Dear Mrs. Lank: My grandmother fell ill and my husband and I had to get a house that had a floor plan that could accommodate her. Unfortunately, our other house wouldn't sell. We found a couple who was interested in doing a lease-purchase. They fell through on the deal and moved out last month. They aren't paying the contractual penalties either, but that's a whole other issue.

What I was wondering is, since we are upside-down on our mortgage now, what would our best option be? I have heard of "short sales" but is this really the best option? We are having trouble renting it out. I really would just like it gone, especially because we never intended on having a rental property in the first place. Any advice would be great! Thanks. — K.

Answer: Your grandmother is a lucky woman. You — right now — are not so lucky. You have my sympathy.

I'm getting many letters these days from people who owe more than they can sell their houses for. But look — if you had a stock that lost money you wouldn't write asking me for advice. You'd just either hold on and hope things get better, or sell and take the loss on your income tax returns. And as your house is now a rental property, you could indeed take a loss as a tax deduction.

Yes, being a landlord is a skilled occupation, and you have to be temperamentally suited for it. For that matter, entering into a lease-option also calls for some know-how. Did you, for example, study your prospective buyers' credit report carefully to see if they were in the habit of paying their bills? Did you analyze whether they had enough dependable income to meet the payments?

As for short sales, lenders will usually agree to one only if you're practically penniless. No harm in asking. With a short sale, the lender forgives the rest of the debt, if a sale on the open market doesn't yield enough to pay off the loan. The procedure can be cumbersome, but it's a lot better for your credit rating than a foreclosure.

It's also possible, sometimes, to get the lender to accept a deed to the property and forgive the loan — this is called a "deed in lieu of foreclosure." You'd be lucky if you could get that and just walk away.

Otherwise: You say your house wouldn't sell, but if it had been bargain-priced, it would have. Think of it now as if you'd lost money in the stock market. Bite the bullet, sell for whatever it takes to attract offers, take the loss, make up the difference from your other assets and just get on with your lives.

Still Living

Dear Edith: My wife and I are still living. We are 79 and 75. Our house is paid for, and we would like to put our 20-year-old grandson on the deed so it will be his when we are gone. Is that possible? — L. C.

Answer: Congratulations on that first sentence!

What you want to do is certainly possible and easily arranged by an attorney, but it may not be the best way to provide for your grandson.

No space here to discuss possible complications, but they could involve capital gains tax, homesellers tax exclusion, reverse mortgage, other mortgage loan problems, liens, senior tax abatements, judgments, health care, life tenancy, stepped-up basis and even more topics you should understand before you do anything.

A talk with a lawyer who specializes in estate planning could explain all your options and advise which would suit your needs best. Discuss the project carefully before you decide which way to go.

More Than Agent Says

Dear Edith: We are newly retired, own a home here and my husband's home in Virginia. We have decided to sell that one. The Realtor has suggested we place our home on the market for $249,900 (assessed at $240,000). We would like to ask him to put it on the market for $259,900. Is this an unheard of thing to do — upping the price a Realtor suggests? — K.

Answer: It's not unheard of and of course it's permissible. Your husband owns the house and he makes the decisions. If you have the leisure to feel out the market, you're free to go ahead and see what happens. But take a close look at the data your agent used, showing what buyers have been paying in that Virginia neighborhood. If you're much higher than that, you may end up carrying the expenses on that vacant house longer than you would have at a competitive asking price.

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

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