Question: We moved in 2004 and as a result were forced to pay a penalty to our lender. Is a pre-payment penalty deductible for tax purposes?

Answer: The answer is "yes" -- usually.

The IRS says "if you pay off your home mortgage early, you may have to pay a penalty. You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan."

Question: My wife and I just sold a five-unit property in San Francisco, and would like to know what cities in New England would be good a rental market in which to invest.

Answer: To move and invest or to invest from a distance? To live on the property and rent the other units or to have a pure investment?

Small investors are best served by living near where they invest. In your case, consider going from a five-unit property to properties with four or fewer units. Such investments are far easier to finance than something with five units.

As to where, speak with local brokers. Ask about vacancy rates, financing, rent control (if any), condition, etc. A good place to start is to review individual Market Condition Reports from local real estate professionals.

Question: I have a mobile home with siding that looks like pressed cardboard. Is there any of this type siding still available?

Answer: Probably. But you will then need to re-paint to match for color. As an alternative, consider vinyl replacement siding if you expect to be a long-term owner.

Question: I sold my home and a week or so before the closing day I got a call from our agent. He informed us that the couple who purchased the house was having problems securing the financing and would be unable to close the deal.

The purchasers wrote a deposit check for $5,000. Because they were unable to close due to financing am I still entitled to that money? Is there anything my agent could/should have done to ensure that the prospective buyers were indeed pre-approved by the financing company prior to signing the deal?

Answer: Most sale agreements have a "financing contingency." This means there is no final transaction until the buyer can get a loan which meets criteria described in the purchase offer -- say a given interest rate and a certain amount of money.

In the situation you describe it would have been best to require the buyers to obtain financing within 10 days of making their purchase offer.

The problem is that a loan commitment can fall through. For instance, suppose the borrowers are approved but the house does not appraise for the sale price? Or, suppose the buyers purchase a new car a few days before closing, it shows up on a new credit report which the lender orders just before settlement and now the buyers no longer qualify for the loan. The transaction will fail because the buyers cannot get financing -- a problem of their own creation in this example.

The broker cannot release the deposit without your approval. Before letting go, speak with a local real estate attorney to see whether there are grounds to keep the money.

As to the broker's obligation, the broker is not a lender and cannot assure financing. That said, sellers are best served when buyers are pre-qualified, contract terms require speedy loan approval and brokers stay in touch with buyers during the financing process so that if mortgage problems arise they can be caught at the earliest moment.

Question: The final home sale capital gains exemption rules say if you move 50 miles because of a new job you can qualify for some capital gains relief. So is 50 miles considered one way or round trip?

Answer: One way. The actual language says "the qualified individual's new place of employment is at least 50 miles farther from the residence sold or exchanged than was the former place of employment, or, if there was no former place of employment, the distance between the qualified individual's new place of employment and the residence sold or exchanged is at least 50 miles."

The IRS also gives this example: "A is unemployed and owns a townhouse that she has owned and used as her principal residence since 2003. In 2004 A obtains a job that is 54 miles from her townhouse, and she sells the townhouse. Because the distance between A's new place of employment and the townhouse is at least 50 miles, the sale is within the safe harbor of paragraph (c)(2) of this section and A is entitled to claim a reduced maximum exclusion under section 121(c)(2)."

Question: I am reserving a lot at a new house subdivision in California. When I ask the agent of the builder when I will get a "public report," she said they don't have a public report and that it's not required for them. Is it important for buyers to receive one?

Answer: You bet. The California Department of Real Estate thinks public reports are important and so should builders. Here's why:

"Before marketing new subdivisions in California," says the state regulatory agency, "subdividers must obtain a public report from the DRE. Public reports contain information of vital importance to prospective buyers including covenant, conditions and restrictions which govern the use of property, costs and assessments for maintaining homeowners' associations and common areas, and other material disclosures.

"Public reports are a critical disclosure document which should be read and understood by any home purchaser considering buying a home in a new subdivision. It is important for consumers to know that a subdivider is required to provide a copy of the public report to a prospective buyer before the buyer becomes obligated to purchase a lot or unit within the subdivision and also to any prospective purchaser who requests it."

Contact the DRE (916-227-0864) and ask if they have a copy of the public report on file.

Have a real estate question? Send your inquiry to . Because of the volume of mail received, Mr. Miller cannot respond to questions individually or privately. Published letters may be edited for space and style. For comments regarding other Realty Times articles, please contact individual authors by pressing here.

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

Published: January 7, 2005

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