Negotiating Additional Reduction Short Sale Reverse Mortgage

16 Replies

My grandfather passed at the end of August with a reverse mortgage in excess of $850k on his home that was recently appraised at $585k. HUD has informed us that they'll accept a short sale for 95% ($557k). I had the top producing agent in the area inspect it and he told me I shouldn't pay over $475k and should try and negotiate a reduction. Normally I'd just tell my dad and aunts (the heirs) to just let the bank take it back, but the property is oceanfront, has some sentimental value, and would actually cashflow well as a vacation rental (assuming I could actually purchase it at $475k).

I think there is a lot of confusion regarding short sale negotiations with reverse mortgages because the negotiation is actually with HUD and not the bank. As I understand it, HUD provides the difference between the short sale price and the amount owed to the bank. Is negotiating with HUD much different from negotiating with a bank for a reduction?

Has anyone ever successfully done something like this?

You will not be able to purchase this at the price you want without a successful value dispute or a new appraisal. You can submit evidence/quotes for damage/repairs, and they may or may not adjust their valuation. Otherwise the appraisal will expire in 3-6 months, and a new one will be ordered.

Hi William,

I've negotiated short sales since 2008, but have yet to negotiate a reverse mortgage. That being said, it is required that the homeowners sell the property at a loss for the bank (or in this case HUD) to accept the lower offer, hence "short sale". I'm assuming that's still the case with HUD.

If so, your family would have to relinquish rights to the property via an Arms-Length Transaction (Non-family member). Do you have a buyer lined up?

As far as reducing the previous value accepted, I've recently had a lender require a short sale at $650k, reduce and approve it at $475k with proper and adequate Market Analysis. 

Feel free to message me to discuss further.

HUD Reverse Mortgages have guidelines required by law that the property be sold for no less than 95% of appraised value for the first 120 days(which is the time an FHA appraisal is valid)

We bought a reverse mortgage (a.k.a. HECM) foreclosure two weeks ago.   The property was priced 5% below an appraisal and the price was not negotiable.  

@William Farnsworth

I’m an attorney in Illinois and I was able to do it with an appraisal. We had a conventional mortgage the bank valued at $890k and we valued at $540k. Our appraisal came back at $600k. After we did our appraisal, the bank sent out their own agent for an appraisal and came back at $620k. We were able to eventually get them to approve a sale at $610k and sell it.

The way we found successful was to have an expert to dispute the banks valuation and to then use that to prompt the bank to do a new, more thorough valuation of the property.

Good luck on the sale and I’m sorry about your grand dad.

This is a very specific question about a specific type of short sale

HUD Reverse mortgage are subject to HUD Guidline 24 CFR 206.125 and must be sold for 95% of appraised value for 120 days

Thanks everyone for the feedback. It seems like my best bet is to have HUD do another appraisal. My main concern is an appraiser doesn't really get into the detail that a home inspector would. Maybe I need to get a home inspector to write up all the property defects and give that to the new appraiser

@William Farnsworth The guidelines are pretty cut and dry for reverse mortgage short sales on an acceptable price. You will need to push for a new value. If they are willing to order another value prior to the current value expiring, you may want to get an inspection as you mentioned, comps, and contractor bids to provide to the appraiser. Please keep in mind that doing this does not mean you will be successful in the appraiser bringing in a value lower.

You can't just "get" another appraisal.  You have to CHALLENGE the appraisal at hand, and if it's inaccurate, highlight the issues.  If the servicer feels the appraisal is also wrong, they will order another one.  Otherwise you are sitting on it for 120 days from when appraisal was done.  Also, in my state it still has to be probated, unless one of heirs are on deed.  Meaning, there must be a license to sell through the probate.  Good luck.

Originally posted by @Maryann L. :

You can't just "get" another appraisal.  You have to CHALLENGE the appraisal at hand, and if it's inaccurate, highlight the issues.  If the servicer feels the appraisal is also wrong, they will order another one.  Otherwise you are sitting on it for 120 days from when appraisal was done.  Also, in my state it still has to be probated, unless one of heirs are on deed.  Meaning, there must be a license to sell through the probate.  Good luck.

 I almost called you after watching your Youtube video earlier today! Bigger Pockets has such an amazing community. I will update this thread based on my progress with the situation. Thanks everyone for all the feedback.

I reached out to Novad/HUD and have received a response regarding revaluation (posted below).

I am challenging the original appraisal on the property being rated a C4 when I think it should be a C5 (worse condition) and the reduced marketability of the property because it's below BFE in a floodplain. I'm not sure if an appraiser can affectively value that, but I'm going to call a few and see how far I get. 

If anyone has used an appraiser before that was able to consider elevation in a floodplain I'd be curious to talk to them. 

Ill update the thread based on my progress.



From HUD

""In order to file a dispute, you will need to order and cover the cost of another appraisal. HUD will only accept appraisals from those approved appraisers found on their website. They must conduct a full Interior/Exterior URAR “As Is” appraisal.

https://entp.hud.gov/idapp/html/apprlook.cfm

Once you provide us with the results of that appraisal, HUD will submit both to the regional Homeownership Center for review and a final determination. Their determination is final, and no other appraisals will be ordered. You are free to show your appraiser what you had received prior and discuss your concerns with them.""

@William Farnsworth

I’m in one right now in California. Before we get the appraisal, we are willing to pay the $400 for a quality full inspection to find everything wrong. Having that to give the appraiser is for us the only way to get the appraised value that can make sense.

Thanks William - Feel free to call. I usually put my phone number on the You Tube videos. If you need any assistance at all, let me know, but you want to show HUD the appraisal is innacurate and see if they will either adjust or order another appraisal.

I reached out to several appraisers and they said want $500 to reappraise. I've kind of given up on the reappraisal route as best case scenario I shave a few thousand off the price, and most likely case scenario I'm out $500.

I am leaning towards doing a double close now because I don't want to risk buying it without finding another buyer. Let's say I market the property for $590k and find a buyer. I purchase at $556k and immediately resell at $590k netting $34k minus fees. 

I wonder if HUD disapproves of double closes on reverse mortgage short sales.

Again, the reason I don't think I can just list for sale is because the payoff amount is like $890k and I don't make anything that way.



From my experience with HUD deals (regular, not a reverse mortgage), you as the buyer are allowed to choose the closing agent. Unless there is a deed restriction or you have signed an affidavit stating you won't resell within a set time frame, HUD has no say what you do with the property after you have the purchase closing (the A to B transaction). Then, you immediately resell to a new buyer in a sale closing (the B to C transaction).