Title problems were found in 36 percent of all residential real estate transactions in 2005, up from 25 percent in 2000, due to a booming real estate market and an increase in transactions, according to a title insurance industry survey.

“The most frequent curative action taken last year was obtaining releases and/or obtaining pay-offs for discovered liens, such as prior or existing first or second mortgages, unpaid child and spousal support, outstanding taxes, and other judgments against the property,” said Rande Yeager, president of the American Land Title Association, which conducted the survey.

The survey tracks changes in the title industry, including the number of orders received and percentage of title issues discovered and repaired prior to closing or escrow.

The next most common curative action, according to Yeager, was obtaining releases for assignment on deeds of trust/and or mortgages, followed closely by recording errors of names, addresses, or legal descriptions of the property.

“The booming real estate market over the last several years has increased the number of transactions significantly, which means more title problems are found,” said Yeager. “This clearly demonstrates the importance of a professional title search in all real estate transactions, whether purchasing a new home or refinancing an existing mortgage.”

The title insurance industry has been in the spotlight over the past year with statewide investigations into the illegal practice of kickbacks in Colorado, California and a number of other states. Fidelity National Financial and First American Title Insurance Co. last November agreed to pay a total of $22.7 million to consumers in final settlement agreements with California’s insurance commissioner over alleged rebate activities that violate the Real Estate Settlement Procedures Act and some state laws.

Home buyers and regulators alike have recently questioned the value and cost of title insurance, ALTA said. A Loan Policy of title insurance is required by lenders prior to the issuance of a loan, even on a refinance, to assure that the title is clear. Before a policy is issued, an extensive search is conducted to locate problems so they can be rectified and the transfer of property and/or loan can proceed, the group says.

While title insurers pay fewer claims than most other insurers, ALTA says, their upfront costs are substantially higher.

A copy of the complete survey can be obtained at www.alta.org.

ALTA represents title insurance companies and their agencies nationwide on a variety of industry and legislative issues.

DEAR GINNY: Regarding the Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 (up to $500,000 for a married couple), we own two houses for which we meet the 24-out-of-last-60-month ownership and occupancy requirement on both. One house is now listed for sale. When it sells, we would like to move into the other house and sell it within the next several months. If we sell one house in 2006 and the other house in 2007, can we claim the IRC 121 exemptions on both houses? –Bonnie H.

DEAR BONNIE: No. But it sounds like you understand IRC 121 quite well. To qualify for the principal residence sale tax exemption up to $250,000 (up to $500,000 for a married couple filing a joint tax return) you must own and occupy the home at least 24 of the last 60 months before its sale.

However, this tax exemption can only be used once every 24 months. When you sell one qualified house in 2006, then you can’t use the IRC 121 exemption again on another home until at least 24 months later. For full details, please consult your tax adviser.

MUST BOTH SPOUSES’ NAMES BE ON TITLE TO RESIDENCE?

DEAR GINNY: My wife and I have lived in my house for more than the required 24 months to claim the Internal Revenue Code 121 tax exemption. But only my name is listed on the title as the owner. I owned the house before we married. Does her name need to be added to the title to make us eligible for the $500,000 exemption? –Arnold S.

DEAR ARNOLD: No. There is a specific clause in IRC 121, which says that for a married couple, title to the principal residence can be held in the name of one spouse alone but each spouse is entitled to a $250,000 exemption if (1) the 24-month ownership and occupancy test within the last 60 months before sale is met by each spouse, and (2) if they file a joint tax return in the year of home sale. Please consult your tax adviser for more details.

PROBATE IS NECESSARY UNLESS TITLE IS IN JOINT TENANCY OR A REVOCABLE LIVING TRUST

DEAR GINNY: My 82-year-old mother owns her modest home, which is probably worth around $100,000. Title is in her name alone. I have showed her your articles about the benefits of holding title in a revocable living trust to avoid probate and in case she gets Alzheimer’s disease or a severe stroke. But she is very stubborn and thinks because she has a small estate, worth less than $600,000, she doesn’t need a living trust or even a will. I am her only heir. As her health is declining, is there any other way to avoid probate when she dies? I have heard horror stories about probate costs and delays –Maurice H.

DEAR MAURICE: A few states have probate court exemptions for small estates but your mother doesn’t appear to qualify. I don’t know where the $600,000 amount came from, but there is no probate exemption for estates below that amount.

The two primary ways to avoid probate of estates are (1) hold real estate title in a joint tenancy with right of survivorship, or (2) hold title in a revocable living trust.

Especially since your mother doesn’t have a written will, after she dies probate court proceedings will be required to distribute the estate according to the state law of intestate succession where she lives. At a minimum, probate court proceedings take six months, often much longer.

LOTS OF DISADVANTAGES TO HOME ON LEASED LAND

DEAR GINNY: I am considering buying a manufactured home on a quarter-acre parcel in a retirement community. These homes are very nice and much less expensive than comparable “stick built” houses nearby. The big drawback my wife dislikes is they are located on leased land, and there is no option to purchase the lot. But the land lease extends for 49 years. I like the adjoining golf course, nearby shopping, and low cost. Is the leased land a serious problem? –Henry R.

DEAR HENRY: Yes. Listen to your smart wife. Just as you are questioning the advisability of buying a manufactured home on leased land, you can be sure when you are ready to resell your buyers will also hesitate.

Presuming you can obtain a mortgage (some lenders refuse to lend on manufactured homes located on leased land), as the lease gets closer to its 49th year, your manufactured home will become worth less and less. After the 49th year, its ownership will revert to the landowner.

You and your wife probably won’t be around in 49 years, but your heirs won’t have much to inherit if only a few years remain on the land lease when you pass on. Other than the lower purchase price, nearby shopping and golf course advantages, I see lots of disadvantages to that situation.

BUYING A HOME WILL INCREASE TAKE-HOME PAY

DEAR GINNY: I am a single mom, with one son, getting ready to buy my first home in June 2007. I am a schoolteacher claiming two withholding exemptions on my W-4. But my real estate agent told me I could increase my withholdings to increase my take-home pay to help me make the mortgage payments (which will be about $300 per month more than I now pay in rent). How soon before I actually buy in June should I do this? –Ms. B.Y.

DEAR MS. B.Y.: I suggest you wait to change your withholding exemptions until after you file your 2006 income tax returns by April 15, 2007. Then you will have a better idea of your income tax situation.

You can probably increase your exemptions (thus lowering the amount of income tax withheld from each paycheck) by one or two to help compensate for your mortgage payment beginning in June 2007. For details, please consult your tax adviser.

IF YOU DON’T EXCHANGE, YOU WILL OWE TAX ON INCOME PROPERTY SALE

DEAR GINNY: I live out-of-state but own a rental property near San Francisco. I want to sell this property and pay off my home mortgage. If I sell the rental property in 2006 or 2007 without doing an Internal Revenue Code 1031 tax-deferred exchange (I don’t want to be a landlord any more), will I owe both federal and California capital gains tax? Also, what would be the advantage of waiting until 2008 when the tax law will allow for one year with no capital gains taxes? –Jill J.

DEAR JILL: Because the rental property is not your principal residence, you will owe capital gains tax (currently at a 15 percent maximum federal tax rate, plus applicable California tax). In addition, there is a special 25 percent federal depreciation recapture tax rate. The fact you want to use the sales proceeds to pay off your home mortgage is irrelevant.

There is no capital gain tax exemption if you wait to sell until 2008. You are probably thinking of the federal estate tax exemption if you die in 2008. Unless Congress changes the estate tax law, for individuals who die in 2008 there will be no federal estate tax. Your tax adviser can provide more details.

CLEAR YOUR TITLE NOW OF DECEASED JOINT TENANT’S NAME

DEAR GINNY: My mother and I owned a house together as joint tenants with right of survivorship. She died about eight years ago. But her name is still on the title. Will that prevent me from selling the house? –Craig S.

DEAR CRAIG: Temporarily, yes. In most states, when one joint tenant with right of survivorship dies, all that is required to clear the title is for the surviving joint tenant to record a certified copy of the death certificate and an affidavit of survivorship.

This should be taken care of as soon as possible after a joint tenant’s death. Until you clear the title, you can’t convey marketable title. For details, please check with the local recorder of deeds where the property is located.

GOOD LUCK GETTING REFUND OF TAX LIEN PAID

DEAR GINNY: My wife and I bought our home from my father in 2004. In 2005, we refinanced the mortgage. There was a lien against the title for my father’s income taxes. At the mortgage refinance closing, the attorney told us we must pay the $1,808 tax lien although my father owed it. I have since learned the attorney should have handled it differently by putting the $1,808 into escrow until the tax collector was made aware of the mistake. What are our options to get the $1,808 refunded? –Levin L.

DEAR LEVIN: If the recorded income tax lien had not been paid, title was not marketable and a lender’s title insurance policy would not have been issued.

You can apply for a refund of the alleged erroneously paid tax. But it is usually very difficult to get a tax refund from any government agency. My suggestion is ask your father to pay you the $1,808 income tax he owed so you can forget it.

Does anybody remember the old days when home buyers actually made sizable down payments — often 20% or more — when they bought their first house?

New national survey research reveals just how dated and quaint that concept has become in today’s market, thanks to rocketing home prices that have far eclipsed buyers’ incomes and savings.

From mid-2005 to mid-2006, according to a statistical sampling of a representative group of 7,548 purchasers, nearly half of all first-time buyers financed the entire transaction, obtaining mortgages in the full amount of the home price. Also, 30% put down 10% or less.

The research was conducted by the National Assn. of Realtors, using information on home transactions supplied by Experian, a major credit and realty data firm. The median down payment of first-time purchasers, according to the study, was just 2%. In other words, the median-sized mortgage for first-timers represented 98% of the home purchase price.

The highest loan-to-value ratios for first-time buyers were in the South, where the median mortgage amount was 100% of the sale price. In the West, the median was 99%, in the Midwest 98%, and in the East, 96%.

By comparison, the typical repeat home buyer nationwide invested a median 16% as a down payment to purchase a replacement home — typically from the proceeds of a prior sale — and financed the remaining 84%.

Where did first-time buyers obtain even the relatively modest down payments they made? Seventy-three percent of the survey respondents said at least part came from savings accounts, and 22% said relatives or friends chipped in as well. One out of 10 said their down payment came from liquidations of stocks or bonds.

The biggest down payment resources for repeat buyers were the profits they made from their prior sales. Sixty-two percent of repeat buyers depended on those resources. But 40% also took money from savings accounts to help swing the deal, and 6% sold stocks or bonds. Just 3% got help from relatives or friends.

Besides high prices, a key reason for the relatively high levels of leverage being used by both first-time and repeat buyers has been the explosion of low-down-payment options .

Before the mid-1980s, the plain-vanilla, 20% down mortgage was virtually the only game in town. Now, 100% financing — often using a first mortgage of 80% or 90% of the home value combined with a second mortgage or credit line for 20% or 10% — is commonplace. So are 5% and 10% down payment conventional loans with private mortgage insurance, and 3% down payment Federal Housing Administration (FHA) loans.

Although all these minimal-down plans have been highly successful in pushing the homeownership rate in the United States to record heights — currently just under 69% — they’ve achieved this in an atmosphere of steadily appreciating home prices and values. The possibility of low or no appreciation hasn’t been a concern for buyers using minimal down payments in most parts of the country since the mid-1990s. That’s because if you could obtain a loan that got you into a house with almost no money down, there was no problem: Appreciation — sometimes at double-digit annual rates — would take care of you from then on.

But that’s no longer the case. Buyers who made small down payments in 2005 and 2006 face a starkly different prospect: They started with minimal or no equity, and they may still be in the same position. Worse yet, they could be temporarily “upside down” on their mortgages, with a principal balance greater than their current home value.

People who bought in hyper-appreciating markets could be vulnerable financially if they have to sell on short notice because of a job transfer or they can no longer handle the monthly payments.

Bottom line: Leverage in real estate slices both ways. A minimal investment can produce impressive returns if the appreciation tide is rising. But it can also expose you to a negative-equity situation when the tide recedes.

The jury is still out on how well highly leveraged recent buyers from 2003 to 2006 will handle a period of slow growth in their home values. Can they hang on until appreciation returns and raises their equity holdings? The mortgage and real estate industries — to say nothing of the Wall Street bond investors who’ve financed trillions of dollars worth of these loans — are banking on it.