Q: We have a frame house with a stucco exterior. Part of it is over a crawl space about 3 feet high. The house is bolted to the foundation and the exterior stucco covers the walls down to the ground. On the inside of the crawl space, I can see the 1-by-8 redwood backing for the stucco and we have no problems with termites.

I'd like to improve the insulation and make the house more earthquake-safe. Would it be better to insulate under the floor that is accessible from the crawl space or insulate the short exposed walls in the crawl space? Is it a good idea to put plywood as shear-wall bracing over the short exposed walls inside of the crawl space, which would then cover the insulation? Must I drill any holes for ventilation in the plywood? There are vents for the crawl space that I'd leave open by not covering them.

A: Good for you. Increasing the energy efficiency and earthquake resistance of your home is time and money well spent. It won't hurt the value either.

The short answers to your question are: Creating a sheer wall by attaching plywood panels to the short wall, known as a "cripple wall," is a great idea; insulating between the floor joists rather than the stud bays in the perimeter "cripple wall" is the way to go (it's thermally more efficient to insulate the floors rather than insulate the perimeter walls of the crawl space); and, yes, you will need to drill holes in the plywood panels for ventilation.

This is a three-part job. Phase one is to insulate the floors. Phase two is to reinforce the cripple walls with plywood. We also recommend (phase three) that you install a plastic vapor barrier over the dirt in the crawl space. A vapor barrier impedes any dampness that might come from the soil and reduces the risk of moisture taking up residence in the insulation.

We'll divide our answer into two parts. This week we'll give you the "how-tos" for insulating the floor. Next week we'll tackle reinforcing the cripple walls.

Floors over unconditioned crawl spaces are often neglected when insulating. Lack of insulation results in heat loss from the warmer confines of the house to the crawl space. We all know that heat rises. But we're less familiar with the fact that the temperature in a conditioned space always tries to reach a state of equilibrium with unconditioned ambient air outside the conditioned space.

During the winter months heat migrates through an uninsulated floor to a relatively cooler crawl space. Installing insulation in the bays between the floor joists impedes the migration of heat from the warm house to a relatively cooler crawl space.

There are two ways to insulate a floor. The first, installing batt insulation, is definitely a do-it-yourself job. The second, spraying expanding foam insulation between the joists, is a job best left to the pros. We recommend going with the batts. It's less costly and your 3-foot crawl space gives you enough room to do the job. The pros will tell you that foam provides better insulation. While that is true, when the added cost is weighed against the benefit the difference is insignificant in our view.

The 1-by-8-inch wall sheeting you see behind the exterior stucco tells us you have an older home. The floor joists are most likely dimensional lumber rather than engineered I-beams. Measure the width of the floor joists. Our guess is that they are 2-by-8s measuring approximately 7 1/2 inches wide. The joists should be set either 16 inches or 24 inches apart.

If this is the case, R-25 batt insulation in the right width will fit neatly and snuggly between the joists. Place the craft paper face against the bottom of the subfloor as it acts as a vapor retarder. If the joists are wider, use thicker insulation.

Do not compress the insulation. This will reduce its efficiency. The idea is to fully fill the gap between the floor and the bottom of the joists. It's OK to use two layers of batts to fill the space. If you go this route, only the layer adjacent to the heated surface should have the vapor retarder. A vapor retarder sandwich in the middle of layered insulation is an invitation for moisture condensation and the problems it can cause.

Batts are sold in pieces or in a continuous roll. Use the rolls to minimize the number of joints to increase the efficiency of the insulation. With a sharp utility knife, cut each batt the length of a joist bay. Push one end of the batt into a bay and work the remaining insulation into the rest of the cavity. Fluff out the insulation so that it's even with the bottom of the joists. The final step is to nail pieces of wood lath perpendicularly across the joists every 2 feet to provide support for the insulation. Without these supports, gravity will do its work and the insulation will work its way out. That's all there is to it.

Here are three tips that will make the job go more smoothly:

• Dress appropriately. A dust mask or respirator, a hat, eye protection (goggles that cover all of the eye), long pants and a long-sleeve shirt are all musts when installing batt insulation. There are few things that burn and itch more than these spun glass fibers.

• Cutting batt insulation is easier if you compress the insulation by pressing down with a metal bar (a framing square works well) to provide a straight edge to guide the utility knife.

• If there are any heating ducts, electrical wire or pipes penetrating the floor into the house, seal them with a spritz of expanding foam insulation. One brand that comes to mind is Dow's Great Stuff.

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Q: I was going to refinance the loan on my house. The day I was going to go to the office to sign the closing papers, I asked again what the loan amount and monthly payment would be. Well, it had changed and was higher than what I was told originally. So, I cancelled the refinance.

My appraisal fee was going to be free, but now they're saying I have to pay it because the loan was not closed. But the only reason I did not close was because the figures changed. Do I have to pay it?

A: You may have to. Often, when you sign an application to do a loan, you agree (in the fine print) to pay any out-of-pocket costs associated with underwriting the loan if you don't wind up closing.

Typically, an out-of-pocket appraisal fee would fall under the category of "out-of-pocket costs," as might the cost of pulling your credit history and credit score. Please go back and look at your application to see what it says about out-of-pocket costs.

However, I'm troubled by the fact that your numbers were different at the closing table than what you had been promised. Do you have the Truth in Lending statement that the lender should have given you when you applied for the loan or within a couple of days from that date? Did you lock in your interest rate when you applied for the loan or sometime after you applied for the loan?

Did your monthly payment change or did the closing fees change? If your closing fees changed, do you know why those fees changed? If your monthly payment changed, do you know why the payment changed?

If you have answers to these questions, you are better able to determine whether you should or should not pay for the lender expenses.

If you failed to lock in the interest rate for your loan and interest rates went up, your lender would not have done anything wrong, and you would have been entitled to not close but might be responsible for the lender's out-of-pocket expenses.

But if you locked in your interest rate, did everything you were supposed to do, and the lender changed the loan amount, interest rate or added fees, you might not have to pay those fees and in addition may have a claim against the lender for violating the terms of your loan and the terms given to you under the Good Faith Estimate of fees.

If nothing changed on your end and you did what you were supposed to do, and the lender increased your interest rate without disclosing it to you well in advance of your closing, your lender might have been trying to pull a classic bait-and-switch on you. This occurs when you apply for a loan at an advertised rate only to find out at the closing that the lender offers you a higher rate to close.

If you know for certain that the lender has not been honest with you, you can file a complaint with the Better Business Bureau or with the agency that regulates mortgage lenders in your state. Depending if the lender is a mortgage broker or mortgage banker, there are national organizations with which you can file other complaints. They are the Mortgage Bankers Association and the National Association of Mortgage Brokers.

But if the loan or the interest rate changed because your credit changed at the last minute, or because you hadn't locked in your loan, or you failed to close before the rate lock expired, then you may have to pony up for these out-of-pocket costs and fees.

If you aren't sure of what your application says, a real estate attorney may be able to help you parse the legalese. Good luck.

Q: I am currently in default on the first mortgage for my condo. I bought a one-bedroom condo for $220,000 in 2005, and recently married and moved out of state.

The decision to allow the condo to go into foreclosure was not one that was made lightly, but was the only option for me. There's another unit in the building that was foreclosed on last October. It is listed for $89,000 and has not yet sold.

In my ZIP code, there are multiple foreclosures for sale at rock-bottom prices and excess new inventory that has been sitting vacant for more than three years. The developers are offering no homeowners association fees for the first year. My monthly homeowners association fee is $364.

My question is this: What will the ramifications be if I choose to default on my home equity line of credit (HELOC)? I'm already taking the credit hit for the foreclosure. How much worse can it be if I default on the HELOC?

A: It sounds as though you're in quite a difficult situation. To buy a condominium for $220,000 and have it be worth less than $89,000 now (I'm assuming less than that since the other condo at that price hasn't sold) is an extremely tough blow.

I suppose the silver lining is that if you also default on your HELOC, your credit history and score won't be much worse than where they are right now. You will probably have to wait another five years to buy something new, due to the new rules from Fannie Mae and Freddie Mac about people who have had a foreclosure.

The concern I have for you now is how you wind down your relationship with the lenders. You must make certain that your primary lender takes back the house as the sum total of what you owe. Once you do that, you will have to negotiate with the home equity lender to make sure that this debt is forgiven.

What you don't want is for these lenders, or perhaps the private mortgage insurance company that insured the top 20 percent of your loan (if you didn't have a 20 percent down payment), to come after you several years from now demanding repayment.

In some states the lender can't go after the borrower for the difference between the loan amount and what the lender got paid, while in others the lender can.

If you lived in a state that allows the lender to come after you for the money the lender lost in connection with the loan on your home, you might then decide to pay off the equity lender, if you can afford to do that.

If both lenders decide that you are gone for good and have decided against pursuing any action against you for the losses on the condominium, the foreclosure on the primary loan on your home and, thereafter, the foreclosure or write-off of the value of the equity line of credit, might hurt your credit to an equal degree.

These are possible complications you would be well-served to settle now. I suggest strongly that you hire a real estate attorney to make sure that all of your loose ends are tied up, so that you can begin your new life without worrying about them.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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Real estate agents are clearly the most influential persons in every real estate transaction and their power is not reserved for buyers and sellers -- it extends to all professionals involved.

That position of influence becomes magnified in a slower housing market. Everybody is desperate for deals. And, while Realtors typically offer beneficial referrals, consumers should always remember that they have a choice when picking the various players in the home-buying process -- appraisal, credit report, title report, escrow company, mortgage company, etc. These choices often start with the selection of a title company in the standard purchase and sale agreement. This may seem like a "who cares?" decision, but the competition is fierce.

How much do title companies want to be the company of choice in your purchase and sale agreement, commonly known as an earnest money agreement? A few years ago a title insurance company offered to furnish a real estate broker's office if all of the agents in that office wrote in the title insurance company's name in the appropriate spot in the earnest-money agreement. Another company offered a broker the use of billboards in public places for carrying the company's name atop preprinted earnest-money agreements. A third company offered all-expenses-paid fishing trips.

As a result, many states have passed laws in an attempt to curtail gifts to people who have considerable control over the selection of persons involved in a real estate transaction. The total value of allowable annual gifts to "producers" typically is about $25.

The intent of the regulation is to safeguard a choice for consumers. Consumers have a right to choose escrow and title companies and to know why lenders prefer certain appraisers and credit companies. And all reps -- agents, loan, escrow, title -- should choose services in the best interest of their customers and not themselves.

"I don't think the abuses are as rampant as they used to be," said Joe DiPaola, real estate attorney, broker and former in-house litigation counsel for Coldwell Banker. "But it's impossible to monitor everything that's going on. Everyone accuses the other guy, but there really are no white hats out there."

Obviously, competent representatives will ship their business to the company that can get the job done. It's a tough, competitive and highly lucrative business that often continues to snowball. Real estate brokers say third-party providers constantly are offering goodies, while the providers contend that they will quickly be dropped if they don't continually offer incentives.

The heat clearly is on around the country. For example, the Washington state insurance commissioner's office investigated 12 title companies. Its report found "all the major players in the greater Seattle title insurance market were routinely breaking state laws that limit and restrict the use of incentives and giveaways to steer business."

One company spent $11,000 on tickets and expenses at two Seattle Sonics basketball games, investigators said. One agent spent $6,000 for cocktails during the 18-month period under investigation, and another company picked up a single restaurant tab for more than $3,300.

A more glaring example of how bold third-party providers can be in capturing the business of productive real estate agents occurred in California. The California Department of Insurance uncovered numerous instances of suspected illegal rebates by Southland Title Corp. and its subsidiaries, Southland Title of Orange County and Southland Title of San Diego.

The investigation found fraudulent and/or fabricated invoices and expense reports in excess of $47,000; providing food, beverages and entertainment in excess of $174,000; providing gifts and gift certificates in excess of $62,000; and providing business support services in excess of $218,000, all to benefit real estate agents and brokers. And -- get this -- the firm was fined $1.5 million for similar violations just two years earlier.

A few years ago, when residential real estate was the only shining light in our economy, I received a call from a national title insurance company asking about advertising rates for my nationally syndicated radio show.

Before I could refer the call to an account executive, the title representative said, "We don't have much money left in the budget because our main target is Realtors and not consumers."

Consumers still have a choice, even though third-party providers continue to jockey for the agents' attention.

To get even more valuable advice from Tom, visit his Second Home Center.

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DEAR BARRY: When we bought our home, the sellers prevented our home inspector from inspecting the attic. They simply told him that there was no access, and he merely confirmed this in his inspection report. We later discovered that the access was on the wall of the master closet, behind some clothes. Our concern now is whether we have asbestos insulation in our attic. If so, are the sellers liable for asbestos removal? --Kim

DEAR KIM: The sellers must have known about the access panel in the closet, although they may not have realized it was the entry to the attic. On the other hand, there may have been some attic issues that they wanted to hide. The answers to these questions may never be known. The main focus now is to inspect the attic for possible defects.

Asbestos in the attic is only likely if the home dates back to the early 1970s. At that time, asbestos was used for air duct insulation and for flue pipes. It was not used, however, to insulate attic spaces. Attic insulation typically consists of fiberglass, rock wool, or recycled cellulose.

The one error that was made by your home inspector was to confirm the lack of an access with no further comment. The disclosure in the inspection report should have been something like: "No attic access was found. It is recommended that an access be made to enable completion of this inspection."

DEAR BARRY: I recently made a purchase offer on a house. The seller's disclosure statement listed no defects, but the offer was contingent on a clean home inspection report. So I hired a home inspector and also ordered an appraisal for a total cost of $700. When I read the inspection report, I couldn't believe the number of major issues that needed attention, from standing water under the building to rotted wood on the roof. Because of this, I've decided not to buy the house. Since the seller's disclosure statement listed no defect, is he liable for the money I spent on the inspection and appraisal? --Dan

DEAR DAN: Unless you can prove that the seller concealed known defects in the disclosure statement, he is not responsible to reimburse your costs. The purchase contract was contingent on your acceptance of the home inspection report. Therefore, your only options are to cancel the transaction or renegotiate the contract.

Reliance on seller disclosure statements is usually disappointing. In most cases, disclosure statements are worth less than the squares of toilet tissue they might have been printed on. A home inspection report, if properly prepared by a qualified professional, will always reveal more than a disclosure statement.

In most cases, sellers are simply unaware of defects in their homes, although there are instances where sellers deliberately conceal known defects. The seller in your case may never have looked under the building and may have been totally unaware of the drainage problem. Likewise, he probably never walked on the roof or crawled through the attic, and therefore had no idea that the wood was rotted.

It is unfortunate that you hired an appraiser before you reviewed the home inspection report. The appraisal should have been done after you considered the physical condition of the property. That would have limited your nonrefundable expenses.

To write to Barry Stone, please visit him on the Web at www.housedetective.com.

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Q: I am 61 years old and have about $500 a month to use either in funding my Roth IRA or paying down my mortgage. Currently, my mortgage is for 15 years at 5.81 percent. I plan on retiring in June 2009. Which should I do?

A: Hands down, fund your Roth IRA.

Here's why: The interest rate on your loan is so cheap, so it isn't costing much to borrow the cash. You already have a 15-year mortgage, and while you haven't told me how soon you will pay off this loan, you're already paying down the principal pretty quickly.

I do understand your interest in helping yourself cash-flow wise, but you're talking about putting maybe $6,000 toward the principal of your loan over the next year until you retire. I suppose if you need only $6,000 to pay off your loan entirely, then it might be worth it.

However, given where the stock market is at the moment, you might have a greater opportunity to do better by investing in a low-cost, well-diversified mutual fund than by paying down your mortgage. When you pay down your mortgage, every dollar you prepay effectively earns you your net rate of interest. If you itemize on your federal income taxes, your net interest rate is below 5 percent. That's excellent.

The likelihood that you can earn at least 5 percent on your cash is pretty good, which is why investing the same $6,000 in a Roth IRA, where your earnings are tax-free forever, might be a better deal.

Because you're at least 50 years old, you're allowed to put away $6,000 in a Roth IRA this year and next, provided you earn at least that amount. I'd make the most of it, and try to put away the maximum. When you retire, a Roth IRA will give you additional flexibility.

Q: I read your recent article, "Think like a buyer to get home sold," with interest. We are selling our house and have a similar but slightly different room arrangement and would love your advice.

We have a formal living room, which is fairly open to what was a formal dining room. It was connected with a pass-through to a kitchen, which is 24 feet by 12 feet, with a breakfast area at the end. My husband has opened up the kitchen with a 4-foot-wide doorway and much bigger pass-through to the dining room and wants to decorate it as a family room.

I think that would look too informal next to the living room, plus it would cost us money to refurnish it. I think it should be left as a dining room (we have lovely furniture) and the new owner can change the use of the room if she wants.

What do you think?

A: It's tough to tell you exactly what to do when I haven't seen your house and walked through it.

When you're selling in a difficult market, it's really important to think about what will create the most potential in the mind of a buyer -- not what is easiest and cheapest for you. That said, you should balance what you have (i.e. your lovely dining room furniture) with how a buyer might perceive the layout of your first floor.

Try to imagine how the room would look furnished as a family room. Would your husband's plan eliminate a dining room entirely or would he then turn your living room into a formal dining room?

I think it's a lot easier for buyers to see a dining room, family room and eat-in kitchen and recognize a floor plan they can live with than seeing a kitchen, family room and living room. If I saw that, I'd wonder where I was going to seat my family for Thanksgiving dinner.

You and your husband should ask your real estate agent to come over and spend an hour or so discussing a variety of plans. If you don't have a real estate agent, you should probably talk to one or a couple of them. Some real estate agents are excellent at giving you insight into what might look best to buyers and tell you to do something or not do something. You might even want to move around some furniture to help you see the room with new eyes.

When you have enough input, you can decide how to decorate the rooms. The idea is that your decorating should enhance the potential buyer's view of your home and not diminish your ability to sell the home.

The answer might be to turn your dining room into a family room and your living room into the dining room. Or, the answer might be to show off a lovely, finished house with beautiful furniture and let the buyer speculate as to what could be done going forward.

I would only add that you shouldn't be afraid to think outside the box. In a tough market, sometimes that helps.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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DEAR BENNY: My daughter and her boyfriend are thinking about buying a house and she is putting more of a down payment than he. Is this a good idea? --Doug

DEAR DOUG: I don't see any real problem with this arrangement, so long as your daughter and her friend enter into a written agreement spelling out their rights and responsibilities.

Specifically, the agreement should contain at least the following: (1) how the mortgage payments and other house expenses will be made; (2) what will happen if one party cannot make those payments; and (3) what if one party wants out of the house -- will they sell?

Finally, your daughter should consult an attorney without her boyfriend so that she can be advised as to the correct way that title will be held. I would recommend a tenant-in-common arrangement, with your daughter owning a greater percentage of the house based on the amount of the down payment that each party will pay.

DEAR BENNY: Once a contract has been signed by both the seller and buyer of a house, does either party have an option to cancel the deal prior to the closing date? I am the buyer and my loan has been approved. An inspection has been conducted and there are several corrections and/or repairs we have submitted to the seller. I am, however, having second thoughts about the house and would like to know if I can legally back out at this time. --Alan

DEAR ALAN: There is no "cooling-off" period in real estate as there is in other areas, such as buying a car.

You signed a contract, which is a legal, binding document on both buyer and seller. Unless you have contingencies written into that contract -- such as financing, selling your own home, or getting a favorable inspection from a home inspector -- you will not be able to back out of the deal.

You state that you submitted a number of repairs items to the seller. Do you have an inspection contingency? Does it give you the right to cancel the contract if the seller refuses to make those repairs?

If you try to back out of the contract, the seller generally has three remedies. He can (1) keep your earnest money deposit; (2) sue you for any damages incurred as a result of your breach -- such as the house later sells at a lower price than your contract price; or (3) sue for specific performance. This means that the seller can take you to court and a judge can force you to buy the house.

If you have second thoughts, you should have considered this before you signed the contract.

DEAR BENNY: It seems that $2,500 to refinance a mortgage is too much. Do you agree? We have a 7-year adjustable-rate mortgage (ARM) with three years remaining; we have good credit and a very good payment history. The loan is with Chase and they want $2,500 to refinance to a fixed loan. Bank of America wants $3,000 to close on a new fixed loan plus $2,000 for escrow.

The original loan was for $195,000 principal with $85,000 down, and our current principal is $188,000. Your opinion and any advice you can provide would be appreciated. We always read and enjoy your helpful articles on real estate. --John

DEAR JOHN: Thanks for your kind comments about my column.

Regardless of cost, you should seriously consider getting a fixed-rate mortgage as soon as possible. No one knows what rates will be three years from now when your ARM will require a change from your present rate.

I can't comment on the closing costs, because there are differences in these fees in different parts of the country. You should shop around; discuss your situation with a number of lenders before you make your decision.

I would also talk directly to Chase -- your current lender -- and try to go to the highest person in that company as possible. Explain that you want to refinance, and would prefer to stay with Chase, but that they should give you a discount on the closing costs. Some banks will do that just to keep a good customer.

DEAR BENNY: Our mortgage payment is due on the first of the month with a 15-day grace period. All payments have always been made within the grace period. My wife feels that by not paying the mortgage on the first of the month we are paying more in interest when I make the payment later in the grace period. It is my point that as long as we make payments within the grace period it makes no difference as to the amount of interest we pay on our mortgage. Who is right? Please respond. --Eugene

DEAR EUGENE: I did not know the answer so I submitted your question to Jack Guttentag, the "Mortgage Professor." Here's his response: "Only so-called 'simple-interest mortgages' accrue interest daily; most mortgages accrue monthly; and it does not matter when during the grace period you pay. But if they have a simple-interest loan, the wife is right."

If you do not know what kind of mortgage you have (it should be spelled out in your promissory note), I suggest that you contact your mortgage lender and demand a response.

DEAR BENNY: I am thinking about buying a couple of condos in a high-rise as rental properties. I have a solid background in rentals over the past 20 years, but my experience is all with duplexes and houses. The condos are extremely affordable, and in an area that rents well. So, I'm not concerned about cash-flow issues. The building has mainly been rental over the years. I am going in knowing that most of the occupants won't be owners, which usually is not a good thing, but in this case seems to work.

I am concerned, however, about the security of my overall investment. Since the building is not selling very well at the moment, I have questions such as: (1) what happens if the building's developers go bankrupt? and (2) what recourse do I have if they fail to maintain the property before a condo board (not dominated by the developer) takes control of the building? Are there other pitfalls that I am neglecting to mention? --Allen

DEAR ALLEN: You obviously are in decent financial shape, and are raising good questions in advance of committing yourself to the purchase. The first thing I would suggest is for you to consider whether it makes sense to own two condominium units in the same building. What's the old expression about putting all your eggs in one basket?

In some states, the seller of a condominium unit is required to provide what is known as a "resale package," which contains the legal documents (declaration and bylaws) as well as current financial information, including the amount of any reserves that association has. If you are buying from a developer, you have the right to review the public offering statement, which contains this same information.

If the developer goes bankrupt, its lender will take over the project. Again, state laws differ on whether the lender will become the successor developer and be bound by the same obligations as the original developer. You should discuss this with your personal attorney.

You should also ask about what happens if the developer fails to maintain the property before an elected board of directors takes over control. Unfortunately, in today's economy, even those boards are struggling in many parts of the country. If a number of owners are unable or unwilling to pay their monthly assessments, the association will be in trouble. With all of the foreclosures happening around the country, many owners take the position, "I will lose my unit so why pay my association fees?"

You have a lot of homework to do before you decide to buy. Make sure you read everything about the project, especially the financials, before you plunge into more investments.

DEAR BENNY: My mom passed away two months ago and my father passed away eight years ago. She lived in her house for 30 years until the day she died. The house is still under my parent's name. She did not have a living trust or a will, and my parents have four children. The house is worth about $1 million. Is the city in which the property is located going to put my mom's house in probate? If so, do I have to hire a probate lawyer? Can the children just put the house on the market and sell it? --Mae

DEAR MAE: I will give you a very short answer. The city does not take any action, but you need to retain a lawyer immediately. You and your siblings have a very valuable asset, and you don't want to lose it. Your family will have to start probate proceedings, and inheritance and estate taxes may be owed. Please consult with a lawyer who understands the probate laws in your state.

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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"Why do most home mortgage lenders sell their mortgages instead of keeping them? I have a problem with negotiating my mortgage deal with one firm over a week, then having my loan sold to another firm that I did not select, and with whom I am obliged to deal for as long as 30 years. Is it possible for me to find a lender who will promise not to sell my loan?"

Mortgage lenders comprise two very different types of institution. The largest number are mortgage companies, or as they prefer to be called, mortgage banks. Mortgage banks are state-chartered temporary lenders who must sell the loans they originate because they do not have the long-term funding needed to hold them permanently.

Mortgage banks borrow large amounts, but only for the short periods they must hold mortgages prior to their sale. The unsold mortgages serve as collateral for these loans. As the mortgages are sold, the loans are repaid.

Mortgage bankers need very little capital because they have excellent collateral to secure the short-term loans they need to operate. To hold mortgages permanently would require long-term funding sources, which in turn would require much more capital. That is a different business.

While mortgage banks always sell the mortgages they originate, they may retain the servicing under contract with the buyer. Where servicing is retained, borrowers continue to deal with the same firms that loaned them the money in the first place. Over the years, however, servicing has become quite concentrated among larger firms, and most mortgage banks today no longer service mortgages. They are strictly in the mortgage origination business. The upshot is that borrowers who take loans from mortgagee banks rarely have their loans serviced by the same firm.

The second type of mortgage lender is the depository institution: commercial banks, savings and loan associations, savings banks and credit unions. These institutions are chartered by both the federal and state governments to provide a wide variety of financial instruments to consumers and businesses, including deposits or deposit-type instruments, and many types of loans including home mortgages. Among these groups, only savings and loan associations have viewed themselves historically as being primarily home mortgage lenders, and since being badly burned in this market in the 1980s, their commitment today is not nearly as strong as it used to be.

Depository institutions have the capacity to hold mortgages permanently in their portfolios, if they want to, and some do. They have more capital than mortgage banks, and deposits typically provide a more-or-less stable funding source. But depositories can also sell mortgages in the secondary market, the same way that mortgage banks do, if the mortgages they write don't fit into their portfolio strategies.

Many depositories have a general policy of holding any adjustable-rate mortgages (ARMs) that they write, but selling fixed-rate mortgages (FRMs) in the secondary market. This policy evolved after the interest-rate explosion of the early 1980s, which bankrupted many savings and loans holding FRMs. In a rising-rate environment, a depository's cost of funds will rise much more rapidly than the income it earns on a portfolio of FRMs.

Some borrowers such as the one whose letter I reproduced above are nostalgic for the old system, which existed before there were mortgage banks, when your mortgage lender was your mortgage lender until the loan was paid off. Loans were not sold and all lenders serviced the loans they made.

Is it possible for a borrower today to find a lender who will operate that way? Such a commitment could not be made by a mortgage bank -- it would have to come from a depository that serviced its own mortgages, and that was prepared to give up the right to sell them.

I seriously doubt that any depository would commit never to sell its FRMs, but it is possible that they would do it for ARMs, The marketing possibilities are certainly intriguing; here are some un-copyrighted tag lines: "We are your lender for life, guaranteed." "We don't abuse customers we plan to keep." "We believe in long-term relationships, not casual encounters."

Borrowers were never consulted about the changes in industry practice that resulted in their being thrust into long-term business relationships with firms they did not select. There were side benefits to these changes, of course, including much greater competition for loans and easier lending terms. Still, it would be good if borrowers could choose a lender for life, even at a slightly higher price, and even if they have to take an ARM. Right now, they have no such choice.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

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Buyers often find the house they ultimately buy on their own at an open house. Do they have to use the agent that was showing the open house?

Buyers should work with the agent of their choice. However, complications can arise when there is confusion about who is working with a buyer. It helps to understand the rules of the game.

Some buyers enter into a written buyer representation agreement with a real estate agent. These agreements basically say that the buyers will pay the agent a commission when they buy a house through the agent. If the agreement is exclusive, the agent may be owed a commission even if the buyers purchase using a different agent.

For instance, you could find a new listing on the Internet and want to see it right away. You call your agent, with whom you have signed an exclusive agreement to represent you. But she's not available.

Then you call the listing office and make an appointment to see the house with the agent who is handling the in-coming calls. You love it and make an offer right away through the agent that showed you the house. The offer is accepted.

When the seller listed, he agreed to pay his agent a commission, part of which was to be paid to a buyer's agent. So, the agent who sold you the house received a buyer agent commission that was paid for by the seller. However, you might owe a commission to your exclusive agent even though she had nothing to do with the sale.

HOUSE HUNTING TIP: No matter how anxious you are to see a new listing, you should always make it clear to other agents that you are already working with an agent.

Buyers who haven't yet selected an agent to work with often canvas Sunday open houses to get familiar with neighborhoods. They could spend a long time with an agent who is holding a house open. The agent might answer questions and provide disclosure documents. This does not necessarily obligate the buyers to buy the house through that agent.

These buyers could decide to find an agent to represent them when they get serious about buying. They could return to the house at a later date and decide to buy it through the agent they selected to represent them.

The buyers in this situation shouldn't be obligated to buy through the open-house agent unless they signed an exclusive buyer representation agreement with that agent, particularly if they had no future contact with that agent after the open house. If an open-house agent continues to call you after you've selected another agent, you should let the agent know that you have arranged for representation through a different agent.

The rules aren't black and white regarding when a buyer's agent is owed a commission. Normally, if the agent is a Realtor -- a member of the National Association of Realtors, which is a trade association with a code of ethics -- commission disputes are handled through the local association of Realtors. However, not all real estate agents are Realtors.

When Realtors are involved, the clients are often insulated from commission disputes. But, a client could be called as a witness. To avoid being involved in any of these sorts of disputes, be candid with agents you meet about your agent relationship.

THE CLOSING: If you think you might have misled an agent into thinking he or she might be writing an offer for you, have your agent call the other agent as soon as possible to clear up any confusion before a problem arises.

Dian Hymer is a nationally syndicated real estate columnist and author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

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Q: My neighbors are on the verge of losing their home because they can't keep up with the payments. They are not behind yet in their payments yet, but it's going to happen.

I would like to buy the house, but need time to clear up some credit issues. Can he "quitclaim deed" the house to us? We would make the mortgage payments so that his credit won't be compromised until we can buy it. Or is there another way to do this?

A: Your neighbor certainly has the right to quitclaim his interest in his home to you and have you pay the payments on the mortgage. But the real question is why he would want to lose control over his house and lose any equity he may have in the home when you have your own credit problems to deal with.

Let's go back to your neighbor's issues. Your neighbor is in financial difficulties and is having problems paying his debts, including what he owes on his home. You want to buy his home but have your own credit problems and can't buy it right now. If your neighbor has equity in his home -- that is to say the value of the home exceeds the amount he owes to his lender -- he would want you to pay him at least that before he would be willing to transfer the keys to his home to you.

Many people sell their homes to strangers when strangers say to the owners that they will keep up the payments on their old mortgage. The buyer would buy the home subject to the old loan on the property.

But if the new buyer stops making the payments to the lender, the only thing that new buyer loses is the home. That new buyer's credit does not get hurt. If the lender found out about the sale, the lender could exercise its rights under just about all mortgages that are in the market to accelerate the debt. That would mean the lender is calling the loan in and would need to be repaid.

Frankly, this is one of the biggest scams going on right now, and savvy homeowners would do well to steer clear of strangers promising to make all of their financial problems go away if they would simply sign over title to their home.

Your neighbor would be taking a huge risk if you failed to make the mortgage payments. If that happened, his credit would be shot, the home would be lost and he might be worse off than if he just let the lender foreclose.

Q: We have an easement on our property and our neighbor is putting in a pool, which will encroach onto the easement. We are planning to sell our home within a year and would not like this to be an issue. Can we get the easement canceled so that there will not be any problems with the easement for future homeowners?

A: The real issue is determining what the easement is for. If the easement is between you and your neighbor and is no longer needed, you can both agree to terminate the easement. You would draft a document to terminate the easement and would need to have that document recorded in the office in which land records are recorded in your county.

Since you indicated that your neighbor's pool will encroach on your easement, I have to assume that the pool will be on your neighbor's property and that the easement you are referring to is on your neighbor's property. That makes it seem as if the easement is for your benefit and not your neighbor's.

If the easement is required for your use of your property and their encroachment into the easement area is a problem for you, then you have to work with your neighbor to redesign his pool to avoid the easement area. The easement may be for your sewer or water lines or even electrical and phone connections. The easement could even be for you to drive to get to your property. You better be certain that their pool won't affect you in any way.

While you may not mind now that they build the pool and encroach on the easement area, if it narrows the area available to you and you need that area in the future, you might be out of luck.

If the easement is a third-party easement for the electric company, local municipality or an easement that was created with the subdivision for all of the lots in your area, you need to investigate further whether your neighbor's use of the easement area could cause them a problem as well.

Before you rush out to terminate the easement, research the easement and understand what it is for and then you can terminate it if you can or even modify the easement area to exclude the pool area.

If you've done your homework and work with a real estate attorney in your area, you shouldn't have problems when it comes to selling your home later on.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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Q: I decided that this was a good time to buy, and found this really great house at a great price. It's an older home, and very charming, but there is about $10,000 worth of various electrical and termite repairs that the inspectors have found that need to be done. I know that's not that much compared to the $300,000 I'm paying for the place, but I'm going to be pretty house-poor after escrow closes. I'm afraid I'm going to lose my dream house over these issues. What should I do?

A: As always, the lawyer in me has to say, "It depends." Did the original contract have an as-is clause? If so, it may be unethical to demand that the seller pitch in to fix these defects, though he might offer to if the other alternative is for you to back out of the deal. Are the repairs required by your lender or your city/state to be completed by the seller? Is the seller an individual or a bank? A bank is highly unlikely to contribute to these sorts of repairs, unless required to do so by law. How badly do you want the place? All of these things impact how you should proceed.

Mindset Management

If you love the house, feel that you're getting a good value, and the proposed financing will work for you on a long-term basis, look at ways to resolve or work around the problems, rather than instantly fearing that you're going to lose the house around this. In life, generally, what we fear we often create. If you approach this problem from the perspective of losing the place, you will. If you approach it committed to working this out, you almost certainly will.

If you are attracted to the charm of older homes, understand that this level of repair (or more) is liable to be required on any older home you consider buying (and in many of the newer ones, which have often been less well-cared-for). In fact, I know home inspectors who feel that older homes are often a better bet, conditionwise: The quality of materials and craftsmanship when they were built was often superior to those of newer homes, and any major functional or structural issues will have usually emerged by now, so the chances of a major surprise occurring are much smaller.

Home inspection reports can be worded very strongly, in the interest of protecting the inspector from liability. Don't let the verbiage freak you out -- there are lots of answers and clarifications you need to get before you can determine whether the repairs needed are potential deal-breakers.

Need-to-Knows

In the world of home improvement and repairs, things are not always black and white. For example, opinions will vary on what specific repairs are necessary -- some electricians prefer to actually ground two-pronged outlets, while others prefer to install ground-fault circuit-interrupting outlets. I know that's gibberish, but these are basically two solutions to the same issue of ungrounded outlets -- the first solution costs thousands, while the other costs $50 per outlet.

Also, every item that the home inspector points out may not, strictly speaking, need to be done (or may not need to be done with any urgency). Inspectors' professional standards require them to call your attention to recommended upgrades and other items that, when you ask them, they would either never complete if they were buying the house themselves or they would complete over a number of years, rather than trying to get them all done up front. Pest reports, for instance, are actually inspections for all sorts of wood-destroying organisms and conditions, not just pests. So, if your pest report comes back indicating actual termite infestation, that is an item you need to ensure gets handled urgently. However, if it comes back indicating a fence with dry rot, that may be a much less urgent repair -- and may even be duplicative of a fence rebuild that you were wanting to do irrespective of the pest report.

As a homeowner-to-be, it's time for you to learn the art and science of obtaining multiple repair bids. If you have one bid for $10,000 and you go out and get two more, you're very likely to end up with three totally different amounts and even three totally different recommended courses of action. Whether you buy this particular house or not, take this lesson with you throughout your career as a homeowner: Always get multiple bids for repairs or home improvements. You may not always want to take the lowest bid, because professionalism and quality of work vary along with pricing, but that's another story. Until you have multiple bids, you don't truly know how much the repairs will cost.

Finally, your Realtor will help you obtain a home warranty policy before close of escrow; in many markets, the seller will even pay for this item. While home warranty plans don't cover everything that could ever go wrong with your home, they do dramatically limit your potential exposure for when things break. Ask your Realtor to help you review your home warranty policy coverage and exclusions right now. Generally speaking, if any of the items you're concerned about are, for example, systems or mechanisms that are currently working but may need repair or replacement soon, those items may be covered by your home warranty -- but only after escrow closes and only when they actually stop functioning.

Action Plan

If you are committed to trying to resolve these repair issues so that you can move forward with the purchase of your dream home, here's the plan of action I suggest:

1. Get multiple bids and opinions on the necessity, cost and urgency of the recommended repairs. Get contractor referrals from your Realtor and friends, and also ask them if they would recommend an alternative course of action.

2. Ask the seller for a closing-cost credit or repair-credit holdback. Most lenders won't let you get cash from a seller credit without the repairs being done before closing, so you have two options. You can either (a) ask the seller to pay for some of your closing costs, so you can reserve your closing-cost funds and use them to have repairs done after closing, or (b) you can ask the seller to give you a repair credit, and leave that money in escrow after closing until your licensed contractor submits an invoice to escrow. I prefer either of these to having the seller complete the repairs, as I think few sellers will have the work done the way that you, the new homeowner, would. Consult with your Realtor and mortgage broker about which of these options your lender will allow, and stay flexible -- if the seller agrees to pay for only half of the repairs, then you can evaluate whether that's enough to allow you to move forward.

3. Ask seller for repairs. If you can't get credits for whatever reason, like the seller already giving you the maximum credits your lender will allow, ask the seller to complete the repairs. Ask for an invoice from a licensed contractor, and ask if you can select any cosmetic or finish materials.

4. Ask seller for price reduction. If the seller can't do the repairs or offer you a credit, ask them to reduce the price for some or all of the costs you'll be incurring for repairs. A price reduction is not ideal, as it doesn't result in you having the cash to get the work done, and will often not reduce your down payment or monthly payment amounts enough to allow for the repairs, but it's certainly better than nothing!

Once you have completed this action plan and have the results of your negotiation with the seller, only then do you have the full information you need to make a decision about whether to move forward with this purchase. While it is true that sellers are more motivated now than in the last generation to help with repairs, if they have already given you a great price, they may or may not be able to afford to add credits on top of that. Look at the help the seller can (or cannot) offer in the holistic context of the price, property, etc., rather than as an isolated potential deal-breaker.

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook," and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online.

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Q: I manage a mid-sized apartment complex, and have recently been asked by a prospect who uses a wheelchair for a parking space next to the unit she is considering. We can do that, though we have a waiting list for parking, but it will involve reassigning other tenants' parking spaces, buying signs and painting the pavement, and creating curb cuts. Who pays for all this work? --Sean D.

A: Requests from tenants and prospects with disabilities fall into one of two categories. A request for a structural change to the property is a modification request, while a request that you change, make an exception to, or adjust a rule, policy, practice or service is an accommodation request. Generally, tenants pay for modifications (except in Massachusetts and in federally financed buildings) and, if it's feasible, can be asked to pay for undoing interior modifications. Landlords must shoulder the costs of accommodations.

Sometimes, providing a parking space will not involve physical changes, but instead will require changing a policy, such as your practice of giving parking spaces on a first-come, first-served basis. Tenants who are disabled are entitled to "jump the queue" and receive a parking place, even when there's a seniority-based waiting list. (The rule is a bit different in an employment context, where an employee with a disability has the right to be transferred to a vacant position as an accommodation, but doesn't have the right to jump the seniority-based line for that position.) The request you describe is a bit of a hybrid, because you not only must vary your policy, you also have to physically modify the space. Courts have treated hybrid parking requests like this as accommodations, and place the responsibility for paying for their preparation and upkeep on the owner. Remember, you can't charge the disabled person extra for the parking, either.

Q: Several weeks ago, my college-age nephew signed a one-year lease with several students in an apartment complex. He paid the first month's rent and a portion of the security deposit. A few days later he learned that a dorm room is available and wants to get out of his lease. His roommates and the landlord are upset and are demanding that he continue to pay rent until he finds someone to take his place on the lease. They also want him to forfeit his share of the security deposit. The landlord offered to let him out of the lease if he pays a penalty equal to his share of the rent for two months. Isn't there a grace period that would allow him to change his mind? --Robert G.

A: Your nephew has broken his lease even before moving in, and has potential legal problems with both the landlord and the roommates. Before you can advise him, you need to understand the law (Can the landlord impose a penalty? Is your nephew responsible for finding a substitute?) and the market (How desirable is this rental? How difficult will it be to find a suitable replacement?). After you see the whole picture, you'll know what to do.

Unfortunately for your nephew, however, there's no easy out here. A few consumer transactions do come with a legally required cancellation period -- under the Federal Trade Commission's "cooling off rule," you have until midnight of the third day to cancel a door-to-door sales contract for more than $25, or a contract for more than $25 made anywhere other than the seller's normal place of business. Many states have additional cancellation rules, covering contracts for dance or martial arts lessons, credit repair services, health club memberships, dating services, weight loss programs, timeshare properties and hearing aids -- but not leases. The moment he penned his name to the lease, he obligated himself to its terms.

The landlord's solution to this lease-breaking -- imposing a penalty -- is not a legally sanctioned response, and your nephew doesn't have to go along with it. Judges routinely enforce contract provisions that make people pay for the actual damages they cause when they break a contract. A penalty, on the other hand, is designed to punish, not to fairly compensate the other side. Judges won't enforce penalties, particularly in a contract between a business and a consumer (rather than a business-to-business transaction).

Landlords don't have to resort to illegal penalties to make sure that they don't lose money when a co-tenant breaks a lease. They are entitled to the entire rent from the remaining co-tenants, courtesy of the principle of "joint and several liability" (think of it as the legal version of the Three Musketeers' "All for one and one for all"). The landlord may be concerned that without your nephew's contribution, the remaining tenants won't be able to come up with his share of the rent and the landlord will have to evict them. In that case, he can choose to accept a short rent check and make up the difference with funds from the deposit, but savvy landlords won't go this route. After all, they might need to use the deposit to cover more unpaid rent or to pay for repairs when the tenants move out. Most landlords will demand the entire rent and leave it up to the remaining roommates and the departed co-tenant to work it out among themselves.

This puts your nephew's roommates in a difficult spot, having to shoulder his portion of the rent until they find (and the landlord accepts) a substitute. They cannot just sit back and expect your nephew to produce a new roommate, however -- they have to take reasonably prompt steps to replace him (and of course, your niece should help in the search). Once they find a sub, your nephew's obligation to pay rent ends. If it takes them a month to find a new occupant and they've had to dip into their pockets to cover his share of the rent, they can sue him for that amount. If the rental is desirable, the price is right, and the roommates are an attractive bunch, they might find a new co-tenant right away, and your nephew's losses would be minimal. If the opposite is true -- the rental is in a college town awash in vacancies, with many opportunities for better digs at lower prices -- he could be responsible for his share of the rent for the entire lease period.

Now, let's put this all together. Because the landlord's "penalty" is unenforceable, your nephew can ignore it if he's pretty certain that he and the roommates will land a substitute in less than two months (he'll still have to pay his share until that person takes over). But if the market is soft, or the rental just isn't that attractive, settling for those two months might actually be the smarter thing to do. If your nephew ends up paying rent at two locations for a time, he can think of it as additional tuition, for a class called "Contracts."

Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord's Legal Guide" and "Every Tenant's Legal Guide." She can be reached at janet@inman.com.

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Q: My father recently passed, and my siblings and I sold his house and split the profits according to his will.

What would be the best way to keep from paying taxes on this gain? It's approximately $14,000. If I put it in a Roth IRA or regular IRA would that shield me from the tax burden? Please give me some advice on what to do with this money so it's not so devastating when tax time comes.

A: Here's some good news: It's likely that you don't owe any taxes on this inheritance. When you inherit property, you inherit the property at its value at the time the person died. Generally, if you sell it within a year of the owner's death, the IRS views the property's value on the day of death as the same as the day it sells. Because real estate can be hard to value, the amount received at the sale of the property if it was close to the person's date of death would be viewed as the value of the property at the time of the death.

Since the sales price should be considered the market value on the date of death, you shouldn't owe any taxes on the sale.

To recap, if your father purchased his home for $50,000 some 10 years ago and recently died and you and your siblings sold the home for $200,000, you and your siblings would not have to pay any taxes on the sale of the home.

But, let's say that you kept the property for five years after his death, and then you sold it for $100,000 more than the value on the date of death. In this case, you'd owe long-term capital gains taxes plus state taxes on the sale. Typically, you'd owe 15 percent in capital gains taxes plus state tax, plus there could be other taxes owed on the sale if the property was used as an investment property.

Finally, if there is tax to be paid when you sell real estate, you won't be able to avoid paying the taxes on the sale of the real estate by putting the proceeds from the sale into an IRA or other retirement account.

For more details, please consult with your accountant or tax preparer.

Q: We bought an investment property in California and used a 1031 exchange company. Today we found out that the company is closed for business. We would like to know what we should do now.

A: I'm so sorry. There have been a number of cases recently reported where the owners of 1031 exchange companies have either used investors' funds for personal use or absconded with the money or invested it poorly and lost it.

You should contact the California Department of Real Estate and the California Attorney General's office to see what they are doing with this company and to let them know you are an injured party.

To avoid the possible loss of all of your funds, you should contact an attorney in California immediately. That attorney may advise you to sue the 1031 company as soon as possible.

The reason you need to move quickly is that under the IRS rules, if you don't complete your exchange within the required timeline, even if the company has not released the funds, you'll owe taxes on your 1031 exchange. To avoid that double-whammy, you need to see what you can do from the California end to protect your funds, if possible.

Your accountant or tax advisor can advise you further.

Good luck. Please let me know what happens.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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A sure-fire way to make your home look better, prolong the life of your siding and add resale value all at once is to give the exterior a fresh coat of paint. But with a contractor paint job running in the thousands of dollars, you may be considering undertaking the task on your own this summer. If so, here are some tips and a couple of new tools from Wagner that will help you get the job done quickly with professional results.

Proper Preparation

Proper preparation of the siding is absolutely essential to a good-quality, long-lasting paint job. Loose and peeling paint must be removed first and the edges of the remaining paint feathered down to create a smooth surface for the next coat. Painting over old paint that is not well-adhered is pretty much a guarantee that the new paint job will fail. There is no way around this less-than-enjoyable task, so just resign yourself to it.

But while you can't avoid it, you can make it a little easier by using the proper tools. One new tool you might want to consider is Wagner's PaintEater ($74.99). The PaintEater is a hand-held electric tool that is somewhat similar to a disc sander, but instead of using sandpaper, it uses a 3M disc made from spun fiber. The fiber disc is aggressive in removing paint, but its unique design prevents the old paint from clogging up the sanding surface, so you get a lot more work done without constantly replacing the paper.

The PaintEater removes loose paint quickly, and will also feather down the edges of the remaining paint for a better, smoother surface. It can be used on wood, masonry and cement, but be aware that the rotary motion and aggressive paint-removal disc make it unsuitable for siding shingles or textured siding.

In addition to a tool such as the PaintEater, you'll also need a hand scraper and a sander to take care of the corners and the hard to reach areas. With any of these tools, be sure to wear eye protection to shield your eyes from flying paint chips -- which can be surprisingly sharp and dangerous -- as well as a dust mask or respirator to protect you against inhaling the dust.

When you're done with the scraping, the bare surfaces need to be primed to protect the wood and provide good adhesion for the top coat. Use a good-quality exterior primer that's compatible with your top coat, and apply one or two coats on all bare surfaces.

When preparing the siding on an older home, you need to be very aware of the possibility of lead paint. Even if the home has been repainted with latex, one or more of the underlying layers may contain lead. For more information about testing for and removing lead paint, contact the Environmental Protection Agency (EPA) online at www.epa.gov/lead, or by phone at 1-800-424-LEAD (424-5323)

Airless Painting

Professional painters rely on airless paint-spraying equipment to apply paint quickly and cleanly with minimal overspray. You can rent a professional-grade airless sprayer, but the occasional user might want to consider investing in Wagner's Paint Crew Plus ($249.99).

Designed with homeowners in mind, the Paint Crew Plus has a 2800 PSI piston pump that's driven by a 1/2-horsepower electric motor, so you have plenty of power for spraying a variety of finishes. The sprayer features a pressure selector that allows you to vary the pressure between 1000 and 2800 PSI, which is very helpful in choosing the best pressure for the finish you're working with. Higher pressures are needed for spraying many of today's exterior latex paints, and you can dial the sprayer down to a lower pressure to give you better control and less overspray when working with thinner materials.

The Paint Crew has wheels and a telescoping handle for easy transport, as well as a 2 1/2-gallon paint hopper that's removable for easier cleaning. You also get a 25-foot high-pressure spray hose, a professional-grade metal spray gun and a reversible spray tip. A convenient hose wrap holds the hose when not in use, and there is a storage area for additional spray tips. Also included is a roller-arm assembly, which attaches to the hose in place of the spray gun, allowing for faster rolling of interior surfaces.

With this or any other type of airless sprayer, NEVER point it at anyone. The high-pressure pumps used with airless sprayers are capable of pushing paint through a person's skin, so be sure you read and understand all of the safety precautions.

Remodeling and repair questions? E-mail Paul at paulbianchina@inman.com.

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Q: I read your recent article on adding insulation to a bare-beamed ceiling and I have a question about insulating the ceiling between the beams.

From what I read, it seems that no ventilation is needed between the roof sheathing and the R-13 batt insulation. Is that correct and, if so, is it because it's a flat roof?

I have what I think is a similar situation. I have an attic dormer loft that we would like to finish. It has 2-by-6 roof rafters and a ceiling height of just over 6 feet at the peak. It would be great if I could put the R-13 insulation in and drywall it without allowing for ventilation between the insulation and roof sheathing. But I've heard that that can cause moisture problems that could lead to rot.

This loft area that we would finish off is about 10 by 16 feet. We would use this area as a sitting room to read or have a glass of wine. There is a window that looks out onto the ocean, where we can see the sunset.

A: Let's see if we have this right. An attic loft equipped with a dormer overlooking the Pacific Ocean. You'd like to convert it into a sitting room so you can have a drink while watching the setting sun. What's not to like? Although we'd probably opt for a nice single malt rather than a glass of California chardonnay.

Insulating your loft area is straightforward and something you could certainly do yourself. We do wonder whether the rest of the attic is insulated. If it's not, you might consider doing the whole megillah. For now, we'll just stick to the dormer area.

Your point about our failure to mention ventilating the rafter bays in our article is well taken. Without air movement, batt insulation could breed condensation. That's not a good thing.

In that column we responded to a reader's question about insulating an open-beam ceiling without disturbing the existing roof covering. We suggested that he frame 2-foot-wide openings between the 4-by-8-inch beams to accept fiberglass batts, then screw drywall to the framing. After the "rock" is finished, the result is a newly insulated and attractive ceiling. But we inadvertently left out the step of drilling a series of 1 1/8-inch holes in each block and installing metal grills at the wall and ridge of each bay to allow for air circulation.

Berkeley, Calif., architect Tim Rempel also picked up on our omission. He suggested that rigid foam or isocyanate foam insulation instead of fiberglass batts for this application. In retrospect, we agree that a better solution is to use rigid polystyrene or polyurethane insulation board.

The rafters of your dormer are probably no more than 24 inches apart, so they will support 1/2-inch drywall. This eliminates the need for additional framing. Using rigid insulation board eliminates the need to provide ventilation for the rafter bays. That's the route we suggest you take.

Rigid insulation board carries an R-value of between 4 and 8 per inch of thickness, depending on the type of board you use. R-value is a measurement of the resistance to heat flow from conditioned space to unconditioned space. Fully insulating the rafter bays of your dormer with rigid foam board should provide R-20 to R-40 of protection. Foam insulation board is lightweight and easily cut with a handsaw. It can also be scored and snapped with a utility knife in the same manner as drywall.

To install it in the rafter bay, simply cut the panels to fit and press them into place. Seal the edges of the boards with caulk and the joints with tape. Aluminum-coated tape used for heater ducts works well for sealing the seams.

If you can't find 5 1/2-inch-thick board to fill in the space, it's OK to stack pieces. For a more detailed discussion of rigid insulation, go to links.sfgate.com/ZZM.

Once the foam board is in, drywall the ceiling in the customary manner. This step is critical because the foam board is flammable and the drywall serves as a fire barrier.

When your attic sitting room is done, we wish you many a cozy sunset. We're envious.

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In a recent column, shortly after Washington Mutual announced it would no longer offer its option adjustable-rate mortgage (ARM) to home buyers, I noted that the program was a benefit to our family because it allowed us to adjust our monthly payments given the educational needs of our four growing children.

I pointed out that three of the four payment options of the option ARM did not render negative amortization, yet too many consumers stayed with the minimum payment for far too long and owed more than they borrowed.

Negative amortization occurs when the monthly loan payment is less than the principal and interest needed to pay off the loan in a specific period of time. The difference is added to the loan amount, so that the borrower owes more than the amount initially borrowed.

What I absolutely underestimated was the percentage of borrowers who took out an option ARM to buy a house they could not afford, or who had no intention of ever leaving the minimum payment portion of the menu and moving into one of the positive-amortization options.

In one of the first significant studies to consider the ramifications of option ARM loans, Barclays Capital revealed that nearly 95 percent of all outstanding option ARM loans "have negatively amortized to some extent" and that the payment shock incurred when the loans reset, or recast, will be far more severe than the highly publicized subprime adjustments.

In a report titled "Option ARM-ageddon: The Real Reset Risk," Barclays Capital researchers predicted that a majority of the existing loans would recast in 2010-11 and monthly payments would jump 60-80 percent. By comparison, most subprime resets should cause only an 8-10 percent payment shock.

The study included several subprime option ARM comparisons, including a $250,000 loan on similar homes in the same neighborhood. While the mortgages carried different interest rates, margins and loan caps, the mortgages were typical for what a borrower could expect. The subprime loan made in 2006 was recast after two years under its original terms and the monthly payment rose from $1,903 to $2,044, or 7.4 percent. The option ARM, recast when the borrower hit the negative amortization ceiling of 115 percent, saw its monthly payments leap 89 percent, from $1,074 to $2,027.

Recasting (or recalculating a loan) is another way of limiting negative amortization and keeping a loan on the original schedule. The main purpose of recasting is to ensure that the loan is paid off within the scheduled amortization period. Option ARM loans are usually recast every five or 10 years (or sooner, if the negative-amortization limit is reached). This recalculation (or re-amortization) is based on the outstanding principal balance, the remaining term and the fully indexed rate. When the loan is recast, the payment required to fully amortize the loan over the remaining term becomes the new minimum payment.

According to the study, even though it is clear that there will be a problem upon recast, option ARM borrowers are not in the position to do anything about it. These borrowers chose this loan for a reason: namely, to purchase a home they could not afford with any other loan. Now that they are already in a home, there is little chance that option ARM borrowers would choose to refinance into a loan that raises their monthly payment. Furthermore, many of these borrowers are locked into these loans due to prepayment penalties. The prepayment penalties are often imposed on borrowers with the lowest FICO scores, meaning that the borrowers least able to afford the payment shock are most trapped in the loan, the research report disclosed.

The Barclays study indicated that between 2008 and 2012, approximately $312 billion in option ARM loans will recast to become fully amortizing loans. The majority of these recasts will come in 2010 and 2011 when $109 billion and $118 billion will recast, respectively. As a result of declining home prices and the negative amortization of these loans, most borrowers resetting in 2010-11 will have loan-to-value ratios in excess of 100 percent.

If you have an option ARM loan, do all you can to move off the minimum payment and on to a disciplined, aggressive, accelerated plan. If can get out of negative territory and start paying down the principal, you might even have some options when you want to refinance.

To get even more valuable advice from Tom, visit his Second Home Center.

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