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How could I have lost $100,000 on a new condo?

Question: We purchased an ocean-front condo in south Florida last May. We've decided we want to sell. However, according to our real estate broker there have been few to no showings because people are just not coming to look and if we do sell at this point we'll loose anywhere from $75,000 to $100,000 or more. We understand that the real estate market is flat right now, but how shall we understand that (a) no one is looking and (b) we will be suffering such a large loss?

Answer: If you're a short-term speculator you have a lot of risk in selected markets and with selected projects. There is a belief among some buyers that in certain areas of the country condo units have been grossly oversold to investors and speculators. There is little reason to buy -- if this theory is true -- while prices are still declining.

Before going further, sit down with your condo president and chairman and review sales at the property for the last six months. See what people have done to move units. Then see if your broker's marketing plan needs to be updated -- or if you're better off keeping an ocean-front condo for your own use and selling at some point in the future.

Question: My husband and I bought our home 18 months ago and now we're divorcing and need to sell the house due to the fact that neither of us can afford the home on our own. Do we still then have to pay capital gains taxes if we're selling in less than two years despite divorce?

Answer: Because you have not used the property as a prime residence for at least two of the past five years you will not be able to get a full capital gains write-off. However, a divorce can be one of the "safe harbor" items which might allow you some relief. As the IRS explains, you may qualify for partial capital gains protection if you must sell in less than two years because of a "divorce or legal separation under a decree of divorce or separate maintenance."

See a tax professional for specifics.

Question: I have seen loan programs where you can apply for a home equity line of credit at the same time you're applying to purchase a home, re-finance, etc. What are the pros and cons?

Answer: If you get a home equity loan at the same time you get a purchase money mortgage or refinance you may save money because everything is being done at one closing. However, this may not be an impressive savings since home equity loans are widely available with no cash required to close. The savings may also not be impressive if the home equity loan has higher rates than might otherwise be available from other lenders. As always, shop around.

Question: We're currently considering having a modular house put on our acreage. The contractor for the company says it is essentially 'stick-built', so re-sale would be the same. Is that true? When we do sell it, do we need to identify it as modular or is it indeed stick-built?

Answer: Most homes today have at least some modular components. Very few builders are just ordering a pile of wood from a lumber yard or felling nearby trees to build homes.

Both stick-built and modular homes can be well-constructed. Unless there is some local rule to the contrary, there is no need to identify how the home was built -- but there is a need to assure that the house is well constructed. For this reason you as a seller should insist that the buyer obtain a professional home inspection -- or provide you with a written statement saying that such an inspection opportunity was given and refused.

Question: My husband and I purchased our home seven years ago. We recently attempted to purchase an adjoining lot to our property from the city we live in. During the engineers' inspection they found that the lot was not suitable to sell which is fine, but they also informed us that the garage built by the previous owner, who is now deceased, is built over the water main and we will most likely need to tear it down. Do we have any recourse to get back the cost of rebuilding from the estate? The son of the pervious owner sold us the house FSBO.

Answer: There may have been an estate seven years ago but by now its assets are likely gone. However, even though you bought from a FSBO, did you get a survey? Did you get owner's title insurance? If someone is encroaching on your property that's a title issue -- or if an improvement on your land is over the line that too is a title issue. For details, contact the title insurance company or a local real estate attorney.

Question: If I wanted to give my son and daughter-in-law, (kids), 20 percent of the value of their first home, the sum of $40,000 in cash, to help them avoid private mortgage insurance (MI) and lower their monthly payments, in the form of a second mortgage, could I establish the repayment of this second mortgage based on 20 percent of the later resale of the home and not on the monthly payment of interest and principal? What happens if my children divorce? What happens if I die before the home is sold?

Answer: There are certainly loans where some or all payments are deferred -- think of negative-amortization or interest-only loans. However, the issue here is somewhat different.

You seem to be investing $40,000 within a "shared-equity" transaction. Such an arrangement requires an outside investor (you) and a resident investor (the kids, in this case). As with any investment, when sold there would be a predetermined division of profits and losses.

Alternatively, you could provide a $40,000 loan and charge a market-rate interest level (which would be deductible to them and income to you). You could also give them each up to $11,000 a year as a tax-free cash gift.

If there was a divorce you would be a creditor with a claim against the property equal to the loan balance and any unpaid interest.

If you die, then forgiveness of the loan or assignment of your equity interest could be part of your will.

In this matter it is important that you -- and the children -- each have wills and living wills. Please see an attorney who specializes in elder law for details.

Question: We were told that our payments would be $1,300 a month when we first contracted to build a home. However, construction was delayed and now the monthly cost will be $2,200 a month -- too much for us even though the lender says we still qualify for financing. I don't see how.

If we do not go through with the purchase they will keep our $10,000 deposit. They wanted to accept a weird loan and buy the interest rate down and possibly even do a 1 percent APR. That would be crazy, because I wouldn't even be paying off the interest.

Answer: Not so fast. If the lender will "buy down" the interest rate to 1 percent, it means the loan rate to you is 1 percent because the lender is paying the balance. You need to ask: How long will the buy down last? What is the highest rate for the loan? What happens if the builder goes bankrupt? Get a lender, tax professional and attorney to help you look at the builder's offer and make sure you understand what is being offered. Also, rather than an ARM, go for a fixed-rate loan that the builder buys down. This will prevent future payment surprises.

Question: Can a mortgage loan officer work as a real estate agent and get both a commission for selling a property and a fee for placing the loan of the same property?

Answer: If allowed in your jurisdiction and with tons of disclosure, yes.

But imagine if the mortgage loan officer is working as a buyer agent and less expensive financing is available elsewhere. What happens if in six months the buyer comes back and says "you could have gotten me a cheaper loan and didn't. By not getting me the best loan you didn't put my interests as a real estate client first."

Or, imagine if the lender is also the listing broker. The lender is obligated to get the best price and terms for the seller -- not something that will comfort loan-seeking purchasers.

While disclosures and paperwork can resolve legal issues, the provision of multiple services surely creates a lot of responsibility for the broker/lender if something goes wrong -- or is perceived to be conflicted or gone wrong. While some real estate brokers offer a full range of services including loans, title and insurance work, others stick with brokerage alone.

The best way to test the value of any service is to shop around. If your broker/lender is the best choice for what you need, that's great. If not, go elsewhere.

In no case, of course, should the acceptance of a purchase offer be tied to the required use of loan services from a listing broker -- or any broker or lender.
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