Question: I purchased a single-family investment property in Florida in 2005 for $335,000. I have an 80% first mortgage and a 20% second mortgage and both are interest-only financing, thus I still owe $335000.

However, the market value for the property has dropped. I'm thinking about a short sale since I have a VERY negative cash flow. How would both mortgage companies work this out? Must I "qualify" for a short sale? In other words, if I have other assets will it prevent me from doing the short sale? How would it affect my credit score? If I get enough to pay the first mortgage can I just continue to pay off the second mortgage? How does it all work? Thanks for any advice you can give me.

Answer: In a short-sale a lender settles with the borrower for less than the amount owed -- meaning that the lender or lenders take a loss.

Let's logic this out. Suppose the value of the property went up and you sold. Would you give the lender a little something extra in addition to principal when you repaid the loan? Why then should the lender lose a dime when the value has declined?

You bought a property with no money down and with monthly payments up-front that are not reducing the loan balance. Investment gurus might think that a deal with "piggy-back" financing and no money down is a good example of using other people's money, but it doesn't work if the rent can't cover your costs or the value of the property does not increase. These are two huge considerations which obviously have not been met.

In your situation the first and second lenders will both need to agree to a short-sale. As they say in acting, what's their motivation? The only thing in your favor is that you may be in an area which has so many properties for sale that it will be cheaper for the lenders to accept a short sale rather than foreclose.

Go no further with this by yourself. Instead, have a real estate attorney contact your lenders -- but don't be surprised if this investment results in lousy credit, a foreclosure and perhaps even bankruptcy.

Question: Is there an average time-frame for a buyer brokerage agreement if you're looking at in-state residences?

Answer: I would say no. You have to consider what's reasonable in the context of your specific needs and the current market. For instance, if you need a replacement residence within three months, then a buyer brokerage agreement for four or five months would be reasonable. Why the longer term? Because you can't always get what you want, when you want it.

As well, it's not just a question of the length of the agreement. For instance, when I have used a buyer broker the originally-proposed form agreement was designed for the entire state. This makes no sense, while a specific county or community was entirely reasonable in my situation.

Question: I have a home in Virginia which I need to decide if I want to sell or not. I have been told by my tax accountant that I have until December 2009 to sell the house without paying capital gains taxes. My son is presently living in the house while he is in college and I am responsible for the existing mortgage on the house.

If I should sell the house, what tax implications would I have after December 2009. Supposedly this falls within my three years to sell this house without paying capital gains taxes.

Answer: If you are saying that the property was your prime residence for two of the past five years ending in December 2009, then if you sell after 2009 you would not be able to shelter as much as $500,000 if married or $250,000 if single from capital gains taxes. In other words, you would have a vastly larger tax bill versus perhaps no tax bill if you sell the property within the proper time limits.

For specifics, please see IRS Publication 523, Selling Your Home .

Question: What happens in a case where the homeowner being foreclosed challenges the ownership of the note and the lender can't find the paperwork? Did you ever hear of anything like that?

Answer: Yes. Last fall, federal judge Christopher Boyko of the U.S. District Court in Ohio, ruled that evidence of ownership presented by one lender in 14 foreclosure actions was insufficient to show that the lender actually owned the loans. Under Ohio law, you can't foreclosure if you're not the actual owner of the loan.

Since Judge Boyko's decision, the logic of his analysis has spread to a growing number of courts and states.

The core issue addressed by Judge Boyko is this: Mortgages today are often sold, packaged together and then used to create mortgage-backed securities. The securities are then sold to investors -- and, in some cases, differing portions of the risk are sold as separate investments. To make matters more complex, an owner may sell a security this morning and the new owner may sell by dinner.

Looking at the records on file in his jurisdiction, Boyko found no ownership interest by the lender attempting to foreclose, thus ruled there could be no foreclosure.

Question: I saw a house that I thought was nice and had a "lease to purchase" sign out front. I called the number on the sign, spoke to the seller and she said they were asking $95,000. They are asking for $5,000 as a down payment that will go toward the balance of the house, and $900 a month for the rent of witch $300 of that will go towards the balance for the house. They will hold the note until I'm able to get a loan and at that time they will show that I have been making the payments and have been living in the house. I have had the house looked at and it's in great condition. I'm planning on turning the garage into another room before I move in and doing a couple of other renovations. Any advice?

Answer: How much is the house worth if you were to sell it today? What kind of deed are you getting? Have you spoken with a lender to see if they will give you a credit for the monthly rent? What if you can't get a mortgage during the option period?

Please show the proposed offer to an attorney or legal clinic before going further.

Question: How far back do most lenders look at your credit history when qualifying you for a mortgage loan?

Answer: Lenders look at your complete credit report, including items going back as long as 10 years such as bankruptcies. They also look for unpaid judgments which can be on credit records for decades.

In practice, however, the most important data concerns your credit actions during the past two or three years.

Question: Is it true that agents that specialize in luxury real estate earn higher percentage commissions than other agents?

Answer: Here's what's true: Commissions are negotiable, the marketing costs for expensive homes can be vastly larger than for typical properties, and listing agreements for luxury homes tend to be longer because such properties can be very difficult to sell since there's a limited pool of potential buyers.

Question: Do you think that inflation will make home prices rise or fall?

Answer: The idea of inflation is that each dollar buys less thus you need more dollars to buy a standardized commodity such as bread, bicycles or real estate. The result is that while inflation by itself should cause home values to rise in terms of cash dollars, inflation is only one factor which impacts property prices. You also have to look at other matters such as interest rates, demand, local job and population trends and the location and condition of the individual property.

Question: I'm considering putting in a concrete walkway in front of my home. Do you have any do-it-yourself tips?

Answer: If you mean a sidewalk, speak with your local government and see if they will do it for you. They may well have an easement to install a sidewalk and if they do the work it will be paid for by taxpayers and not you.

Question: What makes it a "buyers" or "sellers" market? Are there set standards for determining this?

Answer: While there are no set standards, a buyers or sellers market generally reflects local pricing and sale trends. When values are rising and unit sales are strong, that's typically seen as a sellers market. When prices stall and unit sales drop, purchasers have more leverage in the marketplace so that is generally regarded as a buyers market.

Question: Do you know where I can find the average number of transactions and sales for residential real estate agents nationwide and within individual states?

Answer: You can get this information from several sources. National existing home sale data is available from the National Association of Realtors. For new homes, try the National Association of Home Builders.

At the state level, you can get sale information from state broker and builder associations.

As to the number of licensees, each state and province has a real estate regulator. Typically they will provide the number of active licensees for the most recent year. For national licensee figures, you likely want the annual fact book from the Association of Real Estate License Law Officials (ARELLO).

Have a real estate question? Send your inquiry to Ask Realty Times . 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 . For past columns, please press Ask Realty Times .

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.