Ask Realty Times - June 3, 2005 - 6/3/2005 - Real Estate Home House Condo

Ask Realty Times - June 3, 2005
by Peter G. Miller

Answer: In the usual case, yes. Imagine that you borrow $300,000 and the value of the home increases -- the loan amount does not somehow grow with appreciation, it's all yours (except for certain reverse mortgages, a form of financing to be avoided).

But imagine that you borrow $300,000 and the value of the property declines. Why should the lender now subsidize your loss by not collecting the entire debt? The exception to this occurs in states such as California. There if you have a "purchase money mortgage" -- a loan used to acquire a property -- the borrower's responsibility is effectively limited to the value of the property.

However, if the loan is refinanced the purchase-money mortgage disappears and so does the borrower's protection against claims by a lender. For details, please speak with an attorney.

Question: Can a real estate broker enter a rented property without 24 hours notice? My apartment is now for sale and today a broker entered the apartment while I was in the tub. She claimed she did not have my "new" number -- but I never changed it!

We have always been courteous, but this is the second time she has shown up unannounced and now claims that 24-hour notice is not required. Is she right?

Answer: Generally landlords and their brokers are only allowed into rented properties to make repairs, to examine the condition of the property and in the event of an emergency -- except when the property is for sale or lease.

To the extent possible, notice should be given to the tenant, however when the property is being sold or re-let owners and brokers may need to get into the property on a schedule set by a prospect. In this case, the best approach is to post a sign inside the unit and by the front door warning visitors that you are in the property and that privacy is required.

Question: My wife and I just got an offer accepted on the house we wanted. We are supposed to close at the end of the month, but now we have received a phone call from our broker saying that we can't get our house because the owners still owe $50,000 on a second mortgage.

I just bought new carpet for the place and paid a full year of insurance. We are supposed to move in three weeks. What can we do?

Answer: The question is this: Do you have a valid purchase agreement? If yes, the property has been sold and must close as agreed.

Please speak with an attorney. Ask about "specific performance" -- a requirement for the owners to fulfill their contractual obligations. Ask about damages. The betting here is that the sellers will move once your attorney discusses such issues with them.

Question: We have lived in an apartment for 18 months and are about to move. Over time the carpet has become dirty. What is our responsibility?

Answer: Read the lease. Does it say you must have the carpet professionally cleaned? Does it have any other requirements? In general terms you should not be responsible for normal wear and tear. Carpets deteriorate with use over time and that is not a "fault" of the tenants.

Question: My wife and I have been living below our means and feel our existing home is now becoming a little small for us. The home we currently have is 1,800 sq. ft. on a 5,000 sq. ft. lot. We purchased it for $300,000 several years ago and it's now worth $750,000. We owe $165,000.

We could buy a larger property costing $1.9 million with $800,000 down and a fixed-rate loan for the balance at 5.5 percent. I know if I buy, I will be buying at the top of the market, but I'm also selling at the top. Given talk of a real estate bubble is now the time to buy?

Answer: At the moment there is no housing bubble -- but no one knows what the future will bring.

On May 30, 2000 the Dow Jones Industrial Average closed at 10,527.47 while on May 27, 2005 it closed at 10,542.55. Given that inflation erodes the value of the dollar, and given that the index is essentially unmoved during the past five years, the spending power represented by this index has declined. Is this an example of a national bubble?

If it was possible to answer your question it would also be possible to remove risk from the marketplace. Unfortunately, the market is always risky, therefore there just isn't an answer to your question -- or at least an answer that has any value. You'll need to make a decision based on your best interests and preferences.

Question: I've just been licensed and affiliated with a small brokerage company. What's the first move I should be taking to get started? My idea is to get some business cards made, mail out fliers and cards to promote myself, and call FSBOs. Am I headed on the right path to success?

Answer: STOP! You were doing great until you got to the part about phoning self-sellers (FSBOs -- properties marketed for sale by owner). If the self-seller is on the federal Do Not Call list you (and your broker) could face massive fines -- as much as $11,000 per unsolicited call. A morning spent on the phone could bankrupt many companies.

In February, according to the National Association of Realtors, the Federal Communications Commission said that calls to "FSBOs by real estate professionals representing a potential buyer are not a telephone solicitation, so long as the purpose of the calls are to discuss the potential sale of the property to the represented buyer. Unfortunately, the FCC declined to exempt from the Do-Not-Call rules calls to expired listings and to FSBOs for the purpose of offering services to residential subscribers (homeowners)."

In other words, you can't call a FSBO on the do-not-call list merely to get a listing.

Question: A long-time tenant asked me several years ago if he could remove and replace the refrigerator, stove, and dishwasher with newer models. I gave him permission to sell them locally and he did, forwarding me a check. Later he asked if he could put down carpeting to suit his tastes, do painting, wallpapering, change a light fixture, etc. I gave him permission to do all of that. However, he went further and replaced door knobs, changed the locks, put lights in the bedrooms and closets, replaced the bathroom linoleum to suit his taste, etc.

He is now in the process of buying a new home and has given me "choices." He wants me to pay to keep some of the decorating choices that he made. For instance, he wants to take his wall-to-wall carpeting, he wants to put back the old locks and knobs, he'll take the new drapes, blinds and shades as well as the new bedroom and closet light fixtures that were professionally installed. Can he actually take all this stuff out?

Answer: Take a look at the lease. It usually has language which says two things: First, the tenant is not to make repairs or alterations to the property without the owner's permission. Second, leasehold improvements become the property of the landlord at the end of the rental period.

Since you gave permission for the changes the first clause is moot. As to who owns the improvements, if the lease has the right language they belong to you. But ... is the property better with the changes made by the tenant? What will it cost to fix-up the property once the tenant takes "his" improvements? Do you really want to go to court if the improvements are removed?

If the tenant takes "his" improvements, but restores the property that's fine. If the tenant is paid for his improvements and the property is better, that's fine too. In either case, you're ahead. You're only question is whether it is worth keeping some or all of the improvements. You may want some and not the others -- perhaps pay only for those you want. In any case, make a photo record of the property in case you have to show a judge what was removed.

This column is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought.