DEAR BENNY: My daughter and her husband are thinking about trading houses with a friend. They own a townhouse and their friend owns a larger home. I don’t know all the particulars, but I believe they are thinking about keeping their own mortgages and just switching where they live.

I have asked my daughter to contact a lawyer to have everything on the up and up. Have you ever heard of such a thing? I think there are many risks. What advice would you give her if you were me? –Barbara

DEAR BARBARA: You are quite correct; there are many risks. First, when you say "switching houses," will they actually change the title or just live in the other house? If they change title, their respective lenders may decide to call the loans based on the "due on sale" clauses, which I suspect are in the loan documents for both houses.

Second, are they going to adjust the mortgage payments? Your daughter will now be living in a larger house. If I were their friend, I certainly would not want to pay a higher mortgage (and higher taxes) if I downsized my lifestyle.

Third, if they actually switch titles, the IRS would consider this a sale, and assuming that they made profit, they may have to pay capital gains tax. They may, however, qualify for the up-to-$500,000 exclusion of gain if they meet those legal requirements. However, if they do the switch without changing title, they may lose that exclusion of gain if — when they sell — they haven’t lived and owned the property for two out of the five years before sale.

This is an interesting, but risky, idea. And, frankly, it sounds a little crazy to me. I wouldn’t do it.

DEAR BENNY: On June 21 we made an offer on a new home that was nearing completion. We told the builder/seller that we had to be in the new house by July 14. We were told that the house would be finished by then, and our contract, which was accepted by the builder/seller, had a closing date of July 14. The contract stated that any changes to the closing date had to be approved by both parties in writing.

We made plans to move from Florida to Tennessee based on the July 14 closing date. On July 9, as we were in the final stages of moving out of our old house, we received a phone call advising us that we would not be able to close on the new house until July 21. We did not receive anything in writing about the change in the closing date until July 19, and the actual closing did not take place until July 23. For nine days we were forced to find a place to stay, board our four pets, pay for meals and storage, and arrange for a local contractor to move our belongings, all at a combined cost of more than $3,000. We were told by our Realtor that this happens all the time, and that it cost the same for us to stay in a hotel and eat out as it would have had we been in our new home. Do we have any legal recourse for compensation of our financial burden as a result of the builder/seller’s not honoring the contract? –Elizabeth

DEAR ELIZABETH: If you hire an attorney to assist you, it will cost you more than the $3,000. And because our courts follow the American rule of legal fees, unless there is a provision in your sales contract that the prevailing party can recover legal fees, those fees will not be reimbursed. You can, of course, take the builder to your local small claims court on your own, and perhaps the builder will want to settle with you before the court date.

But, judges look at damages. Your real estate agent is partially correct. You did not have to pay mortgage, taxes and insurance between the contract settlement date and the time you actually went to closing. Furthermore, while it no doubt cost you more to eat out, the judge will want to deduct a portion of your meal expense.

And finally, is there anything in the contract that will excuse the builder from meeting the settlement date. Often, contracts state that settlement will take place on X date "unless the title report or the loan documents are not available."

I cannot recommend pursuing this further. Litigation is stressful, time-consuming and always uncertain.

DEAR BENNY: I am extremely new to any of the home-buying experience and have no idea where to begin. I don’t even know if it is possible for me to buy a home with the little money I make. My fiancée and I have been knocking around dreams and ideas of buying a home, and I know little about the process. He is disabled, in a wheelchair, and scrapes in only $4,500 a year. I make a limited entry-level income of barely more than $18,000 a year. It would be difficult for us to find rentals with the accommodations he needs. What do we do? Where can we start with trying to get a secure roof over our heads? –Amy

DEAR AMY: This is perhaps one of the toughest questions I have ever received. You both want a house, but your income is clearly much too low to qualify for a conventional mortgage.

There are programs and organizations out there that can assist. Go to your favorite Internet search engine and type in "low income housing" and also "affordable housing," and you will find a number of Web sites such as the Department of Housing and Urban Development (HUD) that should provide you with some basic information.

I would also talk to the housing specialists in your city, county and state. Most governments are not only anxious but committed to assisting people in your income bracket get that "roof over your head." They often have properties that they have identified, as well as lenders who can assist you.

You should also consider contacting the U.S. senator or congressperson representing your district and ask that person to give you some information.

As I said, there’s a lot of information out there, and your Web search will start you on your way.

Just be careful not to extend yourself. Make sure that you can afford the monthly payments, and before you sign up for any property, have a lender provide you with the approximate total costs of any mortgage loan that you may get.

DEAR BENNY: My partner and I are considering buying a condo in Jersey City, N.J. Our agent tells us that prices haven’t really gone down in the area, and that they’ve actually gone up. We found this one place we liked, but are a little unsure about buying right now with the financial markets being so volatile. However, we are very eager to take advantage of the current state of the real estate market. Do you think we should wait a few months until the credit crisis subsides and Congress gets its act together? –D.M.

DEAR D.M.: The two crystal balls on my desk cracked about a year ago, and are now totally useless. Your guess is as good as mine. And although the bailout bill is now law, only time will tell what its impact will be on home buyers.

Keep in mind that if things do get better, that means the interest rates and home prices may very well both go up.

You and your partner found a place you like, and which apparently you can afford. My advice: Go for it — don’t wait. Obviously, you have the right to negotiate the purchase price, and despite what the broker is telling you about the market conditions in your area, the seller may be willing to drop the price somewhat. And if you can offer to close on the property quickly, that will be an incentive for the seller to lower the asking price.

I learned years ago that one should not buy a house based on its investment capabilities, but rather on whether this is the place you want to live for a period of time. Obviously, if the property increases in value, more power to you. But you like the house, so go ahead and buy it.

DEAR BENNY: We are 76 and 78 and because of circumstances we had to file bankruptcy. We have our home, but still have a mortgage. Should we start paying down the mortgage so our payments are lower? Bankruptcy has been discharged. When can we sell our home? –Norma

DEAR NORMA: Now that you are out of bankruptcy, you are free to sell your home at any time.

Unfortunately, if you start paying more than the required monthly mortgage payment, this will not lower your monthly payments. But in my opinion, it is always a good idea to make larger monthly payments, because you will pay off your mortgage faster. More money goes to principal rather than to interest. But most loan documents I have reviewed specifically state that you cannot lower your monthly payments just because you pay more each month.

Because you plan to sell the house, I see no reason to make larger monthly payments. When you sell, your mortgage will be paid off and you will get the rest of the sales price (called "equity"). Why use your money to pay down the loan now? Keep the extra money and enjoy using it.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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