Question: I'm living in a home that's too large for me. All my children have grown up. The house is on the market for $147,000. It was appraised for $137,000. I'm in the process of doing cosmetic work outside and inside for curb appeal, but I cannot obtain any more loans for fix-up.

The house is not selling and I realize that we're in a real estate bust. My mortgage will go $200 higher, from $1,100 a month to $1,300 in March 2008. Gas, electric, water and the mortgage are causing impoverishing conditions for me and the one child I live with.

When the mortgage goes up, things will get worse. I will not be able to hold things together without making sacrifices that I really can't make to pay for all of it.

I'm trying to make a decision, should I hold on and hope that someone will give me a fixed-rate mortgage that I can handle or should I just abandon the property, risk the consequences of foreclosure and a bad credit report and improve the quality of my life by moving somewhere smaller and less expensive like an apartment?

Answer: Take a breather. The mortgage will not rise by $200 a month until 2008 -- that's more than a year off.

You say the home is "appraised" for $137,000. Do you mean "appraised" by a real estate appraiser or "assessed" for tax purposes? The assessment may not reflect the current value of your property because in many jurisdictions assessments are only updated once every two or three years.

If the property is appraised at $137,000 and you're trying to sell at $147,000 then there will be a problem if you cannot get a higher valuation from the lender's appraiser when the home does sell. The reason: Lenders will only make loans on the basis of the sale price or the appraised value, whichever is less. In the face of a lower appraisal a buyer might demand a price reduction, depending on how the agreement is written.

You have better than a year to work this out. Refinancing may make sense, especially with a loan that does not require cash to close -- the cost of the refinancing is reflected in a higher interest cost or a larger mortgage balance. Selling and moving to a rental unit may also be attractive -- but first check rental rates in your area.

Vacating the property and going to foreclosure is the worst possible option -- how will you be able to find a rental once you have a damaged credit report? Moreover, in a foreclosure you can expect the buyers will only want to purchase at a discount.

Do you have any equity in the property? Or, did you buy with little or nothing down? If you have owned the property for several years you likely have equity in the property.

Take these steps:

First, speak with your current broker. Ask about market trends in your immediate neighborhood. For instance, if it typically takes four months to sell like homes and you start now you likely can market the home without a foreclosure.

Second, speak with lenders. Maybe there's a loan program out there that would reduce your monthly payment and allow you to keep you home.

Third, look into getting more income, perhaps a part-time job or maybe a raise where you now work.

Fourth, take a look at your community. Is the job base growing? The population? If yes, then perhaps the slow sales you now see are temporary.

Question: I purchased in a new development and had a home built. The adjoining lot was also sold and a home was built on it. The deed for my lot includes a dry creek which serves as a buffer between the two houses. The builder for the home on the adjacent lot constructed a driveway on the property line along the entire length of my property.

The issue I have is that the builder also installed landscaping and an irrigation system at the edge of the driveway, within the dry creek and clearly on my property. The landscaping and irrigation system don't really bother me, but I'm concerned how this might impact me when I sell.

The builder and the owners of the neighboring house are aware (verbal discussion) that the landscaping and irrigation system are on my property. Am I at risk of losing part of my property? What can I do?

Answer: Yes, you could lose ownership of the property now used by your neighbors. Given enough time -- say 10 or 20 years depending on your jurisdiction, there may be the creation of an "easement by prescription." This means when someone else uses your land in a way that is open, notorious, adverse and continuous they can gain a permanent right to the property they use.

The usual way to prevent an easement by prescription is to object or sue. As a practical matter, speak to your neighbor and explain the problem. Speak with an attorney -- for purposes of creating a paper trail you may be advised to send a certified letter with a return receipt required every few years to your neighbor to maintain title.

Question: What's a lease purchase option?

Answer: In basic terms, a lease purchase is an installment sale. For instance, you might agree to rent a property for two years with the right to purchase at a given price known in advance.

You must pay a fair market rental, any rent above the fair market rate can be applied as a credit to you for the purchase of the home. If you do not purchase during the option period, then you have merely had an expensive rental.

There are many potential complications to a lease purchase agreement. For instance, how much credit will lenders give your monthly payments? What if the place is damaged prior to your purchase -- who is responsible? What about payments for taxes, insurance and utilities? Must the owner keep the additional monthly rent in an escrow account?

For specifics, speak with a broker or attorney who has handled such transactions and make certain that lenders will credit any payments above fair market value to your purchase.

Question: What websites show which smaller cities have the highest growth and real estate appreciation due to new jobs and companies moving into the area. I'm interested in buying rental properties in the areas with the best potential for growth.

Answer: What you are asking is logical and makes sense, but allow me to offer two cautions. First, past appreciation does not guarantee future results. Second, while we know about past growth we cannot be sure, again, about the future.

Why not identify the areas that are generally most interesting to you and then contact local economic development offices? Many -- if not most -- have sites online. Also, take a look at the local marketing reports carried by Realty Times.

Question: If a house doesn't sell and it's near the time to close on another home, would you recommend us contacting a home buying company? These companies acknowledge that they will pay at least fair market value for your home and can close in as little as three days. Do they do appraisals on these homes to ensure the seller is possibly getting above fair market value? We want to avoid paying for two mortgages. Hopefully, we can at least get paid for some of the equity we have in the home. Please advise!

Answer: You have this backward. Home buying companies are buyers, they seek the best price and terms possible for them. Why then would they "acknowledge that they will pay at least fair market value." Fair to whom? Why would they "do appraisals on these homes to ensure the seller is possibly getting above fair market value?" If you were the buyer would your goal be to pay more than fair market value?

If you have a home which has not sold you need to ask why. Is it the local market? Pricing? Condition? Location? You can do something about price and condition. Also, have you offered "seller contributions" to reduce buyer closing costs rather than price reductions?

Speak with your broker before going further. You might want to see what final price, after all deductions, a home buying company would be willing to pay.

Question: We recently listed our home for $500,000 with the broker from whom we originally purchased. We have been under contract for two weeks and although she had the listing on the Internet only, we've had a lot of interest. She wants us to lower the price $20,000, which we did. She brought in someone who will buy, but only if we carry her for one year. Other brokers have shown it with positive feedback. In our area homes like ours with acreage sell for upwards to $700,000. Can we break the listing agreement without penalty?

Answer: Why did you list the property at $500,000 if other properties sell for $700,000? Why did you lower the price after only a few weeks when marketing has been limited?

A listing agreement is a contract and can only end prematurely if both parties agree. Does your agreement give you an option to end early?

Speak with the agent or the agent's broker. See what can be worked out. If the matter cannot be worked out, most brokers will end a listing agreement with an unsatisfied client as a matter of good PR. To help matters along, offer to pay for the broker's actual costs to date.

Question: We purchased a primary residence in July 2005 and lived in the mobile home on the property since that time. In July 2006 we took out a one-time close loan that included; the land, the mobile home, and the construction cost for the new home. When does the two-year capital gains clock begin on this property since technically we purchased it and lived there since July 2005?

Answer: The IRS says "to exclude gain a taxpayer must both own and use the home as a principal residence for two of the five years before the sale. The ownership and use periods need not be concurrent. The two years may consist of 24 full months or 730 days. Short absences, such as for a summer vacation, count as periods of use, but longer breaks, such as a one-year sabbatical, do not. The taxpayer also must not have excluded gain on another home sold during the two years before the current sale."

What you really have here is one address plus a massive capital improvement which will reduce your profit when you sell. For specifics, speak with a CPA, enrolled agent or a tax attorney.

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Published: November 24, 2006

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Have a real estate question for Realty Times? Wondering about buying, selling, financing, refinancing or renting? Here's where you can send your question to Peter G. Miller, OurBroker®, a nationally-known columnist, author and reporter. Peter G. Miller has written six books -- including The Common-Sense Mortgage -- a guide with hundreds of thousands of copies in print. Miller was the original creator and host of America Online's Real Estate Center and joined Realty Times in 1998. Send your questions to . Because of the volume of mail received, individual questions cannot be answered privately and not all questions can be used. Published letters may be edited for space and style and all letters become the property of Realty Times upon receipt.