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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 Garage and Estate
Sales to find one
Ask Our Broker
Shop till you drop near you. Or, check CONTINUED FROM PAGE 1
the Yellow Pages
CONTINUED FROM PAGE 1 under Estate Sales, of states have strengthened rules for land contracts
call up a local com-
cent of retail. pany and ask for
to assure that tenants get a fair opportunity to buy.
Auctions are great places to the date and That said, tenants have an obligation to pay their rent
find estate items, but there are address of their and appropriately maintain the property.
some drawbacks.You have to next sale.The night
show up early to preview each before the sale, find Q: I own a small house with another person.
“lot” and then wait, sometimes the address on a I would like to sell my half, but my co-owner
for hours, for it to come up to be map and gather
sold. Often the item you are supplies. Take
does not want to buy me out. I have offered to
interested in is mixed in with along a handful of sell my half at a huge discount, but she was not
other items, so you can end up change and bills, a interested. Can I force the sale of the house?
with a box full stuff you don’t list of items you’re Can I force my co-owner to place her half of
want. Bidding can be intimidat- looking for, with the house on the market along with mine?
ing and can build anxiety, so it’s dimensions and
easy to pay more than you want color swatches.
to, or pass on something you If you arrive at
A: It would be best if the co-owner would buy
shouldn’t have.There’s an addi- the sale before or from you. However if that’s not the case you can seek
tional percentage owed to the at the advertised a suit for “partition.”This means you go to a judge, the
auction house when you pay for start you are likely to encounter There’s usually no deal-making send “preview” invitations, allow- judge will see if the other party wants to buy you out
your merchandise. Estate sale a crowd, will be given a number on the first day of a sale, so ing you to shop ahead of the and, if not, can require the sale of the property.When
shopping can be competitive, and have to wait to enter.The expect to pay the stickered crowd. If you are a real collector, the property is sold, all liens and selling costs will be
but you’ll never have to pay sale operators control the num- price. But, if you shop in the last it’s a good idea to befriend the
more than what the price tag ber of people in the house to couple hours of the sale you estate sale company owner so
paid off and any remainder will be divided among
says. prevent overcrowding and keep might be able to wrangle a better s/he can call you for a private the former owners. For specifics, speak with an attor-
the check-out line manageable. price. visit when s/he runs into some- ney in the jurisdiction where the property is located.
HOW TO ESTATE-SALE SHOP Later shoppers won’t have to If you want to be notified in thing you collect.
Check out the classified sec- wait, but might miss some advance get on the company’s Q: I bought a house in 1975 from a relative
tion of your local paper under unique items. mailing list. Some companies © CTW Features 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
MORTGAGE trols,” he says. Though they’ve gotten a lot of finally putting in some safe- making settlement this month. How do I find
When mulling over your mort- bad press lately, don’t be too guards to help buyers recognize out the house value at that time to determine
Times are changing gage-loan options, it’s important quick to dismiss adjustable-rate when they should not be buying. the capital gains. I assume $250,000 is tax
to scrutinize several key criteria, mortgage options, says Get the tools you need to clean exempt.
CONTINUED FROM PAGE 1 says Scott Christiansen, a senior Christiansen. up your credit and other person-
mortgage professional with “ARMs are still a great option al situations before you decide to
amount of which is contingent WestCal Mortgage Corp., Orange, for the informed borrower,” take on any debt you can’t A: To qualify for the $250,000 residential capital
on your creditworthiness. Calif. Christiansen says.“ARMs are afford.” gains write-off you need to have occupied the prop-
With lenders adding more “Consider your income today designed to fit a borrower’s time- LaCour-Little says that approx- erty for two of the past five years as a prime resi-
restrictions, be prepared to pay versus income in the future,” he line and payment range. If you’re imately 20 to 30 percent of mort- dence, thus it does not seem as though you have
more in borrowing fees as well, says.“Look at potential tax going to live in a home for three gage-loan applications are grounds for the write-off.
says Mullins.With fewer lenders breaks, and spread out your to five years, look at a five- to declined each year.“It’s not the
out there today than in years investments – the amount of seven-year ARM. If you plan on end of the world,” he says.
It might have helped your situation had you consid-
past,“it makes it more competi- money you put into your home living in a home for 20 years, and “Different lenders have different ered a tax-deferred exchange. Such a trade might
tive among lenders.The fees will versus other investment vehicles. you elect to go with a five- or underwriting guidelines, so you have given you more income and depreciation than
go up naturally as a result.” Work with a mortgage profes- seven-year ARM, then you run the may simply need to apply to the current property, plus delayed any tax bill.
On a side note, while there sional who comes recommended risk of the rate being higher at another lender.” For specifics, see IRS Publications 527 “Residential
may be fewer lenders today, and whom you trust. Lastly, do the adjustment period. Many Ultimately, remember that Rental Property” and 544 “Sales and Other
greater loan availability may be your homework and take action. lenders and borrowers went “banks make money lending
on the horizon, says LaCour- Times change, and so do financ- about the last few years as if the money,” says Christiansen.“The
Dispositions of Assets” and speak with a tax profes-
Little, thanks to the recent ing programs, so what is available housing market could do nothing days of a real estate investor sional.
Federal Reserve cut in interest this week may not be next but grow.There are always adjust- coming in without a job, with © CTW Features
rates. However, even though the week.” ments, corrections and changes, terrible credit and almost no
recent rate cut is likely to pro- Doing your homework and all should be considered money in the bank and buying Need real estate advice? Peter G. Miller, author of “The
duce greater liquidity in the inevitably involves checking your when selecting the best mort- homes and apartments may very Common-Sense Mortgage,” would love to hear from you.
mortgage market,“the rate cut credit score and analyzing your gage-financing solution.” well be over. But smart money is Send your questions to peter@ctwfeatures.com. Due to the
itself is not likely to reduce most credit report carefully, says If you get turned down by a still available to smart borrow- volume received, not all letters may be answered.
mortgage rates, since they tend LaCour-Little. If you do identify lender, don’t despair, says ers.”
to be tied to longer-term rates any problems, you can hopefully Mullins.
rather than the federal funds rate resolve them before applying for “This is a sign of the times – a
that the Federal Reserve con- a loan. good sign,” she says.“Lenders are © CTW Features

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