Article 1 (Should you by a Multi-Family Residence?) Article 2 (Market Update for 2000) Article 3 (1031 Tax Deferred Exchanges: Trends in 2000 and Beyond) Article 4 (Protecting the Principal Residence from Medicaid Liens) Article 5 (Questions and Answers) Article 6 (August Round Up: Home Sales Send Mixed Message) Article 7 (Renovating Your Home and Realizing Your Dreams)

Should you buy a Multi-Family Residence? By Eric Erickson, partner in Viking Mortgage Company. He has been helping homeowners and real estate investors close their mortgage transactions for the past 8 years. He can be reached at 1-888-738-3350. Why would anyone want to live in a multi-unit building? You have to deal with tenants, collect rents and fix problems in the building. Also, the multi-family buildings have small lot sizes, little or no parking, and are close to other similar properties. So who would want to live in such conditions? The answer is the first time buyer. Many young renters don?t consider buying multi-family property – WHY? Some use the excuses listed above and there may be a fear of buying a large property. But, consider the benefits. Would you like to live rent-free? If you are a young renter look at three or four unit properties. In most cases, the rent from the other units will more than cover the monthly mortgage payment. Generally, most young renters currently live in a multi-family property so buying one isn?t a big life style change. Other benefits include the tax shelter of rental property, future income, and experience gained by managing investment property. There are many tax benefits that can be realized from owning rental property. The rental income from the units are occupied by tenants is reported as income but all expenses including deprecation can be deducted. So unlike a single family home where if you replace a kitchen and bath that expense can not be deducted – with rental property all money spent is an expense and therefore a deduction. Future income is a big consideration. Most young renters are not going to live in an apartment forever. Most have aspirations of moving to the suburbs and buying their dream single-family home. Now the multi-family property becomes another income source. You can, at the very least, think of the property somewhat like an annuity. The tenants are paying the expenses associated with owning the property and in future when the mortgage is paid off the income will supplement them in retirement. For the more aggressive, owning rental property can become a new career. After a few years of owning a multi-family, the experience may inspire the buying more properties. Once you have gained experience with two or three tenants, buying other property becomes the next logical step. By this time, as a new landlord you have learned the ins and outs of what to look for when purchasing rental units. You know how to determine the condition of the property, what can go wrong, and how to find and retain good tenants. The equity in the first property purchased combined with the savings in rent payments should enable you to have the money to buy an investment property. Lastly when considering purchasing a multi-family property the first-time buyer should work with a mortgage professional that is experienced in this arena. Also the buyer should find a good conveyancing attorney with multi-family experience. Both the loan officer and attorney will be able to explain and help avoid the pitfalls of purchasing these types of properties. The due diligence involved when finalizing the purchase and sale agreement should be more comprehensive than a single family home. Remember the current seller will not necessarily occupy many of these properties. You will need to understand the lease agreements that are in place, the condition of all the units, and any zoning or legal occupancy problems. So if you are a first-time homebuyer looking into taking the plunge into homeownership don?t leave out the multi-family possibility.

Market Update for 2000 By Sara Rosenfeld, Sr. Vice President, Co-manager of the Brookline office of Coldwell Banker-Hunneman. 617-731-2447. The Massachusetts Association of Realtors recently published the real estate market statistics through June, 2000. The most significant part of the report is the fact that there were fewer homes sold during the first six months of 2000 compared to the first six months of 1999. For single family houses, there was a decline of 11.5% throughout the state from the previous year. For condominiums, the decline was 5.6% throughout the state from the previous year. The reports throughout the state show the demand for housing remaining very high, but there are fewer homes available to purchase. The decrease in home sales is linked directly to the lack of available inventory on the market. Statewide, the single family home listings available in the second quarter of 2000 declined 16.9% in comparison to the same period of time in 1999. Though there were less homes available, the number of single family homes and condominiums sold from April to June, 2000 was 16,533, which made it the third busiest period for home sales in the state?s history. Another important part of the report is that the upper-end home sales priced at or above $500,000 rose an amazing 38.6% in the second quarter of 2000 compared to the same time period in 1999. In contrast, the sale of low to moderately priced single family homes and condominiums priced at $300,000 or less decreased 14% from the same period from last year. Though the number of homes sold decreased, the prices did not. Statewide, the average sales price for a single family home increased 20.1% during the second quarter of 2000 compared to 1999. Statewide, the average sales price for condominiums increased 13.7% during the same period from 2000 to 1999. The greater Boston real estate market continues to lead the state in highest average sales price for both single family houses and condominiums. The multi-family (2-4 units) home sales declined 6.5% during the first six months of 2000 as compared to the same time period in 1999. Much of the decrease in sales activity was limited to the greater Boston area where multi-family housing supply is the most depleted. Other parts of the state actually experienced an increase in sales activity. The sales dollar volume increased statewide by 28.1% during the first six months of 2000 as compared to 1999. The strong rental market across the state stimulated purchases and is one of the reasons for the increase in prices. One of the other important comparisons to make is that the average fixed rate 30 year mortgage available during the second quarter of 2000 was 8.39% compared to the same time period in 1999 when the interest rate was 7.26%. The demand did not appear to diminish due to the increase in interest rates. Sales and price data from the Massachusetts Association of Realtors (MAR) reflects transactions occurring through Realtor affiliated multiple listing services and accounts for approximately 50% of all real estate transactions in the state.

1031 Tax Defered Exchanges: Trends in 2000 and Beyond By Robert HB Buckner, New England Division Manager for Asset Preservation, Inc., a Qualified Intermediary for IRC Section 1031 tax deferred exchanges and a subsidiary of Stewart Title Company. Questions regarding exchanges can be directed to him at 877-845-1031 (toll-free) or on the Internet at www.apiexchange.com. Internal Revenue Code Section 1031 tax deferred exchanges continue to increase in popularity throughout Massachusetts as more investors discover this powerful technique as one of the most effective ways to accumulate wealth in real estate. Although Section 1031 refers to a" tax deferred exchange" it does not require a swap. In 1991 the IRS described how to convert a sale and subsequent purchase of investment or business property into a tax deferred exchange by employing (what the IRS calls) a "Qualified Intermediary." RENTAL VACATION HOMES Do vacation homes qualify for tax deferral under IRC §1031? Although rental income helps to show that a property was held for investment, some tax advisors believe it is possible to complete an exchange on vacation property which has no rental history, but which can still be considered "held for investment." In Private Letter Ruling 8103117, the IRS did allow for tax deferral when a property owner intended to acquire property for personal enjoyment and as an investment. The PLR stated, "the house and lot you acquire in this trade will be held for the same purposes as the properties exchanged: to provide for personal enjoyment and to make a sound real estate investment." Property owners who have not rented their real estate at a vacation destination, but who can substantiate that they acquired and held the property primarily because they expected it to increase in value, may be able to qualify for a §1031 tax deferred exchange. RENTAL PROPERTY TO PRIMARY RESIDENCE CONVERSION The 1997 Taxpayer Relief Act repealed the old §1034 rollover provision and created tremendous benefits to owners of primary residences. The tax exclusion available under IRC §121 (the current primary residence rules) enables a couple filing a joint tax return to exclude up to $500,000 of the capital gain on the sale of their primary residence, and single filers can exclude up to $250,000. ? An increasing number of investors have exchanged into a house they initially intended to hold for investment but at a later date moved into their house, thus converting their former rental into a primary residence. After living in their former rental for a minimum of two years, they can sell their property and receive exclusion from capital gain taxes. IMPROVEMENT EXCHANGES The improvement (also known as a construction or build-to-suit) exchange is an advanced strategy which enables an Exchanger, through the use of a Qualified Intermediary, to complete improvements on a replacement property using exchange equity. Improvement exchanges offer a wide array of benefits, which often result in a better investment than properties currently available. "REVERSE" EXCHANGES Reverse exchanges are becoming more popular because many investors need to close on desirable purchase opportunities before they can close on the sale of the relinquished property. In the past, the IRS had not taken an official position concerning reverse exchanges. Thus, many tax advisors were cautious in recommending this format to their clients. According to recent comments made to the American Bar Association by the IRS's Special Counsel, a revenue procedure for reverse exchanges should be finalized this fall. REFINANCE OPPORTUNITIES Some investors never consider an exchange because they mistakenly believe the equity must always remain tied up in real estate. An investor can exchange into a more desirable property, thus preserving all the equity, and then refinance the replacement property to obtain cash! The cash received from the refinance of the replacement property can then be used for whatever purpose the investor chooses! A real estate investor should always consult with tax and legal advisors, along with an experienced "Qualified Intermediary," before proceeding with a tax deferred exchange.

Protecting the Principal Residence from Medicaid Liens By Brendan J. Greene, Esq., an attorney with the law firm of McCue & Lee, LLP (535 Boylston Street, Boston, MA) and practices in the area of real estate, tax, and Medicaid planning. He can be reached at (617) 236-0212. For many individuals, their home is their largest asset, and people both young and old are often emotionally attached to their homes. Parents and children have an interest in making sure that their home is not subject to creditor claims, particularly Medicaid liens, if either or both parents were to enter into a nursing home. Protection From Medicaid Estate Recovery In Massachusetts, Medicaid is administered by the Division of Medical Assistance ("DMA" a/k/a "MassHealth"). Under current Massachusetts law, the state has a right to recover whatever benefits it paid for the care of the Medicaid recipient from his probate estate. MassHealth will place a lien against any assets in a Medicaid recipient?s probate estate. Because the home is an exempt asset for Medicaid eligibility purposes, the only property of substantial value that a Medicaid recipient is likely to own at death is his home. If an individual owns his home solely in his name, his personal residence would be part of his probate estate and, thus, subject to attachment by MassHealth. One solution is to have the parent transfer the home outright to his children in order to remove the home from his estate. The downside of such a transfer is that (i) the home will be subject to the children?s creditors; (ii) the transfer will result in a disqualification period from Medicaid; and (iii) the children will receive their parents? tax basis in the property, so that upon a subsequent sale, the children will have to pay a large capital gains tax. The following two transfer planning techniques are a better solution to make sure that the home is not part of a parent?s probate estate, and thus not subject to MassHealth placing a lien on it. Gifting Personal Residence and Retaining a Life Estate One technique is to have the parent transfer a remainder interest in his residence to his children while retaining a life estate for himself. The transfer of the remainder interest will result in a disqualification period from Medicaid; however, such disqualification period will typically be shorter than if the parent were to transfer the home directly to his children. The disqualification period is calculated by dividing the value of the asset transferred (i.e. the remainder interest) by $5,010. The retention of a life estate by the parent will allow his children to receive a "step up" in tax basis to the fair market value of the property at his death for income tax purposes. As a result, upon the subsequent sale of the property by the children, they will have to pay only the capital gains taxes, if any, on any increase in property value from the date of the parent?s death. Furthermore, the children cannot evict the parents or sell the home during the parent?s lifetime without the parent?s consent. Gifting Personal Residence and Retaining a Limited Power of Appointment A parent could also consider gifting his personal residence to his children while retaining a "special limited power of appointment." This technique ensures that his children receive a "stepped up" tax basis in the real estate, and it also enables the parent to direct the ultimate disposition of the property. This special power makes the gift incomplete for gift tax purposes and results in the property being includible in his estate. The gift, however, is complete, under state law, for Medicaid purposes. From an asset protection standpoint, this method is effective to shield the house from the children?s creditors since the children will not have a vested interest. As such, if one of the children were having a creditor problem, the parent could exercise the power of appointment and appoint the interest to another child. In summary, any transfer of a personal residence for Medicaid planning purposes should be examined from an estate, gift and income tax perspective.

Questions and Answers By Michael Merril of Merril & McGeary, a real estate attorney. (Questions should be mailed to his attention at 6 Beacon St, Boston MA, 02102 or call 617-523-1760) Q: I recently signed a purchase and sale agreement to purchase a three-family house with three parking spaces. Several days later, the seller informed me that one of the abutters claims he has the right to cross over my future property to access the rear of his property. To do so, he would have to pass over one of the three parking spaces I have been promised in the purchase and sale agreement. The seller told me that the abutter is incorrect in his claim and I should not worry about it. Of course, I am worried about it and want to know how I can be sure the abutter has no valid claim to that parking space. Each space is quite valuable. K.T. Boston, Massachusetts A: Prior to the closing on your property, either your attorney or the bank's attorney will perform a title search at the Registry of Deeds. The title search will reveal whether the property is subject to any recorded easements or rights of way, or whether the property abuts a passageway. If the abutter's claim is valid, evidence of that easement or right of way may be found in the chain of the title, either in a prior or in a separate easement agreement. I recommend you point out the abutter's claim to the title attorney and clarify the matter to your satisfaction. Note, however, that the abutter could have other easement rights or a claim of adverse possession, which do not have to be recorded to be valid. I suggest you discuss those possibilities with your attorney. If the abutter's claim has merit the seller may not be able to deliver clear title, free of encumbrances. Depending upon the language in the purchase and sale agreement, you may have the right to require the seller use reasonable efforts to clear title or, in the alternative, cancel the transaction and obtain a refund of your deposit. Michael W. Merrill Q: I recently signed an offer to purchase a house which was contingent upon my satisfaction with a home inspection. I hired a home inspector who performed his job, inspected the home and wrote a report. The report listed six or seven items that were problems, including a lack of GFI outlets, a garage door which did not open easily, and a structural beam which showed some deflection. The inspector also recommended the seller provide evidence that he had obtained building permits for recent kitchen renovations. I informed the real estate brokers of the substance of the report and asked them to relay my request to the seller to have the items repaired and to provide copies of the permits. I was surprised when it appeared the real estate brokers had not informed the seller of any requests, but rather left it up to my lawyer to negotiate in the purchase and sale agreement. Then I was disappointed and confused when the seller refused to perform any of the repairs and/or provide copies of the permits. What are my rights and what are the seller's obligations? L.M. Newton, Massachusetts A: The usual language of an inspection contingency clause allows the buyer to conduct a home inspection by an agreed upon date, and if the buyer is not satisfied with the inspection he may cancel the transaction and recover the deposit. If requested, sellers will frequently agree to repair code violations and may negotiate some of the minor repair items, either performing the repairs or providing a credit at closing. There is, however, no requirement that the seller do anything; he can agree to perform some, all or none of the items. The only guarantee is that the deposit will be refunded to the buyer if he terminates the transaction in accordance with the requirements of the offer. As for the real estate broker's failure to communicate the results of the inspection to the seller, this appears to be conflict avoidance, hoping that by not discussing the problems perhaps they will just go away or the lawyers will negotiate the deal. My advice is to make sure all the terms of the transaction are agreed upon before you begin incurring legal fees. Michael W. Merrill

August Round Up: Home Sales Send Mixed Message By Jay McHugh, RE/Max Afflilates, 2077 Center St. West Roxbury, MA. Questions should be directed to Jay at 617-323-5050 or Faxed to 617-323-4040 Email JAYMCLB@aol.com www.jaymchugh.com Forecasters trying to read the tea leaves of the economy are getting a mixed housing message, with sales of existing homes seeming to be on the decline, while sales of new homes hit a new high. The National Association of Realtors reports that July sales of existing homes fell 9.8 percent below the sales numbers of the same period a year ago. The Realtors now expect some 4.79 million homes to be sold this year. The Commerce Department reports, however, that new home sales leaped by 14.7 percent in July, the largest jump since 1993. At this pace, some 944,000 new homes will be sold this year. The Realtors maintain that mortgage interest rates - hovering just below 8 percent - are the key to the slowdown. Builders, meanwhile, note that while rates remain high, they are still below the 8.5 percent levels of a few months ago. The national median existing-home price was $143,300 in July, up 5.4 percent from July 1999 when the median price was $136,000. The median price of a new home in July was $166,100. Interest rates moderating Economists are predicting mortgage interest rates will continue a gradual decline from now to the end of the year, but have not ruled out another rate increase by the Fed. The Federal Reserve has pushed up rates six times in the last 14 months in an effort to cool sales of homes, cars and other big ticket items. Since mid-May mortgage rates have dropped from 8.56 percent to 7.96 in mid-August. Some number crunchers are beginning to doubt the impact of mortgage rates on home sales, however, pointing out there continues to be low unemployment and the stock market continues to gain ground - both very positive economic signs. Credit Cleaning Companies Get Smeared Nearly 200 web-sites offering to restore the creditworthiness of financially troubled consumers have been notified by the authorities that their claims may violate federal and state laws. Their possibly illegal promises were uncovered during a recent "surf day" when 10 state attorneys general's offices, 29 local better business bureaus, the National Foundation for Credit Counseling and six of their Neighborhood Financial Care Centers went searching for credit repair sites that appear to be making deceptive advertising claims. "If your company engages in any deceptive or fraudulent credit repair activities, we strongly urge you to stop; otherwise, you may be subject to legal action," the sites were warned. Besides the FTC, the crackdown is being sponsored by the Justice Department and 47 other federal, state and local law enforcement and consumer protection agencies. According to the FTC, many credit repair operations falsely "guarantee" they can remove negative information from someone's credit report, even if the information is accurate and timely. But they can't. Over 60 of the sites identified also sell instructions telling consumers how to substitute a false Social Security number for their correct one and "start fresh" with a new identity. They claim the scheme is perfectly legal. Of course, that isn't possible, either. Grants, Loans To Be Used For Environmental Cleanup Twenty two cities have been awarded federal grants and guaranteed loans totaling $129 million to help them clean up environmentally distressed neighborhoods within the borders. The funding from the Department of Housing and Urban Development comes in two forms: $104 million in Section 108 loans and $25 million in Brownfields Economic Development Initiative grants. Sec. 108 loans allow localities to promote economic development, expand housing opportunities and improve public facilities, all at reduced rates. BECI money allows cities to start the ball rolling on cleaning up such industrial sites as gas stations, oil storage facilities, dry cleaning stores and other business that handled polluting substances. The grants and loans can be used either separately or together. Other communities receiving money in this round of funding include: Baltimore; Carson, El Monte, Lynwood, Monterey Park and San Mateo, Calif.; Jersey City and Phillipsburg, N.J.; Kansas City, Kansas; Lowell, Mass.; Montgomery County and Reading, Pa.; Portland, Maine; Provo City, Utah; Rochester and Troy, N.Y.; St. Paul; San Antonio and South Bend.

Renovating Your Home and Realizing Your Dreams, The Realities of Today?s Mortgage Services By Rick Fedele, President of Summit Mortgage, a mortgage company with offices in Boston's Back Bay and Wakefield, MA. Summit Mortgage is an affiliate of Pacific Guarantee Mortgage Company (PGM), the largest mortgage broker in the United States with an annual volume in excess of $8 billion. PGM has more than 40 offices and 135 loan originators throughout the country and brokers its loans to a network of more than 200 nation wide lenders. For additional information, please call 617-859-0900 Purchasing a home and taking out a mortgage is a big step for most people. Prior to that point, finding the ideal home is an even bigger step. Frequently, potential buyers will find homes that have the right number of rooms, the white picket fence, and the two car garage-everything they want; but the bathroom needs work, the kitchen needs renovating, or the deck needs to be rebuilt. Given a housing market that is still fairly restricted, many buyers are opting to purchase homes that are nearly perfect, but do require some renovations. The Federal Housing Administration?s 203(k) Renovation Loan Program is one of the best means buyers have found to turn their dreams into realities. This program combines all the benefits of a FHA loan, in addition to a renovation component. The first step is to meet with a mortgage officer to help with the process and act as a guide. A written estimate will need to be prepared by a 203(k) consultant verifying the projected costs for the repairs. This will be used by the lender to pre-qualify the buyer for a loan that covers the purchase, renovation, and allowable closing costs. For example, assume a buyer wants to purchase a $150,000 home with $30,000 in renovation costs. Using the FHA 203(k) plan, the buyer will be qualified based upon $180,000, minus a down payment as low as 3 percent on the total sale price, renovation costs, and financeable closing terms. Upon closing the deal, the rehab loan works similarly to a construction loan. After the down payment is made by the buyer, the lending institution will cover the remainder of the purchase cost of the property, holding the renovation budget, in this case $30,000 in escrow. As repairs are made, the 203(k) consultant will inspect the work for verification and consequently, instruct the lending institution to remit payment to the contractor for completed work.