Below market value for a quick sale

Q. Help! Our 72-year-old friend is undergoing severe stress with a son in Iraq and estranged daughter-in-law and grandchildren. She wants to move out of the home she's been paying on for the past 12 years. She doesn't feel comfortable in that area and wants to move to an apartment right away.

She says she will mail the keys back to her mortgage company and walk away from 12 years of equity, just to get out. We have told her this will wreck her credit, but she does not care. Can you suggest anything we can do? Perhaps your answer, from an outside source, may help her think clearly.

A. Ruining her credit may be the least of your friend's problems. She may move out but she can't just walk away from the mortgage debt. It will follow her. Twelve years ago she signed a personal promise to repay the loan and that still holds. Quitting will not only ruin her credit, but also leave her open to more troubles she doesn't need, like a judgment or collection.

If her home is worth more than she owes, she can get out quickly without ruining her credit, and even end up with some cash. She can call in an agent and put the place up for sale at less than market value, below the agent's recommended figure, at a bargain price. If it's low enough, that will bring a prompt offer even in a slow market. Then, if she can hold out for a couple of months while her buyers arrange financing, she's likely to come out with some money. Much better than walking away, ruining her credit, and asking for future problems.

If, on the other hand, she owes more than the place could bring in today's market, then she needs to talk with her mortgage company about what options may be open to her. Rental is probably asking for headaches. But, at any rate, the first step is to call three real estate companies that are active in her neighborhood and ask them to send someone over with advice. Until she knows the market value of her property, there's no way to decide what to do.

Q. I want sell my house on a rent-to-own basis. If I set the rent at $950 a month for a one-year term, with $250 going to purchase, the tenant will have $3,000 after one year to use as down payment on an agreed price of $140,000. Do we need to have an attorney write this up?

A. Yes, you need a lawyer and what's more, your prospective tenant-buyer should have a different lawyer. Here are just a few questions that should be answered in your contract:

If the buyers later have to move out of town, can they let someone else take their place in the deal? Could you take out a new mortgage loan on the property? Can you keep the $3,000 if they later trash the place and desert it? Can you sell to someone else instead if you get a better offer?

Have you offered to hold their mortgage when the year is up? Or will a bank give them a loan with only $3,000 down? If not, can they keep trying or must they give up and move out? If they leave, do they get the $3,000 back?

Here's more: If they fall behind in rent payments, do you have the right to evict them? Do they still get the $250 credit in a month when the rent is late? Do you own the deposit money, does it remain theirs, or is it kept in trust? If so, where is it held? What happens if you don't make your own mortgage payments or fail to pay property taxes? Who pays to replace the water heater if it dies just before closing?

Your lawyers can think of lots of other things that should be nailed down in a written contract that will be fair to everyone.

Q. Is there some approximate formula that relates the fraction of house purchase price to what you will have to spend for upkeep on furnaces, water heaters, siding, roof, etc. say over the next 20 years? My husband and I, the old grinches, are worried about a younger relative taking on a house.

A. For property in good shape, investors and property managers often estimate about 2 percent of market value to be set aside every year for future expenses like the ones you mention. That's an average, of course, not really much use in predicting what will happen with one individual property.

•Edith Lank will personally respond to any questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (please include a stamped return envelope), or readers may e-mail her at ehlank@aol.com.

2009, Creators Syndicate Inc.