Q-I waited too long to refinance my home mortgage and missed the bottom of the interest rate cycle. However, after interest rates started up I applied for a fixed-rate mortgage with the bank that holds my current mortgage. I was reluctant to pay the $750 application fee, but the loan officer assured me I would qualify and she locked in a 7.75 percent interest rate for 60 days.
About a month later, the bank sent its appraiser to inspect my home. I asked for her business card and appraiser’s license number, as you often suggest, but she said she “forgot them” at home. Stupidly, I didn’t write down her name. I gave her information about recent sales prices of two nearby houses I knew about, but she said she had all that information back at her office. My current mortgage balance, at 9.25 percent interest, is about $178,000. The two comparable sales were $242,500 and $254,000, so I figure my similar house is worth about $250,000.
After three weeks I didn’t hear anything from the bank, so I phoned the loan officer. She said my appraisal came in at only $210,000, so she said she can’t refinance my mortgage. When I asked for a copy of the appraisal, the loan officer said it is “confidential.” My 60-day lock-in has expired. What should I do?
A-Yours is one among dozens of similar letters I have recently received about low appraisals used by home mortgage lenders to avoid loan lock-ins. You were ripped off by your bank and its appraiser.
Mortgage lenders who don’t want to make a mortgage loan, such as in your situation, because interest rates went up after the lock-in, use low-ball appraisals to get out of having to make the loan.
To prevent lenders taking advantage of borrowers like you, every state needs a simple new law requiring the appraiser to give a copy of their appraisal to the borrower, regardless who paid for the appraisal. Then you could see if the appraiser used those comparable sales you recommended and how the appraiser arrived at such a very low appraised market value.
Currently, many dishonest mortgage lenders like yours are skirting federal law which requires giving borrowers a copy of the appraisal if the borrower paid for it. Lenders avoid having to give appraisal copies to borrowers by not charging borrowers specifically for appraisals. However, you can be sure your $750 fee paid for that low-ball appraisal.
But don’t give up. Via Federal Express (so it gets prompt attention) write a polite letter to the lender’s president explaining the facts of why the low-ball appraisal is wrong and why your loan should be immediately approved. Send copies to the lender’s state or federal regulator and your state and federal legislators, with a handwritten suggestion for a new law requiring all borrowers be given a copy of their appraisals, regardless who paid for the appraisal. Ask the bank president to phone you with loan approval within five days. If she or he doesn’t do so, then phone him.
Only when borrowers can see their appraisal and spot obvious errors will appraisers realize their licenses are at risk. Your appraiser knows if you don’t have her name and license number you probably won’t complain to state appraiser license officials about her low-ball appraisal.
Q-In 1960 I bought two Florida lots. The real estate taxes were only $5 per year for many years. These lots are in an undeveloped area, with no road care, no water, no sewerage, no electricity and no nearby houses. The property taxes and assessments are now $92 per year. I can’t even sell these lots for this amount.
I think the county raised the taxes, so owners are forced not to pay the taxes and the county gets title to these properties for non-payment. Can I give these lots to a charity? If so, how do I determine their market value?
A-If you can find a charity foolish enough to accept these virtually worthless lots, on your income tax returns you can claim a charity gift for their fair market value.
But hiring an appraiser to determine market value will cost more than the lots are worth. If your property tax bill shows the appraised market value, that should satisfy the IRS if you are audited on this small item. Also, ask the charity to send you a thank you letter stating their opinion of the market value. For further details, please consult your tax adviser.
Q-I am selling my house and have agreed to carry back a $26,750 second mortgage. My daughter, who just completed her first year at law school, says I should take back a wraparound mortgage instead. Is this correct?
A-Yes. Your daughter obviously paid attention in Real Property Law class.
A wraparound mortgage, sometimes called an all-inclusive mortgage, is really a second mortgage. But the property owner will make just one monthly payment to you and then you use part of that money to pay the first mortgage. The result is you are always certain the first mortgage is being paid because you make the payment.
However, a wraparound mortgage should only be used if the first mortgage has a fixed interest rate. If the first mortgage has an adjustable interest rate, then you would have to provide for adjustments in your wraparound mortgage payments, too. Also, if your buyer is taking over an existing mortgage on the home, be sure it does not contain a due-on-sale clause. For further details, please consult a local real estate attorney.
Q-I own a vacant corner lot. One frontage is on a busy commercial street. The other is on a residential street. Recently the city down-zoned my lot from commercial use to apartment zoning. When I protested, the zoning administrator said I should have appeared at the hearings. But I was out of town. He says there is nothing I can do.
Should I sue the city for the diminished value of my property?
A-A government agency need not pay a property owner for decreased property value due to down-zoning. Only if your land has no economic value due to rezoning must you be paid.
You should have appeared at the hearing to protest the down-zoning. However, if an adjacent parcel is zoned for commercial, you have valid grounds to request either rezoning back to commercial or a zoning variance for commercial use. Please hire the best real estate attorney in town because you need expert help.
Q-I want to invest in real estate for cash flow and long-term profits, but I am uncertain what type of property is best. You often recommend single-family rental houses. But in my town I see lots of older apartment buildings for sale at bargain prices. Which type of property offers the best profit potential?
A-Having been a former investor in older apartment buildings, who switched to single-family, fixer-upper rental houses many years ago, I like them because they are so easy to buy, finance, manage and profitably resell.
However, since you want cash flow, if you can handle the management problems involved with older apartments which can be upgraded to increase profits, they might be the better alternative to meet your goals.
Q-A relative and I recently inherited a run-down house, and we have decided to sell it. The house has no mortgage. Please explain the pros and cons of our carrying back the mortgage to help get the house sold.
A-For home buyers, the best mortgage financing source is the seller. Usually, there is no qualifying and the seller rarely even runs a credit report check.
The reason is home sellers who carry back financing clearly understand their security is the home they sold.
The best thing which can happen to a home seller who carries back a mortgage is the buyer defaults.
However, this rarely happens. But when it does the seller who financed the sale either gets paid off in full at the foreclosure sale or gets the house back to sell again for a second profit.
As a seller carrying back the mortgage, don’t fear foreclosure. Welcome it as a second profit opportunity. But realize it will probably never happen. For further details, please consult a local real estate attorney.
Q-My parents have offered to give or loan me the down payment to buy a house.
My income and credit are good, but how is a mortgage company going to look at my application if they know I didn’t pay the down payment from my own money?
A-As long as you didn’t borrow the down payment, the mortgage lender doesn’t care where you got the down payment. For some crazy reason, mortgage lenders don’t want home buyers to borrow their down payment.
But if your parents give you the down payment (and provide a gift letter to satisfy the lender), the lender won’t care.
Before you go home shopping, first get pre-approved for a mortgage. Most banks, S&Ls, mortgage brokers and bankers will be only too happy to review your application and give you a written certificate of pre-approval.
If you are dealing with a reputable lender, then you can shop with confidence knowing you can get the mortgage you need, subject to the appraisal, of course.
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Please note: Real estate laws differ from place to place, and laws of your area should be checked before making decisions on real estate problems. Letters should be addressed to Tribune Real Estate Features Service, P.O. Box 280038, San Francisco, Calif. 94128.
