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Mortgage rates have begun a decline from the irrational levels of the last month, now approaching 6 percent and says here likely to cross back into the fives.

Part of the decline is due to deteriorating economic news. The toughest was a surge in new claims for unemployment insurance, up to 373,000, consistent with recession and suggesting that next week's payroll report will show February contraction. Orders for durable goods tanked 5.3 percent in January, as have February measures of consumer confidence. Inflation is worrisome, but a soon-to-blow commodity bubble will fix that.

A two-part story today, housing as scapegoat for the failures of others. The real causes of this credit crunch -- still called "subprime" -- and the recession it has spawned are the grotesque failure of structured-finance products on Wall Street, and failure of oversight by their regulators.

The strange story of mortgage-rate spike and reversal began with the January fable that mortgage-backed securities (MBS) issued by Fannie, Freddie and Ginnie (the "GSEs") had become too toxic for investors to hold. That notion made no sense here: These GSE/MBS are as good as Treasurys, no matter what the ultimate default rate of mortgages within (Ginnies are guaranteed by the Treasury, Fannie and Freddie clearly "too big to fail"). The GSE/MBS market is $4.5 trillion, the deepest and most liquid market for anything on the planet except U.S. Treasurys.

Yet, traders said throughout February: "too many MBS sellers." The excess on the market was certainly not new loan production. Now we know who those sellers were: big banks and Wall Street dealers, capital impaired, dumping the only liquid assets they have to make room for trash flooding back onto their balance sheets. The backwash: the remains of deals they sold but agreed to support if "something went wrong."

The February went-wrong: almost $1 trillion in "auction-rate" securities -- actually good-quality muni-bonds, but held in short-term rollover structures (note: nothing whatever to do with housing or "subprime"). When rollover failed in renewed crunch, an avalanche of illiquid paper hit banks, triggering MBS sales and higher mortgage rates.

The financial press is having a wonderful time ginning-up a housing depression, this week shrieking about new-home-price data: "Decline in Home Prices Accelerates" (WSJ), emphasizing the Case-Shiller index, down 8.9 percent in '07.

Case-Shiller is designed to magnify home-price declines. Robert J. Shiller correctly called the stock market bubble (his book "Irrational Exuberance" appeared on the day of '00 collapse), and has spent the last several years misapplying financial-market principles to real estate, gleefully predicting a 30-40 percent national crash in home prices.

The design flaw: It captures only sales of homes, obviously heavy with distressed transactions. For the authentic story and great methodology, visit OFHEO.gov and its "all-transactions" House Price Index, which includes repeat appraisals in refinances, by definition free of distress. By that measure, national home prices in the fourth quarter rose by 0.8 percent. Prices fell in only 11 states, and in only five of those were declines in excess of 1 percent. See page 21 of the report for its critique of Case-Shiller.

At the micro level, some spots are in horrible trouble: Of OFHEO's 291 metropolitan statistical areas, 15 had price declines last year in the 10-19 percent range (all in California and Florida). And the national market is decelerating: Of 39 states with positive appreciation in the fourth quarter, 32 had gains of less than 1 percent.

The key to this unpleasant situation: Housing is sinking because of credit starvation, not the other way around, housing wrecking credit markets. No matter what it takes, the supply of credit must be restored to housing and the rest of the economy.

The public policy response is still frozen, Democrats trying to help families who cannot afford their homes to stay in them, and Treasury Secretary Henry Paulson refusing assistance to the financial system: "I'm not interested in bailing out investors, lenders and speculators."

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

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Copyright 2008 Lou Barnes

Q: I own a 40-plus-year-old house that has been remodeled from time to time and looks modern and is well-kept. Presently, I need to remove the "cottage cheese" ceiling from one large room. Is it in my best interest to remove this from all the rooms in the house? --Lorna K.

A: First of all, I need to make you aware of the fact that many older acoustic ceiling treatments -- commonly called "popcorn" or "cottage cheese" ceilings -- contained a small amount of asbestos fiber. Asbestos was common in many acoustic and drywall products until the 1970s and sometimes later, so a home that is 40-plus years old could fall into that category.

Removal of asbestos is governed by the Environmental Protection Agency (EPA), and under their guidelines you have some options for professional or do-it-yourself removal. For more information on asbestos and how to have it tested and removed, visit the EPA's Web site at www.epa.gov.

There are pros and cons to removing all the acoustic material at one time. On the plus side, you have the mess only once, and if you are hiring out the work, you'll save money by doing all the ceilings at one time. You also eliminate the asbestos risk, however minor. From a resale standpoint, buyers almost universally seem to dislike acoustic popcorn ceilings, so you will also improve the overall value of your home.

On the downside, scraping, retexturing and repainting all the ceilings in the house at the same time can be disruptive, time-consuming, and, if you're having the redecorating work professionally done, can be costly. Also, if the ceiling material contains asbestos and you are having it professionally removed, it can be a very expensive undertaking.

That said, if you have the option either way, my advice would be to get it all done at once.

Q: I have some type of blown-in insulation in my attic. I assume there is nothing wrong with moving some of the blown-in insulation to those areas that need it and putting new fiberglass bats in the area that now has no insulation. Note that my house has ceilings of various heights, and the original insulation installation could have been done more carefully. --David G.

A: Nothing wrong with that at all -- just try and get uniform coverage over everything so that you don't have any cold spots, and keep the insulation clear of anything that's heat producing. You could also have an insulation contractor come out and give you an estimate on re-blowing the entire attic up to at least R-38.

Q: I have a Kohler brand shower valve in my home, which is dripping. The plumbing advisor at Ace Hardware told me that it is difficult to fix the Kohler brand showers, and I should get a plumber who is familiar with Kohler brand. Is it really that difficult? Any tips if I try it myself? I am an OK, but not a great, handyman. Do I have to change the whole cartridge or maybe a washer? I got the cartridge changed about three years ago and it started leaking again. I changed only the seat and the washer in the faucet. --Paul T.

A: I am not familiar with any reason why a Kohler faucet is any more prone to drips than any other, or why you would need a plumber with specific experience. If you would like to try the repairs yourself, get a Kohler repair kit that is made for your specific faucet, and follow the instructions included. Be sure you utilize a Kohler kit, not anything else, and also be sure that you use all of the new parts that come with the kit.

If you have any doubts about doing this yourself, I would recommend that you contact a plumbing company that deals with service and repair work. It shouldn't be a very expensive service call, and you'll have the peace of mind that the repairs have been done correctly, and that you have a guarantee.

Q: How do I locate a seller of a dual flush water saver handle for a commode? --Richard J.

A: I would check out The Controllable Flush at www.athenacfc.com.

Remodeling and repair questions? E-mail Paul at paul2887@ykwc.net.

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Copyright 2008 Inman News

Someday, when the history of our Petroleum Age is written and the internal-combustion automobile is considered a quaint and rather silly conveyance on par with the oxcart, scholars will have a field day examining the myriad aspects of our vanished autocentric society. And without a doubt the most moribund and farcical discipline connected with this era will turn out to be that of the traffic engineers, whose automotive monomania helped turn the built environment into a playground planned almost exclusively around motor vehicles -- to the detriment of pedestrians, other modes of transport, and Mother Nature herself.

It may not seem odd that traffic engineers should be preoccupied with cars. But the word "traffic," it's well to remember, doesn't refer to automobiles by default -- it refers to the movement of people and goods. You'd never guess as much judging by contemporary usage, because the central and practically sole concern of traffic engineers across America has to do with moving cars around at the expense of all else.

Most engineering disciplines pride themselves on creating progress in their respective fields. In a single century, for example, aircraft engineers went from building sputtering kites of wood and paper to designing planes that can fly by themselves at 600 miles an hour. And in just 50 years, electronics engineers have made even more phenomenal strides: Consider the astonishing progress made in television alone, not to speak of computing.

Yet until very recently, the traffic engineer's only response to the demands of a changing world has been to bang out the same old two-note refrain: wider roads, more traffic lights. This is basically the same so-called solution that's been offered since the 1920s, even though neither strategy has ever shown much success in easing traffic congestion. Moreover, during the last two decades, while computers have been used to make virtually every two-bit consumer item smart, traffic controls remain determinedly brainless. Only recently has the consideration of "dynamic elements" even entered the realm of traffic engineering. The radical idea here -- are you sitting down? -- is that traffic controls should actually respond to varying conditions using sensors that measure traffic flow.

Hence, after 80-odd years of stubbornly resorting to the same ham-fisted repertoire of road widening and signal planting, some nameless traffic engineer apparently had the wit to wonder, "Gee, should our designs actually relate to what's going on? Should we try to make use of that wacky new computer technology everyone's talking about? Should traffic signals actually recognize that no one is coming the other way, instead of stopping people just for the hell of it?"

To which his or her colleagues no doubt responded: "Nah, that's crazy talk."

Given the glacial progress traffic engineering has made in the past eight decades, don't expect the introduction of dynamic elements, or anything else, to improve your neighborhood's traffic situation for a long, long time. By then, perhaps, our autocentric definition of "traffic" will have grown to reclaim those who walk, bicycle or take public transportation, leaving traffic engineering as it's currently practiced right up there with alchemy, bloodletting and other things we used to think made perfect sense.

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What's your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2008 Arrol Gellner

Retail sales were up more than expected in January. Is it a sign that the great residential real estate slowdown is almost over?

Hardly. The housing industry continues to move along at a glacial pace, with a rising number of homes for sales, home loans in default, and a record-breaking pace of foreclosures.

The news is somewhat grim, with most of the private mortgage insurers announcing first-ever (but massive) losses, as they are required under their PMI policies to pay out millions of dollars.

Is help on the way? Let's consider what some of the more important pieces of industry news mean to Mr. and Mrs. Average Homeowner.

Hit the Pause Button for Foreclosures

The Bush administration and six major mortgage lenders announced that they would hit the pause button for anyone currently (or about to) face foreclosure.

Bank of America, Citigroup, Countrywide Financial, JP Morgan Chase, Washington Mutual and Wells Fargo have agreed to participate in the government's Hope Now Alliance.

According to Treasury Secretary Henry Paulson, the "Project Lifeline" program will stay any foreclosure action for 30 days for those who are 90 days or more late on their mortgage. The pause will allow homeowners who want to and can afford to stay in their homes the time to negotiate a loan modification or refinancing with their lender.

Lenders will be contacting those homeowners who are 90 days late or more on their mortgage. However, if the homeowner doesn't return the lender's calls within 30 days, the foreclosure stay will be lifted, according to program details.

The real question is this: After 90 days of ignoring late notices and avoiding calls from the lender, is a homeowner on the brink of foreclosure really going to pick up the phone?

As Paulson said in prepared remarks, "Of course, there will be homeowners who still take no action, and some will simply walk away from their mortgage -- particularly those borrowers who put little or no money down and whose mortgage exceeds their home value. No program can bring every struggling borrower into the counseling and evaluation process, and we cannot help those who choose not to honor their obligations."

The Project Lifeline program is a new addition to other programs already announced by the Bush administration.

Foreclosures Rose Nearly 80 Percent in 2007

Even if everyone doesn't buy into Project Lifeline, there are plenty of people who might qualify.

According to California-based RealtyTrac, a leading online marketplace for foreclosure properties, the number of foreclosures soared nearly 80 percent in 2007.

"As expected, the number of properties entering some stage of foreclosure in 2007 was up in the vast majority of the nation's 100 largest metro areas, with 86 metro areas reporting increases from 2006," said RealtyTrac's CEO James J. Saccacio.

The worst states for foreclosure? California, Ohio, Florida and Michigan. In Stockton, Calif., the foreclosure rate soared 271 percent from 2006. In Las Vegas, foreclosures grew 169 percent over 2006. One real estate agent estimated that two-thirds of the homes currently for sale there were tainted by foreclosure.

The metropolitan area surrounding Washington, D.C., saw foreclosures rise nearly 575 percent from a year earlier, while foreclosures in the greater Baltimore metro area climbed 544 percent.

In the greater Albany, N.Y., area, foreclosures rose 638 percent, and in and around Bethesda, Md., RealtyTrac reported that foreclosures grew a stunning 1,288 percent.

In a handful of areas, foreclosures fell somewhat, including Salt Lake City; Austin, Texas; El Paso; Philadelphia; Columbia and Greenville, S.C.; Baton Rouge; Wichita, Kan.; and McAllen, Texas.

Big Surprise! Homeowners are Stressed Out About the Housing Market

With foreclosures rising and homes taking much longer to sell, it's no wonder that a new survey from the National Foundation for Credit Counseling found that homeowners are all stressed out.

More than 4,000 consumers have taken the National Foundation for Credit Counseling's Mortgage Reality Check at its HousingHelpNow Web site. The survey asks consumers if they know what kind of mortgage they have, if it is adjusting, and if they're worried about not being able to refinance or pay their new mortgage amount if their payments are about to adjust.

• Since the beginning of January, the survey found that 78 percent of respondents say they have trouble sleeping because they're worried about their current financial situation, the possibility of losing their home or car, or their ability to use credit. This is up 16 percent from November and December 2007.

• Sixty-nine percent of consumers taking the poll said they don't believe refinancing will solve their current cash crisis, up 8 percent from the end of 2007.

• Fifty-nine percent say they owe more on their home than it is worth, up 11 percent from the end of 2007.

• Eighty-three percent of those taking the poll fell into the most at-risk group.

You can take the survey at http://www.housinghelpnow.org/MortgageRealityCheck.cfm.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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What's your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2008 Ilyce R. Glink

Q: My local newspaper ran a story about a child who was blinded when he opened a duffel bag he discovered in a vacant lot near his home. Apparently, the bag held residue from a methamphetamine operation -- going on right in his building! The landlord claimed he knew nothing about the meth-making tenant, who had mysteriously moved out the night before. I own and live in a small apartment building, and I want to know if there are warning signs I can look out for. --Naomi B.

A: Clandestine meth labs are an increasing problem for residential landlords. A rented apartment or house is the perfect place to set up shop for these extremely portable labs -- operators hope to stay below the radar and quickly move on to the next location. Nice properties aren't immune, nor will criminals necessarily hide out in rural areas. But if you're vigilant, you can increase your chances of detecting them. Here are the warning signs:

Check the trash. It's not a pleasant prospect, but now and then taking a look inside a dumpster or twisted plastic bag can quickly get you the information you need. Be on the lookout for large numbers of cold tablet containers, which contain ephedrine or pseudoephedrine, a necessary component in meth production; numerous cans of Coleman fuel, paint thinner, acetone, starting fluid, Red Devil Lye, drain cleaners and sulfuric acid or muriatic acid; excessive propane canisters, which may have valves that have turned blue or begun to corrode; coffee filters or glass jars containing white crystals, shiny purple crystals, or dark red sludge; and large amounts of lithium batteries, especially ones that have been stripped.

Notice the residents. Since you live on the premises, keep an eye out for unusual activity, such as residents or guests nervously going outside to smoke (meth labs often explode when exposed to a spark). Strong odors, which may resemble nail polish remover, ammonia, chlorine and model airplane glue, are also tell-tale signs. Be suspicious when your legitimate request to enter a resident's unit is met with extreme resistance -- this person may simply be noncooperative or extremely shy, or have something nefarious to hide.

If you suspect meth activity, do not confront your residents. Call the police right away. In the unhappy event that such an operation is discovered on your property, be sure to conduct a proper clean-up, which you'll have to do even after the official cleaners have done the first sweep. Many states impose specific procedures, and because of the dangers posed by the residue of the chemicals used in production, you simply can't be too careful. For detailed instructions on cleaning a meth lab, see the "Cleanup of Clandestine Methamphetamine Labs -- Guidance Document" on the Web site of the Colorado Department of Public Health and Environment, available at www.cdphe.state.co.us/ (type the document's name into the Web site's search box on the home page).

Q: After we signed our lease, my National Guard unit was activated and we received orders to go overseas. I need to get out of my lease, so that my wife can move into a more modest apartment down the block (which is much cheaper). I thought the Servicemembers Civil Relief Act gave me the right to terminate upon deployment (once I mail or deliver the notice to the landlord or manager, my tenancy should terminate 30 days after the day that rent is next due). But when I told my landlord, she reminded me that when I signed my lease, I signed a waiver of some of my rights. Sure enough, I found a paper called an "Addendum to the lease" that says, in fine print, that we'll be considered "lease-breakers" if my spouse or I move into housing within 45 miles of our apartment during the remaining time on our lease. If that happens, we'll be responsible for the rest of the rent (six more months). Is this waiver valid? --Matt P.

A: This is a pretty sorry example of the lengths some landlords' attorneys will go (you can be sure a lawyer thought this one up). While it is true that servicemembers can waive some of the rights and protections of the Civil Relief Act, that waiver must satisfy several conditions. First, the waiver must be in a separate document from the obligation it refers to (the lease). An addendum may be physically separate from the lease, but language at the beginning specifically makes it part of the lease, so this waiver fails right there. Secondly, the waiver must be in at least 12-point type (from your description, it seems that it won't pass on that score, either). And last but not least, the waiver will be upheld only if signed by the servicemember during or after the servicemember's period of military service (in the case of National Guard members, this means during or after they're called to active service). Since you signed it before your call-up, it's not valid, period.

If your landlord persists in thinking that he's got a legal waiver from you, get in touch with your commanding officer. The commanding officer should be able to refer you to a lawyer in the Guard or another military branch, who can explain things to your landlord. If the landlord perseveres (by keeping your security deposit to cover future rent), you'll have to sue in small claims court to get it back, but your chances of winning will be high.

Q: I own and manage a 12-unit apartment building. Recently, a new tenant on the first floor approached me with a complaint about her neighbor upstairs, who is a morning-show television producer. He gets up at 3 a.m. and leaves for work and she says he makes too much noise (interestingly, he's lived here for 10 years and no one's complained). The neighbor says she's constantly awakened by him, and claims I should have told her about the situation before she rented. She says if it continues, she'll break her lease and will be justified in doing so. Is she right? --Danny D.

A: You're asking several questions -- first, should you have disclosed the situation to your tenant before she rented, and if so, can she break the lease now? And finally, if you had no duty to disclose, can she break the lease anyway?

Let's look at the first question. As a general rule, landlords are required to disclose known, dangerous defects in or problems with the premises. For example, you must disclose the presence of lead-based paint hazards (by federal law, you must tell tenants what you know), and tell them about other issues, such as the tendency of the eucalyptus tree in the backyard to shed large sheets of bark in a windstorm. If you know that a neighbor is an unusually noisy fellow who has disturbed others, you may well have to disclose that, too, because it's a defect (unusual, disturbing noise) that isn't obvious to an applicant or par for the course when living in a multitenant building.

You must also come clean when prospects have voiced particular concerns, even if you wouldn't normally describe the issue as a problem and it wouldn't concern most renters. For instance, suppose a prospect tells you she's considering your rental mainly because it's next door to the municipal pool. If you know the pool is about to close, you must share that information. If you don't share information on issues you know are important, you give tenants a valid legal ground to break their leases. Though it may sound extreme, you've fraudulently lead them along, by failing to give information that you knew was central to their decision to rent, and when this happens, the resulting lease can be invalidated by a judge.

Your upstairs tenant seems to have made it this far (ten years) without arousing the ire of his neighbors. This is pretty good evidence that although his activities are a bit unusual, they're not extreme, and gave you no reason to disclose them to future neighbors. But this isn't the end of the inquiry -- think back to your interactions with this tenant when she visited the property. Did she have questions that should have alerted you to any special needs she might have? For example, did she stress her need for a quiet environment? Or did she appear to be like most tenants, ready to accept the usual inconveniences and petty annoyances that always come with multifamily living? If the latter, you have less to fear from her argument that you should have told her about her upstairs neighbor. But if she told you that she was one degree away from the heroine in "The Princess and the Pea," you should have mentioned the upstairs neighbors' schedule, and though you might have lost a tenant, you would not have found yourself in this situation.

Assuming your tenant gave you no reason to believe that she was particularly sensitive, you probably had no duty to tell her that the upstairs fellow gets up early. And if the man upstairs merely continues his normal morning routine, it's doubtful that a judge would agree that his activities justify your tenant's lease-breaking. But before you consign this lady to sleepless anger until she breaks the lease, consider investing in some soundproofing for the upstairs unit. Though it may not be the legally required thing to do, it may be the smart thing to do. You don't want a dissatisfied resident poisoning the atmosphere of an otherwise convivial apartment house, and you certainly don't want to risk losing your long-term tenant upstairs, who might leave if her anger makes him uncomfortable.

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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What's your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2008 Janet Portman

Q: I have put an offer on a single-family residence at $2,000 over the asking price. The property is a short sale and the bank has already received seven offers on it. The deadline to accept or deny my offer was 5 p.m. last Wednesday.

Instead of accepting or rejecting my offer, the bank contacted the agent saying they are waiting until Monday to make a decision. What are my options and what are they trying to do?

A: Here's what's happening: The bank is trying to make a decision in a timely manner and your attempt to force the issue isn't working. (Nice try, but no dice.)

So, you have a choice. You can formally withdraw your offer or you can let it sit and see what happens.

Each lender has a process by which it has to evaluate each of the offers that has come in for an REO property to see which one is the best -- best isn't always the highest offer, by the way. It could mean they're looking for the strongest buyer or one who is able to use the bank's financing (which is another way for them to recoup their investment.)

I'd have your agent stay in touch with the lender to smooth things along and make sure the lender has all the information he or she needs to make a decision. It's possible the lender will come back to you (and everyone else) on Monday to ask for another round of bidding. Or, the lender might simply come back and say, yes or no.

Unless you formally withdraw your offer, at that time you can decide whether to agree to purchase the property if you're given the opportunity.

By the way, I hope you're using a real estate attorney. Foreclosures and short sales are tough purchases and I'd hate to see you get caught because you didn't have anyone representing your legal interest in the deal. Unless your broker is also a real estate attorney (and even if he is, he can't be both to you in the same transaction in some states), you should hire a real estate attorney.

Q: You once recommended two good landlord books. I'd like to pick them up, but I don't remember the names of the books. I am currently the landlord on 20 properties. Thanks for your help.

A: Twenty investment properties? Good for you! By now you must know enough to write your own books on becoming a real estate investor.

There are a lot of books out on the market that purport to help you flip properties successfully, and make millions of dollars with nothing down. But in general, I like any book by Robert Irwin (he's written more than 60 real estate books), and I like the "Millionaire Real Estate Landlord" (and sequels) by Robert Shemin.

Both of these authors' books are widely available. You might also benefit from browsing around on the Nolo Press Web site to see if some of their tax titles for landlords might help as well, although I'm sure you have a bunch of pros helping you at this point.

Q: My son and his wife are interested in purchasing a foreclosure property as their primary residence. They're looking for a townhouse because they can't afford to pay the full cost for a single-family home.

Can you tell us what percentage of the foreclosed loan the former owner's private mortgage insurance covers? When will that be paid and to whom is it paid?

Can my son and his wife expect a significant reduction in the sale price of a foreclosed home if the private mortgage insurance kicked in?

A: Private mortgage insurance (PMI) covers the portion of the mortgage that exceeds 80 percent of the purchase price of the home.

For example, if a home buyer gets a mortgage for 90 percent of the purchase price of a home (or for 90 percent of the appraised value of the home if the owner is refinancing) and the purchase price or value is $100,000, PMI would cover the top 10 percent of the loan.

PMI will protect the lender in case the lender forecloses on the home and then sells the home for less than $90,000 but more than $80,000. If the home were to sell for less than $80,000, the lender would have the PMI protection coverage on $10,000, the difference between $80,000 and $90,000, but would take a loss on the sale if the sales price is less than $80,000.

In another example, if the first mortgage is for 100 percent of the purchase price of the property, PMI would cover the lender against a loss over the top 20 percent of the mortgage.

You have to keep in mind that most loans that exceed 80 percent of the purchase price of a home have PMI, but in many cases they do not. If a homeowner obtains a first mortgage for $80,000 on a home purchase valued at $100,000 but gets a second loan for $10,000, this purchase or refinance would not involve PMI coverage.

How does this play out in practice? Right now, all of the companies that sell private mortgage insurance are reporting enormous losses from 2007, due to short sales and foreclosures. Most of these publicly traded companies are reporting their first losses ever.

When someone sells a home for less than the mortgage amount, PMI kicks in and reimburses the lender for the portion of the mortgage that was covered by the loan. So if the mortgage lender agrees to accept a short sale for $10,000 less than the mortgage amount and the loan had PMI, the PMI company would write a check for $10,000 (or a portion of that amount) to the lender, making the lender whole.

But I've been unable to find a way to figure out exactly how much the lender is reimbursed by the private mortgage insurer. The good news is that information isn't relevant when making an offer for an REO property. (REO is industry jargon that stands for "real estate owned," which means the lender has foreclosed on the property and is the current owner.)

The discount you're going to get from a lender on a piece of REO property depends on a combination of how much the local real estate market has tanked, how desperate the lender is to unload the property, and how much other homes are selling for in the neighborhood.

You may get a substantial discount, but it won't have anything to do with how much the lender has been paid by the company who underwrote the private mortgage insurance policy.

Your attorney and real estate agent should be able to help you further. For information on how to identify and purchase foreclosures, check out real estate agent Ralph Roberts' book "Foreclosure Investing for Dummies." Roberts, who tells me he has personally purchased more than 2,000 foreclosures, does a nice job of explaining how to identify an appropriate foreclosure, negotiate for it, find the financing for it, and close on it.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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What's your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2008 Ilyce R. Glink

Question: I am a tenant, and the owner of my apartment complex recently sent notification to the residents that we are required to have $100,000 renter's insurance coverage in case of damage to the apartment as a condition of our lease. We are also required to include the apartment complex as an additional insured and a vested party for reimbursement should there be any damages.

If we don't follow through, we are told that we will be in violation of the lease. I live in a one-bedroom apartment and currently have insurance coverage for far less than the amount that they are requiring, and it does not include reimbursing the apartment complex for any damages.

Is what they are doing legal? Can they force me to get extra coverage that I don't need that also includes reimbursing them as well? I was told that they should have their own insurance to cover loss.

Property manager Griswold replies:

Yes, I believe that they can make renter's insurance a requirement of your lease as long as they are consistent and apply their policy to all tenants. From the landlord's point of view, the issue isn't whether you have possessions that need $100,000 in insurance coverage but that you or your guests could create a situation in which major damage occurs -- fire, flood, etc. That is the reason they are setting the minimum amount at $100,000 and insisting that the apartment ownership entity be named as additional insureds under your renter's insurance policy.

The apartment complex likely has its own insurance coverage that has much higher levels of coverage for all types of losses. Their policy could have a requirement that states that all tenants must have renter's insurance. Note that the owner's insurance policy will generally not provide you with an insurance protection for loss or damage to your personal property unless it is due to some negligence on the part of the owner. The renter's insurance and the owner's insurance work together to provide more thorough coverage, and I would suggest you contact your insurance agent and seek to increase the policy limits to $100,000.

Generally, it has been my experience that if you currently have a renter's insurance policy, the increased premium to raise the policy limits to $100,000 should not be that significant on an annual basis. And hopefully you are right that this is coverage you never need, but that is always true with insurance -- you hope you never need it but the peace of mind of having the coverage is worth a lot.

Question: I have been renting a property for four months. I accidentally set my trash can on fire by throwing away some ashes that I thought were out but apparently were not. Parts of the cabinet were burned. My landlord has insurance over such events, yet I unfortunately do not have renter's insurance. My landlord's insurance company is going to pay for the damages and then demand that I reimburse them. The accident was my mistake, but isn't that what the insurance company is supposed to cover? Am I legally required to pay for damages even though my landlord has insurance over such an event?

Property manager Griswold replies:

I would say you are responsible and the owner's insurance company is acting reasonably is seeking reimbursement from you for the expenses it incurs in covering this claim. While every landlord should have insurance, the owner's insurance is not to protect them from situations that are created by their tenants. The owner's casualty insurance covers claims due to losses from fire, but they also have coverage for other claims but not for situations created by their tenants. Insurance for landlords and tenants are not like the "no-fault" car insurance concept, but are based on proximate cause. The key question is: Who is liable?

If the situation were reversed (as it often is) and something happened (like a fire resulting from a malfunctioning electrical outlet in your rental unit or another unit) and your personal property was destroyed, you would submit a claim to your renter's insurance carrier and they would pay you and then subrogate (seek reimbursement) against the owner's insurance policy since they are liable for the cause of the fire. In this situation, the fact that your negligence in starting the fire was unintentional doesn't change the fact that you are responsible. It has been my experience that many fires are caused accidentally by tenants while cooking or by unintentional tenant negligence through improper use of appliances or extension cords. That is one of the reasons renter's insurance is a good idea and worth the few hundred dollars per year. I suggest you negotiate some sort of payment plan with the insurance company and then immediately check into a renter's insurance policy.

This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of "Property Management for Dummies" and co-author of "Real Estate Investing for Dummies," and San Diego attorneys Steven R. Kellman, director of the Tenant's Legal Center, and James McKinley, principal in a law firm representing landlords.

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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Copyright 2008 Inman News

Do you plan on doing any work in your house? Will you be using a contractor? If so, whether this is a small job or a major renovation, there are a number of steps you must take to protect yourself.

First, the contractor must be licensed in the jurisdiction where your property is located. When you have selected the contractor, insist on getting a copy of his or her license. Call the government agency that issued the license to confirm that it is still current.

Next, contact your homeowners insurance company to determine the extent of your coverage should accidents or damage occur while the work is being done.

Negotiate all terms and conditions -- including the cost of the job -- with the contractor. When you have reached agreement, it must be reduced to a written contract.

Many contractors use what I call the "two-page special." This is a simple contract that merely states who the contractor is, a very general description of the work to be done, and the total cost of the job.

Such a document is not in your best interest.

The American Institute of Architects (AIA), headquartered in Washington, D.C., publishes a number of contract forms for use by homeowners, architects and contractors. According to a recent press release announcing its most recent updated contracts, "Since 1857, the AIA has represented the professional interests of America's architects. As AIA members, over 80,000 licensed architects, emerging professionals, and allied partners express their commitment to excellence in design and livability in our nation's buildings and communities."

There are a number of different AIA forms available, depending on the type and size of work you plan to do. For example, Form A105 is a standard form of agreement between owner and contractor for a residential or small commercial project. Form A107 -- which is more comprehensive -- can also be used for projects of limited scope.

Every 10 years, AIA updates its forms in order to reflect changes in industry trends and practices. On Nov. 5, 2007, AIA released it latest forms and made a number of significant changes:

• Arbitration is not mandatory. Prior to this year, the AIA contracts required that if the homeowner and the contractor could not resolve any disputes on their own, they were required to go to binding arbitration. The revised forms now permit the parties to negotiate other alternatives, including litigation. Many consumers are learning that arbitration may not be the best way to resolve the problems they have with their contractors, even though litigation may be more expensive and take more time than arbitration. Often, the arbitrator does not issue a written opinion explaining how and why the decision was made, which leaves both contractor and homeowner in the dark. And our legal system will generally not reverse an arbitrator's decision, unless it can be demonstrated that the arbitrator was biased or arbitrary. And how can this be presented to a judge when there is no written opinion?

• Initial decision-maker. According to AIA, previous versions of their form contracts "assigned the architect the role of serving as a neutral party to decide disputes between the owner and contractor. The 2007 Update provides the owner and contractor with the opportunity to hire a third-party initial decision-maker (IDM) for dispute resolution."

• Access to financial information. The new forms prohibit the contractor from requesting financial information from the owner after the work has begun -- even if the contractor may have reason to be concerned about the owner's ability to pay.

One important provision in the revised contract forms deals with subcontractors. Homeowners often learn that although they have been paying the contractor, the subcontractors who are working on the job are not being paid. According to AIA, "The revisions also allow the owner a greater opportunity to learn of contractor/subcontractor payment problems, and address a contractor's failure to pay a subcontractor by allowing the owner to write joint checks."

One of the most common problems that homeowners encounter with their contractor is that they often pay most, if not all, of the entire contract sum when the work is far from completed. Some contracts call for an initial down payment and the balance is due when the work has been finished. Other contracts -- especially those with a larger scope of work -- will have a draw schedule prepared and made a part of the contract documents. This schedule will spell out when additional payments are to be made based on performance of the work.

If there is an architect involved, he or she will normally be the gatekeeper for the draws. The contractor must submit requests for payments, which must be approved by the architect. However, many homeowners do not use the services of an architect, and have to rely on the contractor's representations as to what was done.

It is critical to keep a portion of the final payment until you -- or your architect or the IDM -- are completely satisfied that the work has been done, and that all subcontractors have been paid in full. It is a good idea to have the general contractor and all subs sign a statement to this effect. You do not want to discover later that the subcontractors have filed mechanics' liens against your property.

Perhaps the most common complaint that arises involves changes to the scope of work. As the job progresses, the homeowners may ask the contractor to add another cabinet or install more electrical outlets. The contractor does the requested work and at the end of the job submits a bill for these changes. By that time, since memories are short, the homeowner disputes that the work was ever authorized.

All change orders must be in writing, spelling out the work to be done and any additional costs. Both the homeowner and the contractor must sign this change-order document. Contractors are notoriously lax in adhering to this practice, which is why there are so many disputes.

Another important provision that should be included in all contracts deals with ending the relationship. If you become dissatisfied with the quality of the work, or find that the contractor has taken another job and has stopped working (or slowed down), what can you do? Most "two-page specials" are silent on this issue. However, all AIA form contracts have clear language that gives protection to the homeowner. For example, the following language can be found in Form A105:

The Owner may terminate the Contract if the Contractor:

(1) repeatedly refuses or fails to supply enough properly skilled workers or proper materials;

(2) fails to make payments to subcontractors;

(3) persistently disregards laws; or

(4) is otherwise guilty of substantial breach of ... the Contract. …

If any of these events occur, the homeowner -- after giving the contractor seven days notice -- may terminate the contract, and hire another contractor. If the unpaid balance owed the contractor is more than the cost of finishing the job, the homeowner still owes the original contractor the difference. But if the cost to complete the work is more than the original contract price, which is often the case, the homeowner can look to the terminated contractor for payment of this difference.

It is often easier and faster to enter into a simple two-page contract for the work that you want done in your home. And because many contractors are competent and honest, everything will probably work out.

But unless you include all of the protections suggested above, you are at the mercy of that "two-page special," which can come back to haunt you if and when problems arise. A judge will honor any binding contract that you have signed, even if it is one-sided in favor of the contractor.

The AIA contract forms are designed to give you the protections you need. You may want to tailor those contracts to your particular needs, but they are accepted in the industry and should be used by all homeowners.

The forms can be purchased directly from AIA on its Web site.

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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Copyright 2008 Benny L. Kass

What you see is what you get, right? Not necessarily in real estate, unless you go out of your way to document your expectations and assumptions and make them known to the seller. This is especially true in recreational properties that are in remote locations.

Some years ago our neighbors purchased a large summer cabin on a mountain lake. While very few people visited the area in the winter, the couple felt they could use the cabin in cold weather because the living room included a fireplace with a new, efficient insert. They even shared with us their feeling of relief that the getaway could be heated by wood because electricity was extremely expensive in the area. They also felt they had saved some time by not having to research other insert options or freestanding wood stoves.

When moving day finally arrived and they began setting boxes in the living room, they noticed the insert was gone. How could this be? If this was not a "fixture" that was to stay in the house, what exactly was a fixture?

Through their real estate agent, they learned the seller was an attorney who said he never even considered leaving the insert behind. The cherry on top of this dessert was that the seller had no place to re-insert the insert. But he would gladly sell it to the couple or keep it in his garage. They eventually bought their own insert. They were shocked, upset and out about $1,500.

The insert was gone because their earnest-money agreement had not included a definitive list of items they expected to find when they took possession of the house.

Most multiple listing associations and real estate companies annually review and generally add to their lists of "fixtures" included in a residential sale. The list typically is a specific paragraph in company "Residential Real Estate Purchase and Sale Agreement" forms (sometimes referred to as an earnest-money form), and usually grows as a result of complaints and lawsuits. Here's a typical paragraph in the form regarding fixtures:

"Any of the following personal property located in or on the property is included in this sale: built-in appliances, wall-to-wall carpeting; curtains, drapes and all other window treatments; window and door screens, awnings; storm doors and windows; installed television antennas; ventilating, air conditioning and heating equipment; woodstoves; fireplace inserts; doors; gas logs and gas log lighters; irrigation fixtures and equipment, electric garage door openers; water heaters, installed electrical fixtures; lights and light bulbs; shrubs, plants and trees; hot tubs; and all bathroom and other fixtures."

The paragraph has come a long way toward clarifying what is typically included in a sale, although the phrase "and other fixtures" still leaves room for dispute. What are other fixtures? Can they be washing machines attached to the wall by a rubber hose? Typically not.

But there is a case in which a real estate agent who was representing a religious congregation buying a church building assumed that the bolted-to-the-floor pews were included in the sale. A court ruled otherwise.

Attorneys for multiple listing associations say the "fixtures" list has grown due to some absurd cases that should have seemed logical to both buyer and seller. In some cases, the buyer's wishes simply fall through the cracks -- a coveted refrigerator never was included on the fixtures list, so it was not included in the sale and it was carted away by the seller. If there are beautiful rose bushes or rhododendrons in the yard, it's best to say they are included in the sale or they will not be included in the sale.

Stained-glass windows caused a recent problem. The seller assumed they were art and planned to replace them with the common windows stored in the basement. The buyer said the stained-glass was one of the reasons the home was appealing and assumed they came with the house. After shock, resentment and bitterness, the two parties settled on a lower sales price and the seller took the stained glass.

The moral to the story? When in doubt, spell it out -- especially if it's going to heat a cabin on a remote mountain lake.

To get even more valuable advice from Tom, visit his Second Home Center.

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Copyright 2008 Tom Kelly

Q: I have a question regarding my old fireplace, built in the 1920s with a brick facade that was added in the 1950s.

The brick facade has been painted white and is as ugly as can be. The fireplace also has a threshold that is 2 inches high, 5 feet, 2 inches wide, and 1 foot, 9 inches deep.

I want to remove the brick surround and the threshold, freeing the fireplace of some of its weight, and then refinish the facade with either tile or stone squares. I plan to refinish the threshold in the same material, except that this will now be flush with the rest of the floor so as to add more continuous space to the room.

How does one go about removing these bricks? Can we carefully remove the brick ourselves? And, if so, what tools do we need? My husband and son are ready to tackle the project.

A: Of course a picture is worth a thousand words. So when our reader offered to send a photo along, we gladly accepted. We were also curious about the reference to the weight of the facade and wondered whether there might be some settling involved or some other structural problem.

Happily, she reported that there were no problems with the fireplace settling and that the motivation for the fix was purely cosmetic. One look at the soot-stained white brick facade and hearth, and it's apparent that a makeover is in order. Fortunately, this makeover is not too extreme.

Removing the brick should be a pretty easy job. The only tools needed are a cold chisel and a stout hammer. A 3-pound sledgehammer should do the trick. This is also known as a "single jack" -- named for its use by a single hard-rock miner in conjunction with a star chisel to bore holes in rock for placement of dynamite.

Start by removing the wood mantle that sits on the top of the brick. Place the cold chisel in the mortar joints of one of the end bricks. There should be a joint where the brick meets the wall and there is a joint between the top brick and the second course below it. Work on both joints until the brick is loosened, then lift it off. Work gently so the bricks don't fall and damage the floor or your feet. Work from the top to the bottom in this manner until you've removed all the bricks. The brick you see on the fireplace is a facade. It is attached to the firebox by mortar. You'll be able to clean up the brick behind the facade and cover them with a new flat mortar bed to install the tile or marble.

After all of the facade bricks are out, remove the hearth (threshold) in the same way with the same tools. You'll probably find the hearth is set in a bed of mortar. The mortar base will provide a good substrate to set your tile.

As far as putting the fireplace front together again, unless you have some experience installing tile, consider hiring a tile setter or mason to do this part of the job.

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Copyright 2008 Bill and Kevin Burnett

Q: My husband and I bought a house a few weeks ago. We have not yet moved in.

Two days ago, we received an inspection notice from the city, which said that the seller did work on the home without permits. I went to the city building department to pull out the file and found out that somebody filed a complaint against the seller and mentioned that he had done the roof, heating system and master bathroom either without permit or with expired permits. In addition, he had done the kitchen and window without permits.

In the disclosure report the seller gave us, it says that he had the permit for the roof, heating system and master bathroom. He did mention that he did not have a permit for the kitchen work, but he never mentioned anything about the windows.

The city sent a notice to him before we closed on the house. He and the seller's agent did not mention a word to us. If we had known, we would not have bought this house.

I just had a general contractor take a look at the work the seller did. He told me there is no way any of the work he did will pass the city code. Besides that, he found some more issues, which are not in the disclosure report. The contractor told us that if we are trying to pass the city inspection we will need to spend upwards of $100,000 to fix everything.

Do we have a seller disclosure fraud case here against the seller? Is there any way that we can get rid of this house? If not, is the seller responsible to cover all the expenses?

A: The first question you must ask yourself is this: Why you would buy a home without having it first inspected by a qualified home inspector? You are buying what may be the single biggest asset of your life and you went into it blind. The reason you have a home inspection before you are bound to a contract to buy a home is to avoid the problems you are now having.

Sam Tamkin

What you should do now is hire one or two additional contractors to evaluate the home and give you estimates of what it will cost to bring the house up to code.

Once you have a better idea of the problems you are facing and the costs involved, you can hire a real estate attorney to determine whether you have a case against the seller.

Most states have seller disclosure laws that require sellers to disclose to the buyer any material defects in the home. In some cases the disclosure laws will talk about hidden defects while other laws include any type of major defect in the home, whether visible or not.

If the seller obtained permits for the work but the installation of the work was done poorly, your issue would not be with the permitting process, but with the quality of the work. If the seller did the work without permits, but the work was done properly, in some circumstances, you might be better off.

Many homeowners make additions to their homes without permits. The workmanship might be great but the home improvements might violate local zoning laws. The local municipality may have the right to force the current homeowner to demolish the offending addition even if the workmanship is great.

In your situation, you may have a strong case if: (1) the seller knew that permits were required and did not disclose the fact that he or she did not obtain a permit, or (2) if the repairs or improvements were done without the required permits and were done poorly, and the seller knew that he needed a permit and knows also that the work completed was shoddy.

Can you trust the contractor to tell you what's really wrong and provide a true cost estimate? Some contractors have been known to inflate their costs or scare homeowners into believing that things are wrong with their house when they are not. One way to avoid this scenario is to make sure you get referrals from people and find a good contractor to evaluate your home. That's why you should have several other contractors come in and look at your house.

You might also consider hiring a home inspector now to evaluate the condition of your home.

Here's the bitter pill you have to swallow: Now that you know about these issues, you'll have to disclose them to any future buyer. This information might affect your ability to sell the home and might affect the manner in which you market the home for resale.

Please be sure to discuss the situation with a real estate attorney in your area. Make sure you bring along a copy of all of your documents from the purchase of the home as well as copies of estimates for things that need to be fixed in the home along with pictures.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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Copyright 2008 Ilyce R. Glink and Samuel J. Tamkin

Q: I co-own a property with my four siblings. It has been the residence of my family since 1958 when my parents bought it for $10,000. My parents signed over the property to the kids in 1980 and proceeded to rent it from us for $3,000 per month.

The property had a business in it and was also their primary residence. Now, we are planning to sell it. What kind of tax liabilities are we looking at if we sell it for between $160,000 and $190,000?

A: The question is, why sell a $190,000 property that is giving you $36,000 in income? It sounds almost too good to be true.

Wait, it's your parents and they're transferring wealth to you while they're living in their home. (Nice move on their part.)

Seriously, you and your three siblings have owned this property for a long time, nearly 30 years. If you've been depreciating the property, I'm guessing that it's depreciated to nothing at this point.

You'll owe long-term capital gains tax of up to 15 percent on the entire sales price, plus state tax. In addition, you'll have to recapture your depreciation and repay taxes on that amount. That is to say, you received tax benefits for having an investment property over the years and when you sell it you will have to repay those benefits.

Since the property is entirely an investment property, you and your siblings could sell it and roll over the proceeds to another investment property and defer any taxes that would be owed. If your siblings don't wish to join you in that new venture, you may be able to roll over your portion of the proceeds, and defer your tax obligation -- for the moment.

If you decide to do this, you'll need to find a company that can act as a third-party intermediary for a 1031 tax-free exchange, also known as a tax-deferred exchange or even a Starker exchange.

You'll need to identify the replacement property within 45 days of the sale of the investment property you have owned and then close on the new replacement property within 180 days of selling the current investment property. These dates are strictly enforced and in some cases are shorter, so be sure you understand the dates involved and don't miss any of the important deadlines.

You'll also need the services of a knowledgeable real estate attorney. Be sure to find one who has done plenty of tax-free exchanges, so you know he or she is aware of all the rules.

For more details about the taxes you'd pay on your property, please see your tax preparer or accountant, or go to the IRS Web site.

Q: I live in Pennsylvania. Unfortunately, I did not have the foresight to have a lawyer review my contract to purchase before I signed it. The closing date for the property is in February.

Here's the problem: The house has been listed in the sheriff's sale three days after our closing. The mortgage company put up the house for sale after drafting the offer, but before the execution date (which was the date they accepted the offer).

Now they've accepted the offer, but the house is still listed in the sheriff's sale. My contract is with the owner of the house, but her acceptance was contingent on her mortgage company's acceptance, and I am pretty sure it will result in a short sale.

The bank I have been working with says it cannot close by the date listed in the contract because it requires my W-2 forms from 2007, which I have yet to receive. This means I will default on the contract and the seller is not willing to extend the closing date due to the sheriff sale.

Is there any way I can back out of the contract now? If I can't, will I lose my deposit and perhaps be taken to court for extra costs of having the house off of the market? Unfortunately I put faith in the real estate agent who I thought was objective (another mistake on my part).

I already had the home inspection and am past the 15 days I had to raise a claim. I was told that because they were a bank they would not work with me at all so even though we found issues with the home (knob and tube wiring, a sagging beam on the front porch) I did not pursue them.

This deal started six months ago, and has been difficult along the way, but this sheriff sale thing has just pushed me over the edge. Is there any legal way to get out and get my escrow back?

I know I messed up, but I was hoping you could offer your opinion. Thanks in advance.

A: You already know that I can't help you in this situation, although I feel for what you're going through.

Tomorrow morning, get on the phone and call a good real estate attorney who can help you save this deal, or at least help you get your deposit money back. Buying a foreclosure is tough enough -- but having this sheriff's sale hanging over your head is overwhelming.

The best thing you can do now is surround yourself with really knowledgeable professionals who can hopefully help you save your deal. Gather together all of your paperwork and see what you can do.

Good luck -- you'll need it.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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Copyright 2008 Ilyce R. Glink

Dear Barry,

When we bought our house, the home inspector said we have copper water pipes. But when we installed a new dishwasher, we learned that the pipes are polybutylene plastic. Two plumbers have said these lines should be replaced to prevent leakage. Worse still, our insurance company got involved and will cancel our policy unless we repipe the house. The home inspector did not have us sign a contract, so there appears to be no limit to his liability. But we've heard that he is no longer in business. If we can track him down, how can we make him pay for the repairs? --Stacey

Dear Stacey,

You apparently hired a home inspector who is not a true professional. Therefore, you may not be able to make him pay for repairs. The fact that he missed such an obvious condition as polybutylene pipe, that he did not have a standard home inspection contract, and that he is no longer in business indicates that he is a "fly-by-night" inspector.

Polybutylene is commonly recognized by home inspectors as substandard water pipe because the lines are prone to cracking and the connections often leak.

Your first step is to locate the inspector, if possible, and to notify him of your concerns. Invite him to your home for a reinspection of the plumbing. You should also get some bids for repiping so that you can document the likely cost of repair. And be sure to get some advice from an attorney so that you will know what remedies are available to you by law.

If the inspector is still available but is unwilling to address the problem, you may be able to get a judgment against him in small claims court. That might not cover the entire cost of repiping, but it could pay a large part of it, assuming that the inspector has any assets to collect.

Finally, if the home inspector was recommended by your agent or broker, that person shares responsibility for the lack of competent disclosure and should be notified accordingly.

Dear Barry,

We are concerned about the safety of our ventless gas fireplace. We use it a lot, and a black film has recently appeared on the glass panel, as well as on our windows. What should we do? --Barbara

Dear Barbara,

The first think to do is stop using the fireplace and report the problem to a qualified fireplace specialist for evaluation and repair.

When a gas-burning fixture produces a black residue, that is a symptom of incomplete combustion and faulty exhaust venting. It means that combustion byproducts are venting into your home, and this is potentially dangerous, depending on whether these byproducts include carbon monoxide.

After your fireplace is professionally serviced, read the owner's manual before resuming use. The manufacturer's instructions may advise not using the fixture for periods of more than two hours. The manual may also recommend that a nearby window be kept open while the fireplace is in use to dilute exhaust with fresh air.

Ventless gas fireplaces are vigorously defended by their manufacturers as being incapable of abnormal combustion. In past articles, I've expressed the view that no manmade product is, or ever can be, 100 percent foolproof. Your situation appears to support that opinion.

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

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Copyright 2008 Barry Stone

Q: I have older double-hung windows, and would like to be able to secure them with some type of lock like what you find on newer windows. I don't want to end up gerryrigging something, and was wondering if you could point me in a more productive direction. --Sara S.

A: For retrofitting single- and double-hung windows, there is a small sliding metal pin lock that mounts on top of the lower sash. The lock has a bracket that screws to the top of the lower sash frame, and then one or more holes are drilled into the side frame of the window to allow the locking pin to slide into the hole to secure the window in place. Holes can be drilled at different intervals along the frame to allow you to lock the window in the open position at different heights, and also lets you use the pin lock in conjunction with the window's original lock for additional security when the window is completely closed.

Your best bet for a sash lock like this is a well-equipped hardware store or home center. You could also talk to any glass stores in your area or retailers that sell windows. Sash locks for single- and double-hung windows are not a really common item, but any of these outlets should be able to find them in one of their catalogs and order them for you. Complete installation instructions will come with the lock, and the dealer should also be able to recommend a qualified person to do the installation if you don't want to do it yourself.

Q: Can you tell me if any homeowners insurance companies still offer coverage for protection against city sewer-line backups. My current company used to offer it, but they recently eliminated the coverage. --Craig J.

A: The homeowners policies from virtually all insurance companies will cover most instances of sewage problems if they are caused on-site -- for example, from a toilet that becomes clogged and overflows. If a sewage backup occurs off-site -- as is the case when a municipal line clogs and backs up -- most insurance companies have taken the position that that's the city's responsibly and not theirs, and as a result you will find that few, if any, policies will extend coverage for any resulting damages to your home.

More surprisingly, however, is that most cities do little to provide damage relief to affected homeowners. Coverage generally becomes one of liability as opposed to actual property damage, and the insurance policies carried by many municipalities typically will limit monetary payment for repairs to a small percentage of the actual cost of the loss.

Some insurance companies offer supplemental coverage for things such as flood or earthquake damage, so there may be supplemental coverage available for municipal sewer damage as well. Your best bet would be to ask your insurance agent what's available and how much extra it would cost. Incidentally, it's important to know that most insurance companies are now rewriting their policies to also exclude coverage for mold-related damage, so you might want to ask your agent about that as well.

Q: You had a great article about vapor barriers and it brought to mind something I have always wondered about. Tyvek and other wraps around the outside of a house would appear to create a "second" vapor barrier that can cause condensation in the stud space if there is any defect in the main vapor barrier. Would this also be your opinion? --Lew S.

A: Actually, Tyvek and similar house wraps are not considered to be a vapor barrier. To quote DuPont (the manufacturer of Tyvek): "Tyvek Housewrap is used as an air infiltration barrier and secondary weather-resistive membrane when applied in exterior walls. The unique properties of Tyvek allow it to be resistant to liquid water while allowing water vapor to evaporate out of the wall cavity."

You have a very valid concern about second vapor barriers trapping moisture in walls. This could occur when moisture generated inside the building passes through the primary vapor barrier (the vapor barrier is always on the warm, or inside, face of the wall insulation) and becomes trapped by a vapor-impermeable outer wall covering such as asphalt-impregnated felt -- "tar paper" -- that once saw common use under siding. With a vapor barrier on each side of the wall, the moisture would be unable to exit, and would stay in the wall where it could cause all sorts of problems.

House wraps, however, are specifically designed to stop outside air infiltration while still allowing water vapor a chance to escape, hence their tremendous popularity with builders.

Remodeling and repair questions? E-mail Paul at paul2887@ykwc.net.

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Copyright 2008 Inman News

I have been spending time recently kicking the tires of a new Web site, MortgageGrader.com, which has excellent credentials. It has been developed by Jeff Lazerson, an experienced mortgage broker who didn't much like the way most brokers did business.

Lazerson persuaded the Ford Foundation to back an approach designed to eliminate opportunistic pricing -- the widespread practice of basing the price on what brokers believe they can induce borrowers to pay. Mortgage Grader (MG) is an equal opportunity mortgage lender, developing prices mechanically by sifting through the offers of participating lenders to find the best deal.

A good way to understand what makes MG tick is to compare it with Upfront Mortgage Brokers (UMBs) and Upfront Mortgage Lenders (UMLs). UMBs are brokers who operate transparently, while UMLs are online lenders who provide the information needed by borrowers to shop effectively. MG has much in common with both, but also differs from them in important ways.

MG and UMBs both practice broker-fee transparency, and pass through to the borrower the best wholesale price they can get from the lender. This sets them apart from most brokers, who quote all-in prices that include an undisclosed markup.

There is a difference, however. Where UMBs negotiate their fee with the borrower, the MG broker fee is fixed, changing only with the loan amount, and is disclosed in a fee schedule. This eliminates the possibility of adjusting the broker's fee to the anticipated workload involved in the transaction. I consider that a small price to pay, however, for the elimination of all possibility of opportunistic pricing.

UMBs and MG guarantee the lender fees disclosed to the borrower, and credit the borrower with any rebates received from the lender. Both lock the rate and other terms when directed by the customer, and provide a copy of the written confirmation of the rate lock as soon as it has been received from the lender.

MG also has much in common with UMLs. Both depend on the Internet as their primary source of customers, and rely on technology to exchange information online with borrowers. Both provide mortgage price quotations adjusted for the particulars of each transaction. But they part company in what they require of the borrower before providing the prices.

UMLs require no more information from the borrower than is needed to price accurately, which in every case involves an input form on one screen that takes a minute or two to fill out. This makes it easy to shop one UML against another, or against other online lenders. The UML certification requirements were designed to this end.

MG, in contrast, requires that the borrower fill out an application form that is contained on five screens, which took me about 15-20 minutes. That is a small investment of time for someone applying for a loan. It is a large investment, however, for someone in shopping mode who is visiting multiple Web sites and who will be coming back frequently, either to check different programs or to keep abreast of an ever-shifting market.

The problem is aggravated by the failure of MG to provide users with a way to save their inputs, and they disappear from the computer after an hour. That is up from 20 minutes; Jeff extended it after I complained, but what is needed is more like three weeks. There is no reason to save the prices; they will change every day anyway and take only seconds to calculate, but I found having to re-enter five screens of personal data every time I wanted to take another look at the prices extremely annoying.

Since MG cannot easily be shopped against other online sites, it is essentially directed to borrowers who have decided to get their loan from one loan provider. This requires a certain amount of faith that they will fare well on MG, without checking competitors. Is such faith justified?

I set out to do a comprehensive set of price comparisons against five UMLs, covering a variety of market niches, which I hoped would answer that question. Unfortunately, I was able to complete only a few before MG bounced me off, and I was disinclined to make it my life's work. In the few I did, MG did not have the lowest price but they were in the ball park.

The large amount of data MG requires borrowers to provide before they can get prices, which I found so irksome, does have one advantage for borrowers: It allows MG to better assess whether the borrower meets the lender's underwriting requirements. Their prices are therefore less likely than those of UMLs to require adjustment later in the process.

Bottom line: If you prefer to select one loan provider rather than spend time shopping, MG looks like a good choice. Right now, they are licensed in California, New York, Florida and Idaho.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

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Copyright 2008 Jack Guttentag