DEAR PATRICIA: In general, in order to take advantage of the up-to-$500,000 exclusion of gain ($250,000 if you file a separate tax return), you have to own and live in the house for two out of the five years before it is sold. However, the law does allow a partial exclusion under certain circumstances. There are three "safe harbors" (meaning that if you meet these tests the IRS will not challenge you): (1) change in employment; (2) health; and (3) unforeseen circumstances. In this third category, if you could not have anticipated an event before you purchased your house, you may also be able to claim a partial exclusion. While this is fact-specific -- and in many cases you will have to get a special ruling from the IRS -- there also are some safe harbors that the IRS will recognize. These include: an involuntary conversion of your house; natural or manmade disasters resulting in a casualty to your home; divorce or legal separation; and multiple births resulting from the same pregnancy.

It would appear that you may qualify based on your divorce. The exclusion is equal to the number of days of use times the quotient of $500,000 divided by 730 days. Note that 730 days is two full years. If you are single -- or do not file a joint tax return -- change the $500,000 to $250,000.

Your accountant knows what he is talking about so you should ask him to do the calculations. However, I do not think he said that you can escape all capital gains tax.

DEAR BENNY: The neighborhood that I live in is going downhill, with a couple of empty houses on my street that look like they may be foreclosures or REOs, and there are also several others for sale. And to make it worse I will have negative equity in my property and probably need to do a short sale. I have both a first and second mortgage (HELOC), but from two different mortgage companies. What steps do I need to take to find a Realtor that handles this, and will having a second mortgage be a problem in respect to the short sale? --Pam

DEAR PAM: The first thing I would do is talk with your lenders. Because there are so many foreclosures taking place all over this country, many lenders would prefer to work with you to possibly reduce your mortgage interest rate rather than have another house in foreclosure.

Additionally, there are many government and private programs available (or soon to be available) to assist people in financial difficulty.

But a short sale will be difficult unless you can reach an amicable arrangement with the holder of the second trust.

DEAR BENNY: Do you know of any books or brochures that help explain the responsibilities of a condominium developer/owner? We live in an unfinished condo development in St. Louis. There are construction and maintenance issues that the current residents believe are the responsibility of the owner/developer, not the condo association. The items/issues are not covered in the bylaws. --Natalie

DEAR NATALIE: There is an organization in Virginia known as the Community Associations Institute. You can find them on the Web at caionline.org. This group has a number of valuable resources that may be helpful to you, including books and publications on a number of community association subjects as well as suggested names of attorneys who may be of assistance in helping you learn your rights.

DEAR BENNY: I have just found out that my neighbor's septic tank leach line and leach pit is on my property. I was going to buy the property when it was recently up for sale, but I was not given the chance. I did file a lawsuit against the seller. The contract purchaser has not yet taken title to the property. Do I have a legal claim against not just the seller but the buyer if he does indeed go to closing and take possession of the property? I am hoping that after the buyer learns that there is a lawsuit on the property, he will back off and not buy it. What happens in a case like this? --Leo

DEAR LEO: You have filed a lawsuit that should put the title (escrow) company on notice. You or your attorney should contact both the title company as well as the buyer and advise them of the lawsuit. There is a concept in law called "lis pendens," meaning that litigation is pending. Ask your attorney if he is able to file this lis pendens document in your case and have it recorded among the land records on your neighbor's property. Clearly, the title (escrow) company will see that there is a pending lawsuit when it searches the title for the buyer.

The buyer would be foolish to buy the property until your lawsuit is resolved.

I would also try to reach an amicable arrangement with the buyer. After all, if he does buy the property, he will be your next-door neighbor.

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

A common complaint that can end in a dispute is that the agent didn't act in the best interests of the party being represented; that is, the buyer or seller. Real estate agents who represent buyers or sellers in a transaction owe their client a fiduciary duty to put their client's interests above others in the transaction.

Buyers and sellers might be entitled to take legal action against agents who breached their fiduciary duty. But, why put yourself in a situation where you need to engage in a legal battle if you don't have to?

Before you select an agent to represent you, make a careful search to find an agent who understands what it means to owe a fiduciary duty to you. You are looking for real estate agents who value the quality of service they provide. Select professionals to represent you who will put your interests first. Personal acquaintances are often good sources of real estate agent recommendations.

Some of the most serious disputes arise over material facts that should have been disclosed to the buyers, but weren't. A material fact is something that might affect a buyer's decision to buy or the price a buyer would pay. Disclosure laws vary from one state to another. But, generally, sellers are required to disclosure material facts when they sell.

HOUSE HUNTING TIPS: Sellers should take their disclosure requirements seriously. They not only protect the buyer, but they protect the seller from being sued after closing over something that should have been disclosed upfront. Consult with your real estate agent or real estate attorney if you have any questions about what you do and do not need to disclose.

Real estate agents are also required to disclose material facts about a property to buyers. Sometimes sellers don't want to disclose facts about their home that they think might deter the sale. However, if you, or your agent, conceal a known material fact, a costly dispute could arise.

Disputes can arise over a failure of expectations. Clear and complete communication can usually keep these sorts of problems from arising. For example, let's say you are the buyer and you plan to move into the home you're buying the day the transaction closes. The seller is moving out the day before closing and is planning to leave the house broom swept and free of debris. If you are expecting carpets to be cleaned, floors polished and windows washed, you could be sorely disappointed.

To avoid a problem like this, ask your agent to find out if the seller is planning to have the house professionally cleaned before you move in. If not, and if this is not something required of the seller in your purchase agreement, make arrangements to have cleaners come in the morning of closing so that you aren't disappointed, and so that your move is not delayed.

Disputes over who is entitled to the deposit if a deal doesn't go through are all too common. The answer to these questions usually involves a legal opinion. So, before making a claim, get legal advice from a knowledgeable real estate attorney.

THE CLOSING: Even though you're upset that the buyer is backing out, you may not be entitled to keep the buyer's deposit, depending on the terms of the purchase agreement.

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

Traditionally, wainscoting is tongue and groove boards or raised or flat paneling sections that are applied to the lower part of a wall. The wainscoting extends from the top of the baseboard up to a height of usually between 3 and 5 feet off the floor, and is topped off with a horizontal molding. In addition to its decorative appeal, wainscoting had the very practical advantage of protecting the lower portion of the wall from wear and tear.

Today, however, wainscoting has taken on a somewhat less specific definition. It can be just about any combination of materials, including paint, wood, wallpaper and even fabric.

A wainscoting application consists of three elements: the lower portion of the wall, the upper portion of the wall, and the dividing line between the two. How you mix and match those three elements is up to your individual taste and budget.

Splitting Up The Wall

One of the first things to decide for any wainscoting project is where the dividing line will be between the two different materials. For a room with an 8-foot-high ceiling, a division of approximately 3 feet on the lower half and 5 feet on the upper half tends to give the best balance. Many Craftsman-style homes used the reverse of that, with about 5 feet of paneling on the lower half, capped with a wider molding that was suitable for shallow storage. For best appearance, the dividing line should not be exactly half way up the wall.

To get a better idea of how different proportions will work, tape some newspaper or other material on the wall at a couple of different heights. This will give you a better representation of how the two halves will balance out, and you can adjust them accordingly.

Installing Traditional Wainscoting

To achieve the look of a board wainscoting, you can install individual narrow, tongue and groove boards; you can install wider boards that are milled on the face to look like two or three narrower boards, which simplifies installation; or you can install 4-foot-wide beaded paneling, which again replicates the look of individual boards but installs faster. With any of these methods, finish off the top of the boards with a horizontal molding such as a wainscot cap or a chair rail.

For a paneled look, there are kits available that include a routed base molding, a routed top molding, routed vertical strips, and the panels themselves. The pieces all interlock with one another, and as long as you take some time with the layout to ensure that the panels are balanced to the width of the wall, you can achieve a beautiful, traditional paneled wainscoting in a relatively short time. If you are an avid woodworker, there are specialized router bits that help you cut the individual pieces yourself and save some money.

With wood, you have the choice of painting or staining the material to get the look you want. For painting, the boards and paneling are available in medium-density fiberboard (MDF), which paints nicely and is less expensive than solid wood. For stained wainscoting, you can select from pine, fir, oak, cherry, maple and other woods.

Wood strips, paneling and moldings can all be found at most home centers and lumberyards, along with all the installation materials you need. Some larger stores also carry the paneling kits, or they can order them for you. You will also find a wide selection of wainscoting paneling kits online.

Other Wainscoting Materials

In addition to traditional wood, there are lots of other material combinations that will work very well together. You can experiment with different combinations of materials to achieve the exact look that works for your décor. In general, heavier materials such as wood and fabric look best on the lower half of the wall. Also, darker paint colors and darker, more heavily patterned wallpapers look best on the bottom.

Your wainscoting choice may be something as simple as two different colors of paint. You can also use a solid paint on one section of the wall, and some type of textured paint effect on the other section.

Another easy wainscoting can be achieved with two different wallpapers. Select a lighter paper with a more open pattern for the upper half of the wall, and a darker paper or one with a vertical stripe or heavy pattern for the bottom. You can also combine the two materials by using paint on one section of the wall and wallpaper on the other.

With any of these combinations, separate the two sections of wall with a painted or stained wood molding. To really accent the installation, finish everything off with a crown molding as well.

Remodeling and repair questions? E-mail Paul at paul2887@ykwc.net.