Q: For the past 20 years I have been buying and managing rental homes and I have to say that these days tenants are worse than I have ever experienced. Not all tenants are bad, but lately I have seen a noticeable increase in tenants who do not pay their rent and then leave in the middle of the night after causing a lot of damage to the house. At one rental, I recently had to spend almost $6,000 to fix up the house for re-renting.

I certainly understand the economy is bad in our area and many parts of the country, but my management company is unable to collect any money after the tenant moves out. The manager simply gives the case to a collection agency, and I never collect any money from the agency. It has been a repeated problem. Can you please suggest what I should do? Can you suggest a reputable collection agency?

A: You are not alone, as many landlords are finding that tenants who stay and pay, and treat the rental property with respect, are far and few between. It is clearly a function of the economy, and once you see signs that a tenant is having trouble paying rent you may want to have some open and direct conversations with him or her about how quickly you can regain possession of the rental rather than taking legal action and dragging out the eviction process.

As you unfortunately found out, the amount of damage that can be done in a rental home makes the nonpayment of rent seem like a minor issue. Your first priority should be simply to get your property back in decent condition and start over with a new tenant. It is easier said than done, but the best way to avoid these problems is to very carefully screen and select your tenants when they apply.

Qualified tenants with a stable rental history and good, reliable income are in high demand and can actually find landlords competing for them. I have even seen some tenants who have a resume or reference list that they bring with them that demonstrates to the landlord that they are qualified.

In these situations, you may find that you need to be flexible with your rental rates or upgrade your rental homes so they are more desirable than other comparable properties in your area.

As for the collection of delinquent tenant balances, I cannot recommend a specific company but I can tell you what you should do. Contact your local apartment association or Institute of Real Estate Management (IREM) chapter and ask them for names of companies in your area. Then contact those companies, and then ask for and contact their references.

While the pricing of collection services will vary, they are often quoted on a percentage of the collected amount. For example, a firm that charges 50 percent would deduct half of the collected amounts as their compensation prior to remitting the balance to you. You also need to make sure that you understand whether the out-of-pocket costs are included in the percentage quoted or are extra amounts that are deducted or billed to you.

You are not looking for the company with the lowest percentage but the company that has the highest overall net return, and the only way you can determine that is to contact their satisfied customers to see their actual results. Also, be sure to contact rental housing customers only, as the collection account success rate for other businesses may not be indicative of what they can do for you.

The other key recommendation is that delinquent account balances become much harder to collect over time so the sooner you get the paperwork into the hands of your collection agent the better the results.

Another tip is to be sure to file a small claims suit and get a judgment for the money owed, which can be collected in the future as long as the tenant doesn't file bankruptcy and get your judgment set aside or discharged. This can be your best strategy because while your former tenant may be down on his luck today, I have had tenants call out of the blue asking to pay everything they owe because they are trying to borrow money for a major purchase and need to get the judgment removed from their credit report.

This may be five to 10 years from now, but most people bounce back from financial problems and they will need to pay you in full in order to get a loan to buy a car or a house. While you would prefer your money today, there is still some satisfaction, and the cash will come in handy regardless of when you ultimately collect.

This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of "Property Management for Dummies" and "Property Management Kit for Dummies" and co-author of "Real Estate Investing for Dummies."

E-mail your questions to Rental Q&A at rgriswold.inman@retodayradio.com.

Questions should be brief and cannot be answered individually.

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In springtime, when all things hopeful and botanical bloom, there was a widespread sprouting of press announcements, particularly from the major banks, about increased dollars allocated to the business of jumbo loans.

Alas, the soil for such pronouncements has proven poor. A dearth of jumbos persists and the market appears to be wilting.

As an executive at one mortgage research company told me, earlier this year there was a flurry of activity with Bank of America and other major banks announcing jumbo loan programs, "but I haven't heard anything since then. The market doesn't appear to have changed much. I think some of these announcements were made to generate good press. The banks were saying, 'Hey, we are open for business -- don't forget us,' but they weren't doing anything more than what they were doing before."

Jumbo loans are basically any mortgage where the principal amount exceeds the statutory purchase limit of Fannie Mae and Freddie Mac, which has been set at $417,000 (Congress raised the upper limit in some high-cost areas to $729,750). In other words, with a conventional mortgage, Fannie Mae and Freddie Mac will buy the loan from the lender in the secondary market.

The agencies won't purchase jumbos, which in the past were securitized and bought by private investors. That process completely closed down with the onset of the recession and the collapse of the credit markets.

If you're BofA, or even ING Direct, which is also offering jumbo loans, then the loans have to be held in the bank's portfolio. Hence, these lenders are being very circumspect about the loans they make since they can no longer shed the risk to other investors.

"Lenders that have stepped into this space are predominantly portfolio lenders, so they are a little more restrictive in the kinds of loans they are interested in writing," notes Keith Gumbinger, vice president of HSH Associates Financial Publishers in Pompton Plains, N.J. "Fewer outlets are interested in lending them and when you do find them, the terms and credit restrictions are definitely tougher than they have been."

Back in March, an Inman News story reported that BofA had cut interest rates on jumbo mortgage loans in the hopes of expanding its share of the market. Nevertheless, borrowers would still need strong credit (minimum 720 FICO score), at least a 20 percent downpayment, and assets sufficient to cover six months of payments.

In general, the big banks don't have attractive rates on jumbos and "are very strict in regard to underwriting and property valuations," says Dan Cutaia, president and chief operating officer of Fairway Independent Mortgage Corp. in Sun Prairie, Wis. "Unless you have a lot of equity and you are 'gold' to a lender, it will be difficult to find a jumbo loan, and if you do, you are going to pay a significant market premium."

Fairway Independent Mortgage has been writing jumbo loans, which it brokers to companies like ING, but the deal has to be "absolutely golden," with lots of equity and great credit. In short, the borrower has to be perfect.

Before the credit crisis, Fairway Independent did about 15 percent of its lending in the jumbo category; well into third-quarter 2009 the company wrote just over $2 billion in jumbos, which is less than 5 percent of its overall lending.

The good news is that prime-quality jumbo loans have a better history of defaults than conventional loans, which translates into a better risk profile on an individual loan basis. In a portfolio of loans, everything changes.

If $100 million of conventional loans came to market (which isn't happening, but let's fantasize), that could mean 1,000 loans of $100,000, or 100 loans at $1 million. Just a couple of loan failures in the jumbo portfolio could be more devastating than a higher number of failures in the conventional portfolio. In other words, actual losses could be higher with jumbos although the percentage of losses is lower.

The bad news with the jumbo-loan sector is that things could get worse before they get better.

"The big issue is that there are a trillion dollars of jumbo mortgages out there and these mortgage holders do not qualify for the federal government's modification plans. Many of these people are now having financial difficulty," says Steve Ozonian, executive chairman of Irvine, Calif.-based Sorrento Capital.

So far, the industry has not experienced a sizable destruction in jumbo-loan mortgage portfolios, as individuals who took these loans boasted good incomes at the time they signed their mortgage documents.

Since then, some of these good folk have lost their jobs.

Fortunately, when the now unemployed got their jumbo loans back in the mortgage heyday years between 2002-07, they were able to also get from the lender significant lines of credit, in some cases upward of $1 million. Ozonian believes a lot of the unemployed jumbo borrowers are using their lines of credit to continue to make mortgage payments.

The higher-end home market could experience a higher proportion of defaults and REOs at the end of this year and through 2010, says Ozonian. "The amount of jumbo-loan defaults will accelerate if we don't allow people to modify, refi, or get out from under these homes."

If Ozonian's prediction comes to bear, the already narrow jumbo loan market will squeeze down even further.

Steve Bergsman is a freelance writer in Arizona and author of several books, including "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade."

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Q: I'm currently in contract to buy a townhouse. The broker and my attorney are encouraging us to have the seller purchase a home warranty (through Coldwell Banker). What is your opinion of these programs? There seems to be many complaints about them online.

A: First, I need to give you a couple of disclaimers: I have only limited experience with home warranties, and I don't know anything about Coldwell Banker's specific program. So this is only my general and limited opinion.

From what I have seen and heard, home warranties suffer from a "fine print" problem. Homes and their systems are very complex, and there are so many variables that affect them, from the weather to do-it-yourself repairs. For that reason, there are a number of things that are either not covered or have only limited coverage under a lot of the warranties.

Also, there can be a number of factors that determine the inclusion or exclusion of a listed repair, such as age, condition, who's worked on it in the past, even its location in the house. Finally, depending on where you live, actually getting repair people out to your house in a timely manner may be an issue as well.

First of all, you need to carefully go over all the details and all the restrictions of the proposed policy. You obviously have an attorney involved, so he or she should be able to help you understand it. See what the deductibles are, and when they come into play. Find out what the exact procedures are for calling in a warranty claim, how long the processing takes, and how long it takes to get a service person out to the house.

If possible, ask for some local references of other buyers who have this service. Give a few of them a call, and see what their experiences have been.

Q: I recently bought a house built in 1927. It's a two-story with a finished attic (total of three floors of living space). It appears to have no insulation whatsoever. The third floor has access to the tops of the exterior walls, all of the roof rafters, and the tops of the second-floor ceilings. What would you recommend for insulation? Should I blow cellulose insulation down the exterior walls from the attic space?

A: Unfortunately, you're going to get a lot of conflicting opinions on whether blowing insulation into the exterior cavities of an older home is a good idea or not.

With a home as old as yours, you have the possibility that the weight and pressure of the blown insulation can damage wiring in the walls, crack plaster, and even possibly damage old water pipes. Also, older homes tend to leak a lot of air through the walls. That means that moisture is being drawn into the walls as well, which can dampen the cellulose and cause all sorts of additional moisture problems to the structure.

The best thing I can suggest is that you have two experienced, licensed insulation contractors come out and inspect the house and make specific suggestions as to what you can do to insulate it. Compare their suggestions and their cost estimates, and see if there is a consensus of opinion on how best to proceed.

Another option is to contact your local utility company and see if they have a weatherization consultant available that can come out and check the house. This should be a free service from the utility, and in addition to making specific suggestions about how to insulate and weatherize the house, they may have grant money or low-interest loans available to help you with the work.

Q: Is it possible to install a towel rack on glass block shower tile? Would it work by using epoxy with a regular towel rack, or would it not be strong enough to hold a wet bath towel?

A: It's difficult and even potentially dangerous to attach anything to glass block. I would be leery of even gluing something to the block, as the weight of a wet towel could eventually cause some structural problems if the blocks are not well installed. Above all, don't drill into the block for any reason.

My suggestion would be to look for alternative places to mount the towel bar. If there are no convenient walls to mount it on, you might want to consider a freestanding towel rack instead, or attach a hook to the back of the door.

Remodeling and repair questions? E-mail Paul at paulbianchina@inman.com.

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Editor's note: This is Part 1 of a three-part series.

"When I built my addition, the building inspector made me tear out the bedroom window and put in a bigger one! Personally, I don't think it's any of his (deleted) business how big my bedroom window is!"

I hear these kinds of gripes from disgruntled do-it-yourselfers all the time. Not to rub salt in the wound, but in most such cases, a passing acquaintance with the building code -- and even more important, an understanding of its intent -- would have saved these folks an awful lot of frustration.

Though it may seem like it at times, building codes weren't formulated to harass do-it-yourselfers. In fact, they arose to protect public health and safety during the late 19th and early 20th centuries, a time when a population explosion in American cities was leading to ever more squalid and unsafe living conditions. This was an era in which tenement apartments variously lacked heating, natural light, access to fresh air, or a means of escape in case of fire.

On a larger scale, poor separation between closely packed buildings meant that a small fire in one structure could quickly spread to adjoining ones. Too often, the result was raging urban conflagrations such as the Great Baltimore Fire of 1904, which destroyed 1,500 buildings over an area of 140 acres.

Even nominally fireproof masonry buildings -- whose entire safety equipment might consist of a red-painted pail of water labeled FIRE placed on each floor -- were far from invulnerable. Such buildings commonly housed overcrowded sweatshops with inadequate means of escape in emergencies, and inevitably, there were a number of horrific fires.

The worst was New York City's Triangle Shirtwaist Fire of 1911, in which 146 garment workers, most of them immigrant girls and young women, either were overcome by the fire or leapt to their deaths from the building's ninth floor. The subsequent investigation determined that one exit on the ninth floor had been blocked by fire, and that the other had been locked from the outside. The building's exterior fire escape, the last possible means of egress, was flimsily built and poorly attached. It collapsed when the panicked workers swarmed over it.

Building codes arose in an effort to prevent such needless tragedies from recurring. In one way or another, every code provision -- including the one that raised that do-it-yourselfer's hackles -- trace back to this source.

Ensuring an escape route in case of emergency is a primary function of building code provisions, and in residential buildings this usually means providing more than one way out in case the primary egress is blocked by fire. In a bedroom, that emergency escape route is the window.

Once we understand the code's intent, requirements that may seem arcane or burdensome suddenly make sense. Most are meant to ensure that buildings will stand up safely, that habitable spaces have at least minimal access to natural light and fresh air, and that there's always a way out in case of emergency.

Next time, we'll look at a few basic building code requirements, and what they're meant to accomplish.

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Q: Please explain why the Federal Housing Administration (FHA) will not allow a buyer to purchase a home that was sold within the previous 90 days? We have asked this question numerous times and everyone just goes around it and says FHA will not allow this type of loan.

We have seen several properties that we really want, but we keep being rejected because we have to go FHA (we have only a 3.5 percent downpayment). Why is this a rule? Are there any ways to work around it?

A: The only thing you can do to work around this issue is to restrict your house hunt to homes near or past the 90-day time frame. You must close your purchase or escrow at least 90 days following the closing of the previous purchase -- and honestly, many sellers will simply prioritize offers from wannabe buyers using conventional (i.e., non-FHA) financing.

Let's get clear on what this rule is and why it exists. FHA doesn't actually offer loans; it simply insures loans made by mortgage lenders against the risk of default. That just means that if you default, FHA agrees to cover the lender's losses, so long as the lender ensures that you, your loan and your transaction meet a set of guidelines.

FHA's aim is to ensure that mortgage loans stay available to borrowers who otherwise wouldn't be able to qualify for a home loan.

Right now, the lowest "conventional loan" downpayment requirement is around 10 percent. By insuring loans with downpayments as low as 3.5 percent, FHA allows you and people in your situation to buy when they would be blocked from participating in the market otherwise.

But here's the deal: FHA's position is that a large number of homes that were walked away from and/or foreclosed on during this recent housing crisis were homes that had been flipped, or bought and resold very quickly at a dramatically higher price for profit.

From the FHA's perspective, the flipping phenomenon was partially to blame for the runaway appreciation in home prices and, when values dropped, the owners who had paid these inflated values were simply much more likely to abandon their homes or otherwise lose them through foreclosure.

My dad taught me as a child the following adage: "She who has the cash makes the rules." And so it is with FHA loans. FHA wants to discourage flipping, especially flips in which little or no work has been done to improve the condition of the property, so it refuses to insure loans that fund flip resales.

For this reason, in 2008 the FHA enacted the following anti-flipping rule, which is the very rule you seem to be running up against:

Resales occurring within 90 days of the acquisition will not be eligible for a mortgage to be insured by FHA. FHA's analysis disclosed that among the most egregious examples of predatory lending was on "flips" that occurred within a very brief time span, often within days. Thus, the "quick flips" will be eliminated.

Now, if you should find and get into contract to purchase a property that is past the 90-day threshold, you might be able to obtain an FHA-insured loan, but you will have to get a second appraisal -- at your expense -- and ideally the seller will be able to document that the seller made significant investments and improvements to the property since purchasing the property.

More from the FHA rule: Resales occurring between 91 and 180 days will be eligible provided that the lender obtains an additional appraisal from an independent appraiser based on a resale percentage threshold established by FHA.

This threshold would be relatively high so as to not adversely affect legitimate rehabilitation efforts but still deter unscrupulous sellers, lenders, and appraisers from attempting to flip properties and defraud homebuyers. Lenders may also prove that the increased value is the result of rehabilitation of the property.

But this is Home Sale Hindsight -- what went wrong in your house hunt? It was your advisers' failure to explain the rationale and details of this rule. Had they done so, you might have focused your efforts not on questioning the rule and looking for workarounds, but on finding that needle-in-the-haystack property that meets both your needs and FHA guidelines.

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.

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A 4-year-old …? How does a 4-year-old get approved for an $8,000 first-time homebuyer tax credit?

While Realtors, lenders, appraisers, home inspectors, escrow officers and every other professional service connected to home sales and financing are lobbying for an extension of the first-time homebuyer housing credit, a recent audit revealed thousands of fraudulent claims and a need for more safeguards to support the popular program.

It's disheartening that problems would surface in the one plan that is housing's primary driver, but I guess the fraud disclosure should not come as a surprise. Mortgage scams have been in the news. And, we are just now getting an indication of how many consumers are willing to participate -- especially if they think there is a chance the Internal Revenue Service will not discover their creative maneuvers.

The American Recovery and Reinvestment Act of 2009 revised and extended the first-time homebuyer credit provided for in the Housing and Economic Recovery Act of 2008 to Nov. 30, 2009. Taxpayers qualifying for the program may claim the $8,000 credit on either their tax year 2008 or 2009 individual income tax returns. As of July 17, 2009, more than 1.1 million tax returns claiming more than $8 billion had been processed.

The goal of the recent audit conducted by the Treasury Inspector General for Tax Administration (TIGTA) was to determine whether the IRS had controls in place that effectively identified erroneous claims for the tax credit.

It developed computer programs to identify 73,799 first-time homebuyer credits attached to an original U.S. Individual Income Tax Return (Form 1040), totaling almost $504 million, that were claimed by taxpayers who had indications of prior homeownership within the last three years.

According to the audit, the 73,799 taxpayers had entered information on their individual income tax returns for one of the prior three years indicating they may have owned a home. These entries included deductions for home mortgage interest, real estate taxes, deductible points, and qualified mortgage insurance premiums.

While the IRS adopted controls to identify many questionable claims for the credit, some key controls were missing, according to the TIGTA. Missing from the suggested safeguards was information provided on the First-Time Homebuyer Credit (Form 5405) to verify eligibility requirements. In addition, taxpayers were not required to provide documentation that they actually purchased a home.

The law defines a "first-time homebuyer" as any individual (and spouse, if married) who had no ownership interest in a principal residence during the three-year period prior to the purchase of the home to which the credit applies.

According to the audit summary, TIGTA identified 19,351 tax year 2008 electronically filed tax returns on which taxpayers claimed credits totaling more than $139 million for homes that had not yet been purchased.

If that revelation wasn't absolutely mind-boggling, then the discovery of 4-year-old claimants (apparently more than one) really takes the cake. In the words of the audit writers: "Through July 25, 2009, we identified 582 taxpayers under 18 years of age who claimed almost $4 million in first-time homebuyer credits. The youngest taxpayers receiving the credit were 4 years old.

"Contract law generally exempts children under the age of 18 from being bound by the terms of a contract. Therefore, it is unlikely that these taxpayers would have entered into an arm's-length transaction for the purchase of a home."

Approximately 28 percent of the 582 taxpayers under age 18 that were identified claiming the credit did not meet the IRS' Adjusted Gross Income screening criteria. In 64 of these cases, other IRS filters flagged the claim for further scrutiny. However, 101 of the claims (totaling $626,779) made by children under the age of 18 did not meet any of the IRS screening criteria.

As of May 17, 2009, the IRS implemented examination filters to identify potentially erroneous claims for the credit. The age of the taxpayer receiving the credit was not one of the specific filters implemented by the IRS to screen the original claims. According to the audit, the IRS believed that its filter identifying taxpayers claiming the credit who had adjusted gross incomes below certain levels would catch the questionable claims.

Also falling through the cracks were 12,023 taxpayers claiming to be first-time homebuyers who had taken a residential energy tax credit within the past three years.

"This increases the likelihood that the taxpayers owned a principal residence and do not qualify for the First-Time Homebuyer Credit since this credit is generally only available for qualified expenditures made on a taxpayer's principal residence …"

While many taxpayers will be identified by recently implemented IRS filters and are subject to pre-refund audits, the TIGTA identified 70,005 taxpayers whose tax returns were processed prior to the implementation of the filters.

Clearly, the IRS underestimated the need for basic first-time homebuyer safeguards in the credit program -- and probably the popularity of the program itself.

But a 4-year-old?

Tom Kelly's book "Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit from Property South of the Border" was written with Mitch Creekmore, senior vice president of Houston-based Stewart International. The book is available in retail stores, on Amazon.com and on tomkelly.com.

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Q: My landlord, who's been a great guy, told me that he thinks he's probably going to lose the property to foreclosure. My lease runs out in a couple of months, and I was hoping to stay here for at least another year. The landlord offered to renew the lease now, for as long as I want, because he says there's a new law that makes foreclosing banks honor existing leases. If we do this, will it work? --Paul L.

A: Your landlord is correct about the new law. Signed by President Obama in May 2009, the Protecting Tenants at Foreclosure Act of 2009 requires foreclosing banks who become the owner upon foreclosure to honor existing leases.

If someone buys the home at a foreclosure sale intending to occupy it, however, the new owner can terminate the lease with 90 days' notice. (Incidentally, for month-to-month tenants, both the bank and any new occupying buyer have the right to terminate the rental agreement, but must give tenants 90 days' notice.)

Your landlord's idea would give you the long-term protection you need as long as the bank buys the property rather than a buyer who plans to live there. Even if the bank turns around and sells to someone else, that new buyer will have to honor the lease.

However, even if the bank becomes your landlord upon foreclosure, you might face some problems if the bank learns of your last-minute lease-signing. Reasoning that an empty home will be easier to sell than an occupied one, and realizing that any subsequent buyer will be shackled with you as a tenant for the length of your new lease, the bank may decide to challenge the validity of your last-minute lease.

Undoubtedly, the bank would start by offering you some money to move fast and quietly (known as "cash for keys"). If you don't go for it, they'd proceed by terminating your tenancy. If you refused to move, the bank would file an eviction lawsuit.

You could argue that the bank must honor your new lease, but the bank would likely contend that the lease was an effort to defraud the bank and shouldn't be enforced. Ultimately, the judge would be asked to decide whether the new lease is valid.

Your landlord's plan is clever, but that doesn't necessarily mean that it's legal. You and the landlord are taking advantage of a legal right (signing a new lease) knowing that it will tie the hands of the bank later. Is this fraud?

Lots of maneuvers that businesspeople engage in do just this -- cleverly use the law to their own advantage, and perhaps at the expense of others down the road. These ploys become illegal when, for example, the actors owe some duty of care or loyalty to the person who ends up disadvantaged by their act.

But does the landlord's relationship with his lender make him duty-bound to make life easier for the bank when the landlord defaults on his loan? Perhaps. When two people are parties to a contract, they owe each other a duty of "fair dealing," which generally means that they must not act in a way that will harm the interests of the other.

Your landlord and his lender were under contract -- but does extending your lease and making the property less salable constitute active harm? If the landlord were dealing with the neighborhood bank, maybe ... but these days, the lender could be one of many subsequent owners of this mortgage, which might have been chopped and bundled and sold repeatedly to unknown buyers.

The new federal legislation you're relying on may itself supply the answer. Section 702(b) specifies that the new duty to honor your lease applies only when you're a "bona fide" tenant.

According to the law, tenants must not be the spouse, parent or child of the owner; tenants are paying rent that's not "substantially less" than fair market rent; and the lease transaction must have been conducted at "arm's length." This last requirement probably doesn't describe the plan hatched by you and your landlord, which might doom your chances of staying.

Q: Like many properties in town, my apartment complex is not fully occupied, and I'm having trouble filling vacancies. My wife suggests that we take advantage of the lull to renovate. I'm hesitant, given these hard times. What do you think? --Matt S.

A: I think your wife has a very valid point, and it's one that hasn't been lost on your commercial landlord counterparts. There are several good reasons to renovate now, rather than waiting until full occupancy returns and the economy recovers:

1. Renovating now positions you nicely once the economy improves. Things are bound to improve (that's why real estate cycles are called "cycles"). If you've upgraded your property, you'll be ready to attract the best tenants and charge them an increased rent for your spiffed-up units. But if you wait, you'll either have to rent for less or keep apartments off the market while you do the work, losing you even more rental income.

2. Renovating now helps keep current tenants. As you've noted, vacancies are up, which means that your remaining tenants have plenty of choices about where to live. If they see that you're actively improving the property, they're less likely to jump ship, even if they could rent for less.

3. Renovating now is convenient. You already have some vacant units -- you may as well take advantage of that to do the work. If you wait, you'll have to either take them off the market when you could be renting them or try to do the work with tenants in place. Even if that's feasible, most tenants will expect some compensation (relocation or diminished rent) in exchange for the disruption.

4. Renovating now may allow you to take advantage of discounted goods and services. Take a look at the price of appliances at big box stores -- there are bargains galore. You may also find contractors willing to work for less than they'd charge in a booming economy, when there's a higher demand for their services.

If you decide to go ahead, start by figuring out which improvements will set you apart from the competition. Learn what your market -- tenants who earn enough to afford your rent -- really want in a rental. Is it granite countertops? An on-site gym? How about "green" improvements? Talk to other landlords and brokers to find out -- the last thing you want is to spend money on remodels that don't appeal to your target market.

Finally, be sure that after you do all this work and spend the money, you choose qualified and creditworthy tenants. Your entire strategy is based on spending money now so you can collect more money (in the form of higher rent) later. That plan depends on finding solid tenants who pay on time and don't have to be evicted.

Having to evict means more expense, and rent-less months while you look for a replacement -- all of which will cut into your income stream.

Wives have such excellent ideas, don't you agree?

Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord's Legal Guide" and "Every Tenant's Legal Guide." She can be reached at janet@inman.com.

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Q: My wife and I were approved to buy a home up to $400,000, but we knew that we couldn't actually afford the monthly payment on that much. So, we started out looking at homes in the $200,000 range. Over the months, we realized that we would have to offer quite a bit more than the asking price to get in.

And so many of the properties we were seeing were in really bad shape -- so bad that we couldn't afford to fix them up if we did get them. So we decided to look in the $250,000 range, but even after offering $30,000-$40,000 over asking, we still weren't getting anything.

Now we're looking up in the low $300,000s -- we're starting to see fewer offers on the properties and better places, but I'm concerned by this trend and I fear that we're in danger of overextending ourselves. How should we proceed?

A: When I was a kid, there was a series of animated commercials for Crest toothpaste in which the city of Toothopolis was attacked by these massive, muscular invaders whose sole mission was to drill cavities into teeth. The name of this tribe? The Cavity Creeps. I believe that you might be running into their cousin: the "Price Creep."

Mindset Management

Unlike The Cavity Creeps, Price Creep has some redeeming qualities. Many times, buyers start the house-hunting process with unrealistic expectations, especially given the hit home values have taken recently. Many first-time buyers or folks who have been out of the market for any significant period of time read the headlines that prices were down and assumed they could get a mansion for a song.

For those who were laboring under this misconception, Price Creep can be useful, even necessary. You need to have some mental flexibility and, ideally, room in the budget to creep your mental maximum price upwards to the point where you're at least operating within the same reality as the rest of the players in the market, or you'll make lowball offers, continually experience rejection, and burn yourself and your agent out -- all without getting a home.

Educated, reality-based Price Creep is the opposite of fantasy-land, ignorant rigidity, and that might be why you were willing to move your price range upward initially.

However, Price Creep Gone Wild is a potentially dangerous animal. I've seen it time and time again -- buyers trying to beat out all the other offers, creeping up by $5,000 or $10,000 every 15 minutes because, well, it adds only $50 or $75 to their monthly payment. And that's true, but those reasonable and incremental Price Creeps, multiplied by four or five, can hike up your monthly mortgage payment from a place where you have to give up a night out a month to a place where you have to give up food altogether -- and that's not a good look, as the kids say.

Need-to-Knows

So the name of the game is getting clear and concrete: on your personal finances and what they can bear, on your priorities, and on your vision for your life in your new home -- and what lifestyle or property must-haves, compromises and sacrifices you're willing to make to keep Price Creep under control.

I want you to move from where you are now (nervous that you'll overextend yourselves) to a place of confidence about what your absolute max is. I want you to be so confident that even if you saw your quintessential dream house, you would have no regrets if you made your best offer and failed to get it, because you know exactly what your best offer is.

To get there, you need to get crystal clear on your personal finances. If you haven't already, write out a list of your current income and expenses. Talk with your accountant or tax preparer to get an estimate of how much your monthly net income will increase when you change the taxes withheld from your paycheck to account for your mortgage interest deduction.

Then, tweak your list to exclude your current rent, and to include all of the miscellaneous costs of ownership (outside of your mortgage payment), like maintenance and utilities that you're not paying now.

This is a truth-telling exercise. You'll have to be honest with yourself about how much you're currently spending on discretionary expenses like dining out, leisure shopping and traveling -- put it all on the list. Ideally, work from your last month's bank statements to get the most accurate picture.

Then, prioritize and make some value judgments as to which discretionary expenses you can reduce once you buy your home, based on what you two feel is worth giving up in exchange for homeownership. Be honest here, too. Some folks will tell you not to buy lattes or to downscale your international travel habit to road trips in the tri-state area.

My suggestion is that you stay true to what you know about yourself and what level of spending-habit change is actually feasible. And remember that your life is supposed to get an upgrade from buying a home.

So while almost every homeowner needs to scale back from the unfettered spending of their days as a renter, do not assume that you're going to go from mimosa brunches every Sunday to total self-imposed poverty the day after you sign your closing papers. Avoid setting yourself up for failure.

After you reduce those expenses on this spending plan you're creating, you should have a much clearer picture of how much you can afford -- max -- to spend on your home.

Go back to your mortgage professional and ask them to work backward from that monthly dollar amount, keeping in mind how much cash you have to put toward downpayment and closing costs, and tell you what purchase price corresponds with your monthly max.

Make sure he or she includes principal, interest, property taxes, homeowners insurance, mortgage insurance, and homeowners association dues, if applicable.

Follow these action steps, and you should be so clear on your max that you'll be much more likely to stick with it -- period. You've gotten all the benefit possible out of the Price Creep, now put the creep back in its place!

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.

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A buyer is looking at your home and asks a question. Be careful what you say, as it can cost you much more than you realize.

As a seller, you may find yourself at home when a buyer is looking at your home. In most cases, it's smart to leave during the showing. If you are at home and the buyer or his/her agent asks a question, tread carefully. Here are five things to never tell a buyer.

1. Where is the property line?
It's easy to point to the fence and say that's where the property line is. The correct answer to this question is, "I don't know where the exact property line is. If you want the exact location, you will need a survey."

I remember selling a property where my client's brick fence was encroaching on a 2-inch-by-2-inch part of the property next door. My buyers didn't learn of the issue until they decided to add a room to the house. They hired a surveyor who discovered the problem. It cost almost $2,000 and a considerable amount of hassle to obtain an easement (i.e., permission to use) this tiny piece of land. Part of the expense was due to having to re-record the deeds for both parties as well as obtaining a written approval from each of the lenders.

In a different case, the sellers represented that the property line was located at the fence. The fence was actually encroaching on the neighbor's property by 1 foot. The property line on that side was 220 feet long. Due to the prime location of the property, the value of the land as awarded by the court was more than $200,000.

2. Do any ______ live in this neighborhood?
If a buyer asks you a question that references race, ethnicity or religion, it is a violation of the fair-housing laws to answer the question. A better response would be to say either "I don't know" or "federal law prohibits me from discussing race, ethnicity or the religion of my neighbors. If you would like to know more about the general characteristics of this area, you can check the U.S. Census data."

3. Is this a safe neighborhood?
While you might be tempted to say, "We have never had any problems," that's not a good idea. You may not have had any problems, but what about the neighbor on the next block who had her car stolen or who was burglarized? You may not be aware of the problems, but your representation of the safety of the neighborhood could come back to haunt you.

A better response is to say, "If you are concerned, please check the crime statistics for this area either online or at the local police department." Some resources include NeighborhoodScout or SpotCrime.

One particularly important point to note is the issue of sexual predators. CrimeReports.com allows you to enter your address to locate crime statistics plus identify whether registered sexual predators are living nearby. Please note that unless your local policing authority is reporting crimes to these online sources, there may not be accurate or complete data.

4. Is there anything wrong with the roof (or any other major system in this house)?
Your roof may have been watertight all last winter, but it may have developed a leak over the summer. There is no way to know the exact condition of the roof, even if you climb up and look at it. In fact, when roofers climb on your roof to make repairs, it can be extremely difficult to pinpoint where a leak originates. About the only way to tell for sure is to be on the roof when it is raining. Even then, the roof may leak when the wind is out of the south and not leak when it is blowing from other directions.

Most states will require you to disclose in writing the conditions about which you are aware. To protect yourself, it's smart to have your own inspector go through the property and to note where he or she found problems. You can give prospective buyers a copy of the report. There's one important caveat: Be sure to note on the report that the buyers should obtain their own inspections to verify the condition of the property at the time of sale.

5. Why are these floors so uneven?
Buyers often ask about the condition of the property. It could be a stain on the ceiling or a crack in the wall. It's important that you avoid diagnosing what the problem is. Settling could cause the uneven floors, but there could also be a foundation problem. The stain on the ceiling could be a roof leak, but it could also be honey from a beehive in the attic. Again, advise the buyers to obtain their own inspections to determine the exact condition of the property.

To minimize your exposure, avoid being at home during showings. If you must be at home, avoid volunteering verbal information to the buyer. Instead, obtain your own inspection report prior to listing the property and make that available to any buyers who view your home.

Second, fill out any required disclosure statements as completely as possible. Third, encourage the buyers to seek their own inspections regarding any concerns that they may have. Finally, place a home warranty policy on your home that covers the major systems on your property during the listing period as well as for the first year the new buyer owns the home.

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com and find her on Twitter: @bross.

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How will you decide who is the best person to market your property? If you're shopping exclusively based upon commission, you could be making a very costly mistake.

Recently I was speaking with the CEO of a well-known real estate firm. He shared his frustration about what he was hearing from many of his broker-owners. Apparently, a large percentage of buyers are calling various real estate offices and asking, "How much is your commission?" If the person answering the call says, "Six percent," the caller hangs up.

Another version of the same scenario sounds like this, "We just talked to Joe Agent who works for the same firm you do, but he was willing to take our listing for 5 percent. We really like you, but unless you cut your commission to 5 percent, we're going to list with Joe."

Research from the National Association of Realtors shows that about 15 percent of all sellers select their agent exclusively by how much commission the agent charges. About 5 percent decide based upon their desire for premium service. The other 80 percent make their decision based upon price (i.e., commission) and value. Value includes the price plus the other services provided in conjunction with that price.

What many sellers fail to realize is that the real issue is not how much commission you pay, but how much you net at the close of your sale. The way you obtain the maximum amount from your real estate sale is with maximum exposure to the marketplace. Thus, as an informed seller, the first step you must take is to interview several agents.

Ask the agents to bring you a written copy of their marketing plan. Also ask the agents to provide you with the names of three of their past sellers along with their contact information. If the agents are unwilling to do so, look elsewhere.

When you look at the agent's marketing plan, does it include a staging strategy? Does it include a Web marketing plan including posting on Realtor.com, the local multiple listing service, and online real estate portals? Does the agent have a strategy for marketing to people in your local area using traditional approaches such as open houses and print advertising?

Does the agent have a strong online presence, such as a blog, and is the agent active on Facebook, LinkedIn and Twitter? Does the agent use an 800-number or text-messaging system that automatically captures the phone numbers of people who call off your for-sale sign? Agents who have all these systems in place will generally help you achieve a better net price because of the high degree of exposure they provide for your listing.

While an agent can have a great marketing plan, unless he or she has strong negotiation skills you can still end up netting less than if you hired an agent with strong skills. When you interview the agents, there is nothing wrong with asking them to cut their commission. What you're looking for, however, is how the agent responds to this objection.

If the agent caves easily, the question you must ask yourself is, "If this person can't justify a commission rate on his own behalf, how effective will he be in helping me obtain the highest possible price in the shortest amount of time?" If the agent becomes angry or defensive, how will that agent be when you have an issue that you want addressed?

On the other hand, if the agent gives you a solid and sound explanation for the commission rate (namely the robust marketing program the agent provides that benefits you in terms of more net price), this agent could be a good choice.

When you hire an agent with weak negotiating skills, it can cost you much more than the 1 percent or 2 percent you might save. Many sellers are unaware of how much negotiation occurs not only at the listing appointment and the offer, but after the offer has been accepted. A weak agent may cause you to leave money on the negotiation table.

Did you know, however, there are other places that can cost you money?

For example, did the agent advise you to order a home warranty that went into effect as soon as you listed the property? If not, this simple oversight can cost you thousands of dollars if one of the major appliances or systems in your home goes out either prior to selling your home, during the sales process, or after your property closes. If the home warranty is in place, in most instances you're covered.

Another place where weak agents cost their sellers money is when the buyer conducts an inspection and comes back with a laundry list of items the buyer wants fixed. A strong agent knows how to handle this contingency.

For example, the agent could suggest placing a dollar cap on repairs and then credit the buyer with the money to handle the repairs after closing. This approach avoids you being on the hook for repairs made by third-party contractors. A shoddy roof repair could cost you thousands for a new roof if the buyer elects to sue you.

Another area where negotiation skills matter is in handling low appraisals. A weak agent will let the deal fall apart. However, someone with strong negotiation skills knows how to keep the transaction together either with secondary financing or persuading the lender to obtain another appraisal.

If you are going to sell your home, do your homework. Interview the best agents you can locate in your area. Check out their references, their track record and their online presence. Challenge their negotiation skills. That's the best way to find the best agent to sell your house.

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com and find her on Twitter: @bross.

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Ashley Myers collects bad photography. Specifically, she collects bad real estate photos -- the ones that seem to go out of their way to make a home unappealing to would-be buyers.

To make her point on her blog on the ActiveRain.com networking site for real estate agents, Myers easily drums up half a dozen offenders culled from her local multiple listing service in Richardson, Texas: pictures that emphasize garish furniture instead of the room it's in.

Fuzzy snaps of unremarkable bathroom vanities. Cloudy rooms -- photographed at night -- that are so underlit that one strains to discern such hard-to-miss features as a fireplace mantle.

And that's just the technical quality of the photography: Real estate sites abound in rooms with partially made beds and floors strewn with socks or kitchens where the garbage overflows the cans.

"There are so many things real estate agents do" that sabotage the photographs of their own listings, says Myers. "I guess the two worst would either have to be lighting that's so low you can't see anything in the house -- and just shooting from poor angles, like when the real estate agent focuses the picture on the door frame instead of the actual room."

Myers started advocating for better photo quality when she was in training to become a real estate agent; she was assigned to study an aspect of the business that needed improvement. She says most property photos uploaded to multiple listing services and real estate marketing Web sites are taken by the agents who have the listings and who may otherwise be great at sales but are out to lunch when it comes to composing a quality photograph.

These pictures, she says, can have a huge influence in attracting prospective buyers to a house. Conversely, they also can shut the door to a sale.

"Real estate agents can't sell something to (consumers) who (chose not to contact) him because they didn't like the pictures," says Dennis Huckaby, an architectural photographer in Blaine, Wash.

Huckaby estimates he's shot 700 homes, mostly for real estate agents. He now teaches state-certified continuing-education courses on the topic for agents in Washington state.

He cites industry statistics suggesting that a vast majority of homebuyers begin their searches on the Internet, so the pictures they see there are crucial to getting them through the door. And they don't have to be "bad" pictures to be a turnoff, he said.

"If 87 percent of the market starts on the Internet, a huge chunk of them are only looking for pictures," Huckaby said. "If people are putting up bland images that are the same as everybody else's, then 87 percent of the market is skating right by."

Some suggestions for both agents and their clients, and for those going the for-sale-by-owner route:

1. Preparation is most of the battle, Huckaby said. The same advice about ruthlessly eliminating clutter for buyer tours applies to the room photography, too. That means emptying countertops, removing knickknacks, etc.

But there are exceptions, he said: Sometimes a well-placed vase of flowers or arrangement of fruit on a long stretch of bare countertop provides a focal point that makes the picture.

"If sunlight strikes across that counter from a window behind, that's where the bowl of fruit should be placed," he said. "People will look at the brightest part of the image."

Both he and Myers are advocates of staging -- bringing in furnishings to dress up empty rooms.

"I never quite saw the importance of it before, but the more I work with buyers, the easier it is to see that walking into a house that's been staged even minimally, it's better on the eyes," and helps them picture themselves living there, Myers said.

2. Use a real camera. Seriously. Myers said she's seeing room photography in MLS listings that obviously came from cell-phone cameras, most of which produce lackluster, low-resolution images.

Huckaby also said that although camera shops might suggest shooting rooms with wide-angle lenses in order to capture larger expanses, he suggests avoiding them, as they can distort room dimensions.

3. Skip the flash. Camera flashes light only about 8-10 feet of a room, casting the rest of it into dimness, Huckaby said.

Instead, he suggests, turn on the lights and set the camera for a longer exposure, steadied by an inexpensive tripod.

4. Bathrooms can be hard to shoot because they tend to be small and have mirrors and other reflective surfaces. The classic bad-bathroom photograph captures the flash of the camera -- and the photographer -- in the mirror.

Bathroom photographers, again, should use tripods and step out of the room to gain every inch of space, then trip the shutter via a timer, Huckaby said.

5. Because most MLSs limit the number of photographs per house, go easy on the kids' rooms in order to take pictures of other parts of the house.

"Most children's bedrooms look about the same," Huckaby said. "And usually, they don't have any architectural features -- an archway or an interesting window. If there are three kids' bedrooms, one of them would do."

6. Foreclosed properties are problematic for photography, as many of them today suffer from neglect or outright vandalism.

Myers, who often works with foreclosure sales, said photograph them, anyway -- the warts have to be dealt with honestly, and buyers of foreclosures or preforeclosures aren't expecting perfection.

"There have been so many times when I've been working with a buyer who has chosen to see a property that has three photos with the listing that look great," she said. "But then, we get there and find that the bathroom has been destroyed or the cabinets need replacing."

She said those buyers resent the lack of disclosure and want to go to a house fully informed.

But Huckaby said that many homes that aren't total disasters still can be salvaged photographically, to an extent.

"Even if it's got warts, there's a place to stand where you can make an interesting, attractive image," he said. The overall room photos may make the warts inescapable, but supplementary photographs of architectural details -- a comfy window seat, the curve of a banister -- will help, he said.

"These are things that real estate agents may pass up because they're busy doing the wide-angle shot," he said. "And these things are going to be the sparkling diamonds when the house is fixed up. A flipper is going to figure this out."

Mary Umberger is a Chicago-based freelance writer.

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Q: Our Mill Valley, Calif., home was built in 1957 and was not insulated. Every time a wall is opened up, we add insulation. Some say it would be a good idea to insulate the floor of our house. There is a crawl space under the house where we could reach the bottom of the floor. As the house is built on a slope, the crawl space varies from 2 to 8 feet tall.

Others say insulating the floor may not be a good idea. In the summer, the house gets hot, and the coolness of the crawl space will help keep the house from getting hotter.

What do you guys think?

A: Without a doubt you should insulate the floor that separates the living areas from the crawl space. And rest assured you're doing absolutely the right thing by insulating the walls as you open them. You don't mention the attic space. We assume you have some insulation there. Check to make sure it is enough.

Insulation is measured in R-value, which is a measurement used to quantify the resistance of a material to the transfer of heat. Some materials, such as most metals, are good heat conductors; others, such as fiberglass, conduct heat poorly.

Interior air is always trying to seek a balance with outside air. Left to its own devices, 70-degree indoor air wants to transform itself into 40-degree exterior winter air. Insulation inhibits that transformation. The same is true for cooler interior air in the summer. Insulation, caulking, thermal windows and other energy-saving strategies seek to maintain the temperature of conditioned interior air within the living space.

The U.S. Department of Energy provides a chart and map of recommended insulation levels for homes in various climate zones. According to this map, your Mill Valley house is in zone 3. Assuming your heating system is natural gas, the recommended insulation level for a crawl space is R-13, walls are R-13 and attic space is R-38.

The Department of Energy also includes an insulation calculator on its Web site. You can plug in the first three numbers of your ZIP code and answer a few questions, and recommended R-values will be calculated for you.

In our view, these recommendations are minimums. As we mention from time to time, Kevin lives in Eagle, Idaho. That's in climate zone 5. The recommended floor insulation level is R-25. Unfortunately, he installed only R-11 insulation in his floors. The 9 1/2-inch-deep bays between his floor joists would easily have taken R-30 fiberglass batts, which would have made his home more comfortable and saved on heating and cooling costs.

As it is, even with substandard insulation, he is able to walk barefoot comfortably on his wood floors year round.

Your 1957 home probably has 2-inch-by-8-inch floor joists that measure 7 1/2 inches deep. It will easily accommodate R-19 fiberglass batts. If the joist bays are deeper, use a thicker batt. The bottom line is to separate the crawl space from the living area with as much insulation as you can.

Remember, when installing insulation batts, the craft face or foil face vapor retarder should be installed toward the conditioned area. In this case, that's the floor.

But remember, you'll get the most bang for your buck by properly insulating the attic space. Attics get hot in the summer from the sun. Hot attic air will try to radiate into the living area. A proper level of insulation inhibits that.

The same is true for the crawl space air. Foundation vents are designed to allow exterior air to circulate under the house. As crawl space air reaches the ambient exterior temperature, it also radiates into the living area, making it hotter in the summer. Insulating the floor provides resistance to this heat transfer, enhancing the comfort of the interior temperature.

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In this case, homeowner David Coletta secured a note for $60,000 with mortgages on two properties in favor of mortgage holder Nicholas Mattera. After the homeowner defaulted on payments on the note, Mattera filed a foreclosure action in the county court.

The homeowner's response failed to conform to the court's rules, and he was given an extension of time to respond appropriately. Instead of responding, the homeowner filed a Chapter 11 bankruptcy action, which automatically stayed the foreclosure proceedings. His attorney was unable to provide evidence that he notified Mattera of this bankruptcy filing. The homeowner failed to follow through with the bankruptcy case, and it was dismissed.

When the homeowner failed to file a conforming response, the county court entered a default judgment in favor of Mattera, who attempted to collect by scheduling the properties for foreclosure sale. The day prior to the scheduled sale, the homeowner filed a Chapter 13 bankruptcy action, again automatically staying the foreclosure.

Mattera requested that the bankruptcy court lift the stay and expressed that this was his first notice of either bankruptcy proceeding. The bankruptcy court lifted the stay and allowed Mattera to foreclose on the properties. Mattera then purchased both properties at the foreclosure sale. The homeowner again failed to follow through with this bankruptcy case, and it was dismissed.

After the sale, the homeowner returned to the county court and requested that the default judgment and foreclosure sale be set aside, because they violated the automatic stay of the initial Chapter 11 bankruptcy filing.

Mortgage holder Mattera argued that the automatic stay of the foreclosure on these two properties from the homeowner's initial bankruptcy filing should be retroactively annulled. The bankruptcy court ordered the automatic stays retroactively annulled; on appeal, the district court upheld the annulment.

On this second level of appeals, the Court of Appeals upheld the lower court's ruling to retroactively annul the automatic stays. The court found that the bankruptcy court did not abused its discretion in finding that Mattera likely was unaware of the initial bankruptcy filing. The factors that should be considered, explained the Court of Appeals, for retroactively annulling an automatic stay are "whether a creditor violated the automatic stay inadvertently and in ignorance of a pending bankruptcy and whether the debtor acted in bad faith."

The bankruptcy court in this matter analyzed the proper factors and found that it was more likely that the homeowner's attorney failed to notify Mattera of the Chapter 11 bankruptcy filing than it was that Mattera's attorney ignored the bankruptcy filing, especially given that the homeowner's attorney could not produce a fax cover sheet or copy of a letter notifying the mortgage holder, according to court records.

Accordingly, the bankruptcy court did not abuse its discretion in finding that mortgage holder's violation of the stay was "innocent," the court found. Further, as the bankruptcy court pointed out, the homeowner was "chargeable with inequitable conduct because he allowed an inordinate amount of time (eight months) to elapse before he raised the violation of the automatic stay."

Given the weight of the evidence showing the innocence of Mattera's violation of the automatic stay, and the wide latitude of authority possessed by the bankruptcy court to order an automatic stay retroactively annulled, the Court of Appeals ruled that the lower court did not abuse its discretion and upheld the retroactive annulment of the stays with respect to the foreclosure actions on the two properties at issue.

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.

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DEAR BARRY: We bought our home about two years ago, and everyone said the septic system was OK. This was the first home we ever owned with a septic tank, so we didn't know any better.

A plumber was hired to inspect it, and no problems were found. But last week, the water main broke, the tank got flooded, and sewage backed up into the house. That's when we learned that the septic tank is under the concrete floor in the garage, the tank is collapsing, the leach field is under the driveway, and the water main is over the tank.

So now we are living in a hotel because our house has no water or sewage system. We feel that someone -- the sellers, our agent or the septic inspector -- should have disclosed this mess before we bought the property. Who is responsible for this mess, and what can we do about it? --Cheri

DEAR CHERI: A proper septic inspection should have been done before you purchased this property, and that is clearly not what happened. A septic inspection requires specialized equipment and should be done by a licensed septic contractor, not a plumber. A thorough septic inspection includes:

1) Locating the tank.
2) Removing the lid from the tank.
3) Pumping out the contents of the tank into a sewage transport truck.
4) Inspecting the interior of the evacuated tank.
5) Water-testing the leach field by running water into the system.

Anything less than this does not qualify as a competent septic inspection. If the person who did your inspection had followed this normal procedure, the locations of the tank, the leach field and possibly the water main would have been discovered. A hole would have been cut into the garage slab to enable access to the tank, and the ensuing inspection would have revealed that the tank was collapsing. If all this had taken place, the sellers could have replaced the septic system, or you could have walked away from the deal. Either way, you would not be living in a hotel with a massive expense staring you in the face.

So what can you do about it? Well let's begin by asking a few questions.

a) Was the plumber licensed to service and evaluate septic systems, and did he follow the procedures listed above?

b) Did the seller know that the septic tank was located under the garage? If so, why was this not disclosed?

c) Did your real estate agent advise you to obtain a comprehensive septic inspection by a qualified professional? If not, why not? Real estate professionals who transact properties in rural areas should know better than to have a plumber conduct a summary inspection of a septic system.

Finally, you need to obtain three bids from licensed septic contractors for installation of a new system, installed with permits and in accord with accepted standards. You'll also need plumbing bids for repair or replacement of the damaged water main. These bids should be submitted to the sellers and the agent. If no one is willing to accept responsibility for faulty disclosure, you should seek legal advice from an attorney.

To write to Barry Stone, please visit him on the Web at www.housedetective.com.

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DEAR BENNY: In approximately one year, my wife and I are going to sell our house and move to Arizona. Selling the house is not a problem, but we have decided to rent out the next property we buy, whether it be a house or condo. We have already inquired about a real estate agent and we have talked to a friend of a friend over the telephone. We intend to meet with him on our next trip to Phoenix this year.

My question is: How do we determine what an appropriate fee is for this agent's services? I know he will not do this house hunting for free, but is there a contract drawn up, is there a flat fee or is there a rate depending on the number of houses/units we look at? Are there other things we need to know ahead of time? --Patrick

DEAR PATRICK: First, I am glad to hear that you don't think you will have problems selling your current house. That's good news.

There are many things you need to know in advance, in addition to finding a good real estate agent. First, do you really want to be a landlord? Have you reviewed the landlord-tenant laws in Arizona? Are they pro-landlord, pro-tenant or neutral? I practice law in Washington, D.C., where the law and the courts are extremely pro-tenant.

If you are going to buy into a condominium (or homeowners association), do their rules permit owners to rent or are there restrictions? Because the secondary mortgage market (such as Fannie Mae and Freddie Mac) imposes restrictions on the number of owner-investors in community associations, many such associations have amended their legal documents to comply with these restrictions.

As for determining what the real estate agent will charge, just ask him/her to provide you with a written fee schedule. Such a schedule should be attached to a rental listing contract. For example, if a tenant calls in the middle of the night complaining that the toilet is not working, how much will this cost you? And more importantly, is this something the agent will handle or will you have to take care of it yourself?

Once you get the fee schedule, I suggest you contact other agents in the area and compare prices.

One final note: In today's economy, it may be difficult for you to get a mortgage loan for investment properties. Unless you plan to use all of the sales proceeds for the new property, make sure you have lined up a potential lender before you embark on this journey.

DEAR BENNY: In a recent column on downpayment assistance you indicated that the $4,000 in excess of a $24,000 gift "may have tax implications" for the donor's estate. Why couldn't the mother give a gift of $12,000 to her son and $12,000 to her daughter-in-law and the father give another $12,000 to each, for a total annual exclusion of $48,000? Therefore, there would be no estate tax implications. --Gaylan

DEAR GAYLAN: The way I read the question is that the mother and father gave more than $24,000 just to the son. However, you are correct. The mother can give $12,000 to her son and the same amount to her daughter-in-law, and her husband can give the same amounts to each, thus avoiding any tax implications.

Please note that as of Jan. 1, 2009, the gift tax exclusion was increased to $13,000.

DEAR BENNY: In a recent column you answered a reader's question about paying off his home mortgage. The reader wanted to know whether he should get back his original deed. In your reply, you said, "You want the lender to send you (1) the original promissory note, marked 'paid and canceled,' and (2) the original deed of trust (or mortgage document), again marked 'paid and canceled.' "

My wife and I paid off our mortgage with Bank of America in 2007, but we did not receive the items you mentioned. Bank of America did, however, file a "deed of release" with the county recorder of deeds. I'm wondering if that is enough or if I should contact the bank and ask for the original promissory note and the original deed of trust. --Herb

DEAR HERB: I am not completely comfortable with this, but yes, it should be sufficient. Keep in mind that when you first obtained the mortgage loan, you and your wife signed two legal documents: (1) a promissory note, which states "we owe bank 'X' dollars"; and (2) a deed of trust, which is the security instrument that allows the bank to foreclose on you if you go into default.

Some states still use mortgages instead of deeds of trust. The main difference between these two legal documents is that a mortgage has to be foreclosed upon only after getting a court order.

With a deed of trust, you (the borrowers) actually deed your house to trustees selected by the bank, giving them the power to sell the property if you are in default. Your deed of trust has been released and is a matter of public record -- i.e., among the land records in your county.

But the promissory note has not technically been canceled. I seriously doubt that anyone will be able to claim that you still owe on that note, as the trust has been released. But that possibility does exist. I am confident that you will win in any lawsuit against you on the note, but you would have to retain legal counsel and possibly go to court.

That is why I like to have the original note marked "paid and canceled."

DEAR BENNY: I have never had an opportunity to buy a home and would like to now, although I can't afford much of anything in the standard market. I would like to find a bank-owned or foreclosed home. I realize this means I will have to order my own inspections because none will likely be done.

There is very little chance any problems that are found will be addressed by the owner, so most likely this will be an as-is purchase. The personal approach to finding an agent/broker has gotten me nowhere and I want to get going on this. How do I find an experienced agent/broker to work who knows this sector of the market? --Jim

DEAR JIM: First, you may want to contact some local banks to see if they have property for sale. Although there have been and continue to be lots of foreclosure sales, a good number of them were taken back by the lender. Quite often, when there is a foreclosure sale, either the bids are too low for the bank to approve or no one is interested enough in the property to make a bid. In those cases, the bank ends up owning the property; it is called "REO" -- short for "real estate-owned."

Additionally, you can search for "foreclosure sales" in your area using a search engine on the Web. I just confirmed this by typing in "foreclosure sales in Maryland" and got a large number of places to investigate.

But let me caution you. Buying a house at a foreclosure sale should not be taken lightly. You really should get an attorney to assist you from the beginning of your search. You have to make sure that the title is clear before you bid at the sale.

You have to make sure that you fully understand the terms and conditions under which the sale is taking place. For example, if you are the successful bidder, will you be obligated for such items as unpaid water bills, superior mortgages (i.e., the foreclosure was initiated by a second mortgage holder), or mechanic's liens?

Keep in mind that once the gavel goes down at the sale, you are legally obligated to buy. If you do not do so or are unable to meet the lender's deadline, you may lose your earnest money deposit.

DEAR BENNY: Your recent response to a writer who complained about having to pay a penalty fee for paying off his home mortgage early puzzled me. Over my lifetime, I have paid off many mortgages early and have never had to pay the holder a "fee."

They merely forwarded me the documents marked "paid in full." It was then up to me to have them properly recorded in city hall. Sometimes, I had to pay a small fee to the city. Perhaps things are different in Washington, D.C., and Maryland? --Bob.

DEAR BOB: There are two kinds of "fees" that borrowers may be charged by lenders when the mortgage loan is paid off in full. First, some lenders will charge a nominal fee for preparing the release of the loan, although as you suggest some lenders will just send you the mortgage documents and you have to record the release yourself.

But some loans contain a "prepayment penalty" clause. This means that if you pay the loan off early, you will have to pay a "penalty." Borrowers are encouraged to review the loan documents -- especially the promissory note that is signed -- because that is where the penalty clause usually can be found.

In fact, before you get a mortgage loan, ask your lender if there will be a penalty should you be able to pay the loan off early.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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