very small and you can usually pay off several months to years of your loan in just one payment. This way you avoid all that large interest amounts each month.

I did this on each of my mortgages when buying my current house. Each time I refinanced my mortgage, I requested an amortization schedule and a non-prepayment penalty clause to shorten my repayment time. I was able to wipe away two to three years of payments with just an extra $100-$120 for the first prepayment alone.

So making a prepayment monthly saves you more in the long run than making one single payment at the end of the year and also eliminates more years of payment.

I hope this helps, but I would like to remind the persons who do this to make sure that they keep track of their prepayments on their amortization schedule as well as making a note on their checks that they send to their banks. --Connie

DEAR CONNIE: You make several good suggestions. First, when prepayment penalties are involved, it's true that a lender will charge you extra moneys if you want to pay off the loan before its maturity date, or will not let you pay it off at all before it comes due.

However, from my experience, any prepayment penalty deals with paying off the loan in full -- and not just making extra payments every year. You are correct, however, that home borrowers should confirm whether there is any such penalty. The promissory note that you sign is where you will find that information.

Second, whether or not you decide to make extra monthly payments, it is a good idea to get an amortization schedule from your lender. You can also get that online, just by typing "amortization tables" into your favorite search engine.

When you get the IRS Form 1098 from your lender each year showing how much you paid for mortgage interest and real estate taxes, make sure it is completely accurate. If the lender makes a mistake and the numbers are too low, you could lose valuable tax deductions.

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.

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DEAR BARRY: We recently hired a contractor to enlarge our living room. But there is a dip in the wood flooring where the addition meets the original construction. When the work was still in progress, we noticed that the old and new floor surfaces were uneven, but the contractor told us it would not be noticeable once the wood flooring was installed.

Now that the work is finished, it is very noticeable, and the contractor refuses to take responsibility and fix it. What recourse do we have since we have already paid him for the completed work? --Amber

DEAR AMBER: The contractor's refusal to correct the problem is entirely unreasonable because you pointed out the unevenness before the hardwood was installed. At that time, it was his responsibility to make adjustments in the subfloor before installing the finished flooring. Low places could have been filled, and high places could have been leveled by sanding or grinding the surfaces.

These would have been normal repair procedures for a contractor or tradesperson who is knowledgeable about construction and takes pride in his work. When your contractor made excuses rather than adjustments, he undertook full responsibility for the unsatisfactory outcome. He gave you false assurances, and now he should stand by his word.

If he refuses your fair request to correct the problem, he should receive a strongly worded letter from a construction defect attorney. A consumer complaint should also be filed with the state agency that licenses contractors. And you should have the work inspected by a qualified home inspector to provide documentary evidence of your position.

DEAR BARRY: I bought a 7-year-old home and completely remodeled the interior. Then the rains came, and leaking at the doorways damaged my new wood floors. My home inspector never warned me that this might happen.

So I hired another home inspector, and he showed me that the pavement around the house is sloped toward the building causing water intrusion at the doors. When I contacted the builder about this, he said I should call the paving contractor, but the paving contractor went out of business. So who is responsible for the thousands of dollars I spent to repair the water damage? --Jean

DEAR JEAN: First of all, the builder cannot dismiss the issue by laying it at the feet of the subcontractor who poured the concrete. Builders and general contractors are ultimately responsible for work that is done by the subcontractors they choose. "The buck stops here" is the maxim by which a builder must operate. Your builder should address this issue.

Your first home inspector also shares some liability. Drainage conditions around a building are among the primary considerations in the course of a home inspection. If the ground or pavement is visibly sloped toward the building, this should have been disclosed in the inspection report.

You should contact the inspector and ask for a reinspection of the drainage conditions around the building. You should also find out if the inspector carries errors and omissions insurance. It may be time for him to file a claim. But this should not let the builder off the hook.

To clarify these liability issues and the builder's responsibilities, get some advice from a construction defect attorney.

To write to Barry Stone, please visit him on the Web at www.housedetective.com.

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Book Review
Title: "The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams"
Author: Trent Hamm
Publisher: FT Press, 2010; 272 pages; $19.99

When it comes to personal financial advice, the field of books and blogs and gurus is cluttered.

And when it comes to changing human behavior -- especially ingrained money patterns around indebtedness, spending and saving -- it takes a very special touch to move the needle.

This genre is somewhat formulaic: tell a relatable story of inspiration, throw some action steps in and wrap it in a catchy brand -- fini.

But what's not so simple is truly capturing the heart and mind of a debt-ridden reader and striking upon the precise mix of words that flick their mental and behavioral switches so that they do something, and eventually many things, differently today, tomorrow, next week and next year than they did before they opened your book.

Paradoxically, blogger and author Trent Hamm's book,"The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams," manages to achieve this not-so-simple, but very worthy aim.

Every word, action item and story told in this book, the literary manifestation of Hamm's stripped-back brand, blog and message, is fully infused with a tone of straightforward, profound simplicity.

"Debt is a prison you choose." "Life is more unpredictable than you think ... and almost all planning ignores that fact." "Focused debt repayment changed our lives." Hamm shares his (sometimes unconventional) epiphanies, the story of how he arrived at them, and then provides very immediate, powerful tips.

Here's his story, in (very brief). Hamm was saddled with debt so large he feared opening the mail when his lovely wife found that -- surprise! -- she was pregnant.

A tearful breakdown at the sight of his infant son and the thought of how his debt would impact his child's life served also as the breakthrough that propelled Hamm to begin a systematic program of slashing expenses, rethinking his family's above-its-means lifestyle and selling stuff to reduce his debt, an exercise he eventually began to blog about.

In the long-term, Hamm ended up with zero debt and the resulting freedom to become a full-time writer and family man.

It is Hamm's utterly relatable, everyman-turned-extraordinary story; his willingness to share the action steps he gleaned along his path that make "The Simple Dollar" interesting, readable and actionable.

Hamm is just a regular guy, like you and me, whose love for his son inspired him to get out of the debt hamster wheel and the resulting career rat race trap.

But it is his tone and voice that place his advice in that small slice of money advisories that simply make you want to follow it. Super simple. No perspective on the finance industry to push or investment theory to espouse.

Just: Here's what I did, why I did it, and why it will work for you. And here's how to get started, and how to stay inspired. You literally read it and just want to do some of this stuff, stat.

Another strength of Hamm's advice: it is immediate. Every chapter concludes with five steps to achieve the top-level aim discussed in the chapter, and many of the steps can be executed or started that very day.

Momentum-builders? Check. Some steps speak directly to the challenges of maintaining that momentum, staying the course -- probably the toughest part of this type of major behavior change.

Finally, Hamm thinks about and writes about his money, his debt and his life in a very real-world way that many financial advisers ignore. So many pundits assume that debt reduction is a worthy goal in and of itself, and that no additional motivation for taking the challenge of eliminating debt is necessary. Not so.

Hamm's tack is much more reality-based, especially for Generations X, Y and Z: debt traps you. It limits your options. It forces you to do work of a particular type, for a particular amount of time, in a particular location and for a particular employer that is very likely not what you would choose if you could choose freely.

The potential freedom from these traps is a source of virtually endless motivation for a sustained debt-elimination regimen.

"The Simple Dollar" offers real-world advice for real people looking to free themselves from their debt and the limitations it places on the rest of their lives.

Appropriately, the advice contained therein does relate to, but is certainly not limited to financial advice.

There is much in "The Simple Dollar" about shifts in the way you view yourself, your life, your time, your family and your future, as well as the way you approach topics ranging from the grand, like your life goals and your relationship with your partner, to the petit, like cooking, eating, buying books and shopping for clothes.

For it's uber-applicable steps, I would recommend "The Simple Dollar" strongly to anyone who struggles with debt, or spending less than they make. But I would go further and insist that you read this book if you are interested in creating an alternative, sustainable lifestyle without necessarily having a 9-to-5 job.

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:
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"I received a confidential note from a firm claiming that they can eliminate my second mortgage. I am inclined to believe them because the value of our home is now less than the amount of the first mortgage. Is this an opportunity or a scam?"

The answer to your question is not clear, but the misinformation in the note they sent you suggests a need for caution. The note says "that your second mortgage ... may be eliminated due to a significant decrease in property values in your area ..." In fact, the decline in the value of your home does not in any way eliminate the second lien on your property or your legal obligation to pay the second mortgage.

The only way to eliminate the obligation is to negotiate a deal with the second mortgage lender to remove it. When a borrower has negative equity, a second mortgage lender may be willing to relinquish its claim for a fraction of the amount owed because the alternative may be to lose it all.

Some borrowers with negative equity remain current on the first mortgage but stop paying the second. This puts the second mortgage lender between a rock and a hard place. If the second mortgage lender forecloses, it will get nothing, but if it doesn't foreclose, it allows the borrower a free ride and might encourage other borrowers who are "underwater" to do the same.

Second mortgage lenders who would like to extricate themselves from situations like these may be receptive to a proposal that would leave them with something rather than nothing. This might be a cash payment, an unsecured note for some or all of the loan balance, a share in future house appreciation, or some combination of these.

The second mortgage lender in this situation has one bargaining chip. The borrower won't ever be able to sell the house without paying off the second mortgage, and the payoff amount will include all accrued interest and penalties. It would be foolish for the borrower to ignore this.

The company that contacted you wants you to authorize them to negotiate with the second mortgage lender on your behalf. While they can't do anything for you that you can't do for yourself, a professional who has done it before might be worth the cost. Before I took that plunge, however, I would do my homework on the firm, which would include interviewing past clients.

My involvement in an Internet scam

In April, an ad appeared in the "RentsBuy Classifieds" section of a real estate website in Vientiane, Laos. In part, the ad said "Apply For Your Loan Today: I am a private money lender and I render financial assistance to interested people that are God-fearing and will not take advantage of my money and run away with it … contact me at guttentag_loans@hotmail.com ..." It was signed by Dr. Jack Guttentag of the Guttentag Loan Investment Company.

The ad was seen by a local man who asked for more details. He was immediately contacted by the fake Guttentag who asked for contact information, and asked him how much he wished to borrow.

The Laotian said he needed $320,000 and the fake Guttentag then sent him an application form. The form was skimpy compared to those used here -- it asked nothing about collateral or credit, but it did ask, "Are you a trustworthy person?"

The terms of the $320,000 loan were included in the packet with the application form. The rate was 4 percent and the term 15 years, with a monthly payment (accurately calculated) of $2,367. The borrower reported a monthly income of $2,000, but in the e-mail exchanges between the Laotian and the fake Guttentag, income adequacy was never mentioned as a possible problem.

What did come out in these exchanges was a requirement that the Laotian pay an advance fee of $950. This was a legal requirement insisted on by the fake Guttentag's legal counsel, who had prepared the most elegant-looking loan agreement I have ever seen.

The deal began to unravel (and the real Jack Guttentag entered the picture) when the victim decided to see if he could find the website of the Guttentag Loan Investment Company, and instead found me. On hearing his story, I did a little online research and found, not surprisingly, that the fake Jack Guttentag resided in Nigeria, the scam capital of the world.

This was not a message the Laotian wanted to hear. His first impulse was to enlist my aid in persuading the fake Jack Guttentag to deliver the loan that had been promised him!

It took awhile for me to convince him that nobody will make a loan of $320,000 to someone with an income of $2,000 a month, no collateral and no credit record. Legitimate lenders, furthermore, receive their fees at the time the loan is closed, not in advance.

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.

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During the recession in 2001, a strong home-sale market was instrumental in pulling the economy back on track. The opposite may be the case now. The economy, particularly employment, needs to improve before the housing market stabilizes.

Low interest rates are helping the home-sale market today, but the housing market is far from stalwart. Unemployment is high; mortgage qualification is difficult; and most buyers can't afford to buy a new one without selling their existing home first, creating a logjam in the repeat homebuyer segment of the market.

Interim or bridge financing that buyers used routinely in the past to buy a new home before selling their current home is virtually nonexistent in today's market. An interim loan is a loan secured on your current home to generate cash for a downpayment on a new home.

Homeowners who have a home equity line of credit (HELOC) secured against their property can tap unused funds to convert equity to cash in order to buy a new home before selling first.

HOUSE HUNTING TIP: Seller financing could be the answer for some homebuyers. One possibility would be to ask the sellers of the home you want to buy to carry financing until you sell your home.

If the sellers have no mortgage secured against the property -- i.e., they own it free and clear -- they might be willing to carry a first mortgage. Compared to other investment options, 5 percent or so from a buyer with good credit and a decent downpayment could be attractive if the seller doesn't have an immediate need for the proceeds from the sale.

As with all terms of a purchase agreement, the terms of seller financing are negotiable -- everything from the interest rate, when the loan is due, how and when payments are made, the amount of the late fee, etc.

Interest on the mortgage can accrue and be due when the loan is paid off. Or payments can be amortized and paid monthly. Particularly with a first mortgage, sellers will probably want to receive periodic payments. However, it lowers the buyers' carrying costs while they own two homes if the seller will defer payments until the note is paid off.

A more common scenario than a seller-carry first mortgage would be to find sellers of a home you'd like to buy who have enough equity to carry a second mortgage secured either against your current home or on the home you are buying from them.

This wouldn't work if the sellers have already committed their proceeds from the sale, like to the purchase of another home.

If the sellers carry a second mortgage on your home, it should not require approval of your first mortgage lender. However, you would need to be able to qualify for a first mortgage on the new home. In order to be approved for that loan, your overall debt-to-income ratio will be scrutinized by the lender's underwriters.

The underwriters will factor in the cost of the seller-carry financing into your overall debt. Most lenders will also want the term or due date of the seller's loan to be not less than five years from closing. Check with your mortgage broker or lender before making an offer that will include seller financing to find out what the first lender on the new home will require.

The sellers will want their loan paid off when your current home sells. The first mortgage lender might allow a seller-carry second mortgage with a due date in five years or when your home sells, whichever occurs first.

THE CLOSING: The lender wants to make sure the buyers aren't faced with a large balloon payment due months after closing.

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."

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