HUD 95% rule for estates (reverse mortgages) and "creating" a deal
Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votesHUD 95% rule for estates (reverse mortgages) and "creating" a deal
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Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes
7moQuote from @Jaron Walling:
I'm looking for advice from other investors who have found success buying distressed properties from an estate. These properties are typically underwater and need a lot work. I've done some due diligence on property that I'm quite familiar with. We lived across the street from the property and know the backstory. Long story short the living heirs have signed a Deed in Lieu of Foreclosure and now the property is stuck in an "estate limbo".
The property has been vacant the last 3 years and court case shows it's in the 6th motion for continuance. That leads me to believe it's nearing the end. I'd think there's motivation to get this estate closed and the property sold before it goes to an auction.
This property could be an opportunity if the HUD appraisal comes in low enough to create a deal. If it goes to the county auction my chances of buying for a good price goes down. If anyone has experience dealing with reverse mortgages, attorney negotiation, or 95% rule for appraisals I'd love to talk about it.
Thanks
15 Replies
- Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes7moDo you know if HUD is still the mortgage holder? If the heirs have signed a deed in Lieu foreclosure then it is no longer part of the estate, therefore, the mortgage holder should be able to sell it. The 95% is only applicable if the heirs plan on redeeming the property or selling it in a short sale.
Quote from @Jaron Walling:
I'm looking for advice from other investors who have found success buying distressed properties from an estate. These properties are typically underwater and need a lot work. I've done some due diligence on property that I'm quite familiar with. We lived across the street from the property and know the backstory. Long story short the living heirs have signed a Deed in Lieu of Foreclosure and now the property is stuck in an "estate limbo".
The property has been vacant the last 3 years and court case shows it's in the 6th motion for continuance. That leads me to believe it's nearing the end. I'd think there's motivation to get this estate closed and the property sold before it goes to an auction.
This property could be an opportunity if the HUD appraisal comes in low enough to create a deal. If it goes to the county auction my chances of buying for a good price goes down. If anyone has experience dealing with reverse mortgages, attorney negotiation, or 95% rule for appraisals I'd love to talk about it.
Thanks
- Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes7mo
@Chad U. I'm almost certain HUD is the mortgage holder. I haven't reached out to the attorney yet but I have his contact information. The property needs a lot of work and with no equity none of the heirs wanted to touch it. It's across the street from my formal primary (now rental) and we want to create a solution for this property. This could take months but it's perfect for our situation.
If an appraisal has been completed by HUD is it too late to order another that justifies a lower value? That's the angle a 3rd party buyer needs to get a realistic price following the 95% rule? Maybe I'm misunderstanding the rule. If it's been appraised for 15% below market already it's a terrible deal. We wouldn't touch it unless it's 30-40% below market. From the outside it needs $20k of work. Haven't seen the inside or but we know it's outdated.
- Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes7mo
Quote from @Jaron Walling:
@Chad U. I'm almost certain HUD is the mortgage holder. I haven't reached out to the attorney yet but I have his contact information. The property needs a lot of work and with no equity none of the heirs wanted to touch it. It's across the street from my formal primary (now rental) and we want to create a solution for this property. This could take months but it's perfect for our situation.
If an appraisal has been completed by HUD is it too late to order another that justifies a lower value? That's the angle a 3rd party buyer needs to get a realistic price following the 95% rule? Maybe I'm misunderstanding the rule. If it's been appraised for 15% below market already it's a terrible deal. We wouldn't touch it unless it's 30-40% below market. From the outside it needs $20k of work. Haven't seen the inside or but we know it's outdated.
The 95% rule is only applicable for short sales or if the heirs wish to purchase. If HUD, or whomever the mortgage holder is has taking it back via DIL then they will just list it for sale at whatever market price they feel is appropriate. They might start off with the appraisal price.. However, it might be subject to first look initiative for 30 days, meaning the buyer intends to take occupancy. I have bought several of these through HUD over the years and I can assure you that it will need a Lot more than $20,000 worth of repairs.
- Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes7mo
Quote from @Chad U.:
Quote from @Jaron Walling:
@Chad U. I'm almost certain HUD is the mortgage holder. I haven't reached out to the attorney yet but I have his contact information. The property needs a lot of work and with no equity none of the heirs wanted to touch it. It's across the street from my formal primary (now rental) and we want to create a solution for this property. This could take months but it's perfect for our situation.
If an appraisal has been completed by HUD is it too late to order another that justifies a lower value? That's the angle a 3rd party buyer needs to get a realistic price following the 95% rule? Maybe I'm misunderstanding the rule. If it's been appraised for 15% below market already it's a terrible deal. We wouldn't touch it unless it's 30-40% below market. From the outside it needs $20k of work. Haven't seen the inside or but we know it's outdated.
The 95% rule is only applicable for short sales or if the heirs wish to purchase. If HUD, or whomever the mortgage holder is has taking it back via DIL then they will just list it for sale at whatever market price they feel is appropriate. They might start off with the appraisal price.. However, it might be subject to first look initiative for 30 days, meaning the buyer intends to take occupancy. I have bought several of these through HUD over the years and I can assure you that it will need a Lot more than $20,000 worth of repairs.
I should have said the exterior alone needs $20k in repairs. It's been vacant for 3 years. It's the ugly house on the street. So it's a waste of time to contact the attorney in an attempt to make a cash offer? If the former owner's debt was $160k (we don't know), but the ARV is $185k why would anyone buy it? The bank would have to list low (like $100k) to get any interest which is where our offer would be anyways.
Considering we know so much about it I hate to wait around, let it hit the market, and then have to compete with other investors. I'd rather negotiate an off market deal in as-is condition.
- Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes7moUnfortunately, HUD's policy is getting FMV for their REO's which means listing it for sale for the general public to put offers on. If that means starting with an asking price that is out of touch with reality, then it'll sit longer.
Quote from @Jaron Walling:
Quote from @Chad U.:
Quote from @Jaron Walling:
@Chad U. I'm almost certain HUD is the mortgage holder. I haven't reached out to the attorney yet but I have his contact information. The property needs a lot of work and with no equity none of the heirs wanted to touch it. It's across the street from my formal primary (now rental) and we want to create a solution for this property. This could take months but it's perfect for our situation.
If an appraisal has been completed by HUD is it too late to order another that justifies a lower value? That's the angle a 3rd party buyer needs to get a realistic price following the 95% rule? Maybe I'm misunderstanding the rule. If it's been appraised for 15% below market already it's a terrible deal. We wouldn't touch it unless it's 30-40% below market. From the outside it needs $20k of work. Haven't seen the inside or but we know it's outdated.
The 95% rule is only applicable for short sales or if the heirs wish to purchase. If HUD, or whomever the mortgage holder is has taking it back via DIL then they will just list it for sale at whatever market price they feel is appropriate. They might start off with the appraisal price.. However, it might be subject to first look initiative for 30 days, meaning the buyer intends to take occupancy. I have bought several of these through HUD over the years and I can assure you that it will need a Lot more than $20,000 worth of repairs.
I should have said the exterior alone needs $20k in repairs. It's been vacant for 3 years. It's the ugly house on the street. So it's a waste of time to contact the attorney in an attempt to make a cash offer? If the former owner's debt was $160k (we don't know), but the ARV is $185k why would anyone buy it? The bank would have to list low (like $100k) to get any interest which is where our offer would be anyways.
Considering we know so much about it I hate to wait around, let it hit the market, and then have to compete with other investors. I'd rather negotiate an off market deal in as-is condition.
However, I'd do some digging and find out if there was indeed a DIL signed over, and whether HUD is on title. HUD has been selling HECM's off by the 1000's the past couple years, so chances are they do not own it, and it was likely sold and assigned to another investor. If it's another 3rd party investor, they did get a DIL (instead of foreclosing) then they might be willing to negotiate a deal if you reach out to them directly. I have sold a few this way without the property going to market. - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes7mo
@Chad U. Does a new executive order impact this at all? As you know they canceled the last reverse mortgage sale from what I heard was the executive order about trying to push to have these properties sold to individual individuals and not entities
7e investments53 Reviews - Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes7moYes HUD has really been pushing the First Look Initiative which is ridiculous as most of these HECMs are uninhabitable, so the majority of owner occupants will not make offers. It only prolongs the sale process.
Quote from @Chris Seveney:
@Chad U. Does a new executive order impact this at all? As you know they canceled the last reverse mortgage sale from what I heard was the executive order about trying to push to have these properties sold to individual individuals and not entities
- Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes7mo
@Chad U. Update; after further digging I found no DIL was signed over. The heir still technically owns the property and she's actively delaying the foreclosure process which explains why the property has been vacant for so long. The attorney has filed 6 enlargements of time. Something is holding up the process and I surmise it's medical debt or taxes on top of the reverse mortgage. That's only speculation as I haven't spoken to the attorney or heir.
Reverse mortgages are terrible. The mortgage debt was $166k but that was 3 years ago. It's likely collecting interest. Factor in whatever lien is holding up the foreclosure and it's not a great situation for the heirs. I feel sorry for the family.
- Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes7mo
Quote from @Jaron Walling:
@Chad U. Update; after further digging I found no DIL was signed over. The heir still technically owns the property and she's actively delaying the foreclosure process which explains why the property has been vacant for so long. The attorney has filed 6 enlargements of time. Something is holding up the process and I surmise it's medical debt or taxes on top of the reverse mortgage. That's only speculation as I haven't spoken to the attorney or heir.
Reverse mortgages are terrible. The mortgage debt was $166k but that was 3 years ago. It's likely collecting interest. Factor in whatever lien is holding up the foreclosure and it's not a great situation for the heirs. I feel sorry for the family.
If the heirs still own it, but probate is done, you can attempt to buy it as a short sale. HUD will order an appraisal of the home as part of that process, and you can buy it at 95% of that. If no appraisal has yet been done, I would take my chances to move forward and see how it comes in. If it does not come low enough for you, the heirs could still sell it on market.
- Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes7mo
Quote from @Minna Reid:
Quote from @Jaron Walling:
@Chad U. Update; after further digging I found no DIL was signed over. The heir still technically owns the property and she's actively delaying the foreclosure process which explains why the property has been vacant for so long. The attorney has filed 6 enlargements of time. Something is holding up the process and I surmise it's medical debt or taxes on top of the reverse mortgage. That's only speculation as I haven't spoken to the attorney or heir.
Reverse mortgages are terrible. The mortgage debt was $166k but that was 3 years ago. It's likely collecting interest. Factor in whatever lien is holding up the foreclosure and it's not a great situation for the heirs. I feel sorry for the family.
If the heirs still own it, but probate is done, you can attempt to buy it as a short sale. HUD will order an appraisal of the home as part of that process, and you can buy it at 95% of that. If no appraisal has yet been done, I would take my chances to move forward and see how it comes in. If it does not come low enough for you, the heirs could still sell it on market.
Minna, thank you for the response. That's exactly what I read online. The deceased neighbor was really nice to me during a stressful period in my life. I bought my first house and was living alone. We're in a position now where we could help the heirs. Financially the property is completely underwater. If we could offer $X,XXX for relocation assistance it could put money in there pockets. It's better than nothing.
- Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes7moI often see Medicaid liens in the $10K's and sometimes over $100K. If this is the case then a short sale is not possible, and foreclosure is the only option to wipe this. The heir could have also declared Bankruptcy so this would hold up the foreclosure process.
Quote from @Jaron Walling:
@Chad U. Update; after further digging I found no DIL was signed over. The heir still technically owns the property and she's actively delaying the foreclosure process which explains why the property has been vacant for so long. The attorney has filed 6 enlargements of time. Something is holding up the process and I surmise it's medical debt or taxes on top of the reverse mortgage. That's only speculation as I haven't spoken to the attorney or heir.
Reverse mortgages are terrible. The mortgage debt was $166k but that was 3 years ago. It's likely collecting interest. Factor in whatever lien is holding up the foreclosure and it's not a great situation for the heirs. I feel sorry for the family.
- Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes7mo
Quote from @Chad U.:
I often see Medicaid liens in the $10K's and sometimes over $100K. If this is the case then a short sale is not possible, and foreclosure is the only option to wipe this. The heir could have also declared Bankruptcy so this would hold up the foreclosure process.Quote from @Jaron Walling:
@Chad U. Update; after further digging I found no DIL was signed over. The heir still technically owns the property and she's actively delaying the foreclosure process which explains why the property has been vacant for so long. The attorney has filed 6 enlargements of time. Something is holding up the process and I surmise it's medical debt or taxes on top of the reverse mortgage. That's only speculation as I haven't spoken to the attorney or heir.
Reverse mortgages are terrible. The mortgage debt was $166k but that was 3 years ago. It's likely collecting interest. Factor in whatever lien is holding up the foreclosure and it's not a great situation for the heirs. I feel sorry for the family.
Medical debt is such a disastrous issue in this country.
I want thank you guys @Chad U. and @Minna Reid to commenting on this post. It lead me down a rabbit hole of knowledge on how to approach these types of deals. Why it matters, who benefits, and how to help a troubled estate. There's moving parts with the HUD but it's somewhat straight forward if the heirs are motivated to make difficult decisions.
I'm reading about Indiana legislation (HB 1050/SB 85) that provides strong protections for a person's primary residence against medical debt. This is a significant shift for 2026. It's was voted on once and passed but it's not gone through the house or something.
"Provides that: (1) health care debt owed or alleged to be owed by a consumer; or (2) in an action against a consumer in which a judgment has been entered, the amount of the judgment that represents health care debt determined to be owed by the consumer; does not constitute a lien against the consumer's principal residence for a consumer."
This legislation only helps investors pursue deals like this.
- Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes7moThis is interesting, and starting to see this more and more, and it just triggered my memory of a similar scenario. On one of our NPL's with a deceased borrower (not a HECM, but still relevant) there was a $50K+ medicaid lien which wasn't a concern to us as we were foreclosing anyway. However, the heir declared BK right before the Sheriff Sale, which left me puzzled as the property is in Akron, OH and not likely not even worth that much. Thye included the Medicaid lien in their proposed plan. Of course this delayed the process far longer than anticipated, but turns out the Medicaid lien was crammed down, and he is only responsible for a fraction of the original amount.
Quote from @Jaron Walling:
Quote from @Chad U.:
I often see Medicaid liens in the $10K's and sometimes over $100K. If this is the case then a short sale is not possible, and foreclosure is the only option to wipe this. The heir could have also declared Bankruptcy so this would hold up the foreclosure process.Quote from @Jaron Walling:
@Chad U. Update; after further digging I found no DIL was signed over. The heir still technically owns the property and she's actively delaying the foreclosure process which explains why the property has been vacant for so long. The attorney has filed 6 enlargements of time. Something is holding up the process and I surmise it's medical debt or taxes on top of the reverse mortgage. That's only speculation as I haven't spoken to the attorney or heir.
Reverse mortgages are terrible. The mortgage debt was $166k but that was 3 years ago. It's likely collecting interest. Factor in whatever lien is holding up the foreclosure and it's not a great situation for the heirs. I feel sorry for the family.
Medical debt is such a disastrous issue in this country.
I want thank you guys @Chad U. and @Minna Reid to commenting on this post. It lead me down a rabbit hole of knowledge on how to approach these types of deals. Why it matters, who benefits, and how to help a troubled estate. There's moving parts with the HUD but it's somewhat straight forward if the heirs are motivated to make difficult decisions.
I'm reading about Indiana legislation (HB 1050/SB 85) that provides strong protections for a person's primary residence against medical debt. This is a significant shift for 2026. It's was voted on once and passed but it's not gone through the house or something.
"Provides that: (1) health care debt owed or alleged to be owed by a consumer; or (2) in an action against a consumer in which a judgment has been entered, the amount of the judgment that represents health care debt determined to be owed by the consumer; does not constitute a lien against the consumer's principal residence for a consumer."
This legislation only helps investors pursue deals like this.
Other ways property owners skirt around getting a Medicaid lien I see, the ill owner of the property deeds it to their spouse prior to incurring any medical bills, then take out a HECM in that spouses name.
- Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes7mo
They actually allow relo assistance within the short sale. You wont be able to give more, at least not if it's going on the HUD.
They just redid all the guidelines so I cant remember the new amount but I believe it was 1500-3000 for owner occ. Was $7500 for a little bit. They also allow another 11% to go towards costs of sale, including Realtors, if you don't want to get involved in doing any of the work yourself. Even some probate costs may be covered - but there's some rules around that.
- Realtor · OH · Member since 2026 · 122 posts · 77 votes7mo
Jaron — you're in a tricky but promising spot. With the reverse mortgage and estate involved, patience and precise numbers are key. The HUD "95% rule" lets you structure an offer around 95% of the appraised value on distressed properties. For example, if HUD appraises at $150k, your realistic target is ~$142–143k, depending on the reverse mortgage payoff.
Since the property’s been vacant 3 years and is in the 6th continuance, the heirs/executor are likely motivated to sell quickly. Your advantage is negotiating before it hits auction. Verify the exact reverse mortgage payoff, work with an Indiana estate attorney, and have a rehab plan ready.
If HUD appraises low enough, a direct deal with the estate can be faster and safer than waiting for auction, giving you a solid margin.
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