Q–We found a five-bedroom “blighted” house in an up-and-coming neighborhood. We want to buy the house and fix it up. It’s in basic good condition but badly needs paint, carpeting, landscaping, rewiring and kitchen fix-up. My husband is a carpenter so he and his pals can do this work at minimal expense.
We’ve agreed on the price, in writing, with the seller. Our problem is we can’t find a mortgage lender for a 75 percent loan. We were pre-approved with one of the biggest banks, but when they appraised the house our loan got rejected. We tried three other lenders but they all took a look at the house and turned us down.
I suspect the real reason is it’s in a “mixed” neighborhood where lenders don’t feel comfortable. But I can’t prove that.
As we have excellent income and credit, how can we finance this blighted house?
A–Go back to the lender who pre-approved you for a home loan. Ask to see the appraisal. Was it for as much as you offered to buy the house? If so, that lender is required to honor its loan approval commitment to you.
If not, find out why. Perhaps you offered too much for the house.
I suspect the lender low-balled the appraisal to get out of making your loan. Ask the lender to have the appraisal reviewed or the house reappraised by a second apprasier. Get tough with your lender. Explain your plans for the house and why the loan will be safe for the lender.
To intimidate the lender, ask for the name and address of the lender’s federal or state regulatory agency.
Since you applied with three other lenders who found reasons to reject your application, if you can’t get a mortgage then your seller is virtually your only finance source. Ask the seller to carry your mortgage for at least five or 10 years. If the house is in bad condition and the seller really wants to sell, he or she will agree to finance your purchase.
Q–What do you have against Realtors? Why are you so anti-Realtor? Did you ever sell houses for a living? What entitles you to write about real estate?
A–When I started this column 21 years ago in the Washington Post, I was a Realtor selling houses and apartments. But I soon discovered newspaper editors and their readers don’t want a pro-Realtor column written by a Realtor. I dropped my Realtor membership and try to be objective.
As a result, today this column is now published in several hundred newspapers.
I’m not anti-Realtor. In fact, I’m often accused of being pro-Realtor. Please bear in mind I get mostly complaint letters about real estate agents. Rarely do I receive letters saying what a great job a real estate agent did. That’s human nature.
As you may know, I have several handicaps. I’m a real estate broker, attorney and investor. That makes a good background for writing a consumer-oriented column like this. I’m always open to suggestions, so don’t hesitate to write.
Q–I own an 18-unit apartment building that has become a management headache for me. I talked to a professional property manager and she wants a fee of 10 percent of gross rents. Is that what all property managers charge?
A–No. Professional property management fees, like real estate sales commissions, are negotiable between principal and agent.
Ten percent of gross income seems high for an 18-unit building unless it is a management-intense low income property. Shop around. Ask for recommendations of each professional property manager’s current clients. You can probably find a successful professional manager who will charge 5 to 7 percent of gross income.
Q–In January, while we were visiting Florida on vacation, our house caught fire becaue of a faulty wire. The insurance company paid us our policy limit. The company would have paid to rebuild the house, but we decided not to rebuild because the neighborhood has declined and has a high crime rate.
When we talked to our income tax adviser, she said we must pay tax on our insurance settlement amount, which exceeds our purchase price for the house. Is this true?
A–No. An insurance payment is an involuntary conversion. Internal Revenue Code 1033 allows you up to two years after the close of the tax year when your loss occurred to reinvest in similar use property of equal or greater cost, such as another residence, without owing tax. Perhaps you need a new tax adviser.
Q–May I give you some advice? Why do you fail to warn readers about the crooked home builders? About two years ago we bought a brand-new house in a new subdivision. We got a no-down-payment VA mortgage, so we presumed the VA had inspected the house. Wrong!
Also, the builder provided us with a warranty, but it became worthless when the builder declared bankruptcy for the shell corporation he formed to build our neighborhood. He’s building just down the highway, under a different corporate name, and we can’t get him to fix all the problems with our house.
Now he’s trying to get approval for an adjacent subdivision, but we are protesting to the city council because he won’t fix all the problems with our homes he built just two years ago.
Why don’t you expose the bad home builders?
A–I’ve heard similar stories from other buyers of brand-new houses. Although there are many excellent, reputable home builders, a few “bad apples” give the home building industry a bad name.
Many times in this column I’ve suggested prospective buyers of new homes visit the areas where the builder built a few years ago. Knock on doors. Ask the homeowners how they like their homes. Did the builder correct any defects promptly without hassle (all new homes have defects that need correction)?
The home-builder bankruptcy scam you explain is all too common. Unfortunately, like in any other industry, a few tarnish the excellent reputations of the majority.
Q–My husband and I are trying to find a home to buy. However, it isn’t easy finding a house we can afford that is reasonably close to our jobs and in a good school district for our two children.
We’ve been loyal to an agent recommended by a friend. But she hasn’t shown us houses we like. She never phones us. I always have to phone her to ask about houses I see advertised in the newspaper. How long should we stick with her before working with another agent?
A–If your realty agent hasn’t found you at least one home on which you made a purchase offer bid within two months, I suggest you start working with a second agent. Often it takes six months or longer to find a home to purchase, but your agent should at least be phoning you weekly and showing you new listings meeting your requirements.
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Robert Bruss’ report “How Senior Citizens (and Their Adult Children) Should Shop for a Reverse Mortgage” is available for $4 from Tribune Media Services, 435 N. Michigan Ave., Chicago, Ill. 60611.
Write to Robert Bruss at 435 N. Michigan Ave., Chicago, Ill. 60611.
PLEASE NOTE: Real estate law varies from place to place. Consult the laws of your state and municipality before making decisions on real estate issues.
