SFR prospect has reverse mortgage and is vacant

6 Replies

Heres the story on this one. Driving for dollars I find a vacant house and use assessors site to get owners name. Neighbor across street tells me the lady passed away about a year back. With my new people finder subscription I'm able to get her son's phone # and so I call him up and he tells me that she had a reverse mortgage on it and it should be up for auction in the future. I really didn't know what to say to that? The assessors site still shows her as the owner and C/O owners name as the owners mailing address. My Q's are these:       How does a reverse mortgage work?                                                                                      Is it possible with cooperation from the estate (son and whoever) to pay back what the owner received on the rev mortgage and get clear title on the property?                                       If so, how should I approach the son and what would he need to do?                                         All inputs would be much appreciated!

A RM lender gives money to an owner, either all at once and/or monthly.  It is due upon the owner's death, among other events.  There likely is no equity which is why the heirs are doing nothing.  The lender will foreclose.  To do a short sale, the heirs wold have to cooperate, and the bank will accept no less than 95% of appraisal, since they areFHA insured. 

Check the balance on the reverse mortgage. Likely the property is upside down, as are most properties with RMs made during the Bubble. RMs are federally insured and there are rules about payoffs. An RM property can be short saled, but the lender can't accept any less than 95% of FMV.

Even if the property has equity, then there is the title challenge.  If the property is in the name of the decedent, and not in a trust, the son has no power to sell the property.  A probate action would be required, giving the heirs or whomever was named in the will powers to sell the real property.  Lenders don't typically loan to trusts, so RM borrowers often take their properties out of established trusts to get the loan.  And then never put them back.  

So, is there equity?  Is the property in a trust and/or does anyone have court ordered powers to sell the property?

Have I discouraged you yet?  :)

Your situation sounds grim. Owner passed away, the RM continues to churn out interest debt, and no one has the title without a court order. Even if you find out the house has some equity AFTER all the hard work, that remaining equity may be subject to state death taxes. The worse thing that can happen is your efforts lead probate to actually start on this thing and the equity is gone. Keep poking though, best case is I am wrong and there is lots of equity.

Originally posted by @Anthony Giannette:

Your situation sounds grim. Owner passed away, the RM continues to churn out interest debt, and no one has the title without a court order. Even if you find out the house has some equity AFTER all the hard work, that remaining equity may be subject to state death taxes. The worse thing that can happen is your efforts lead probate to actually start on this thing and the equity is gone. Keep poking though, best case is I am wrong and there is lots of equity.

Every once in awhile there is equity.  Another investor contacted me recently to consult about a property with an RM where the lender had initiated foreclosure but there is lots of equity.  And one known heir that he can possibly work with.  Still requires a probate action and you have to be careful with that when there is the possibility of Medicaid debt. Someone has to bring cash forward to stop the sale.  RMs are due and payable in full after the death of the borrower, so it's not like you can reinstate.

At this point, for me, I'd not work an RM lead unless the property was in a trust with an identified and easy to locate successor trustee, or unless there was A LOT of equity. 

Wow. This is my first post and I thank you for all of your insights and knowledge and your willingness to share it with me! Thank you so much.

@Steve Gregory  

The date the RM was recorded, and the FMV are the critical data. I work RM's as a lender also, so I can guess the current balance very closely. I will check the record for you, if you desire.

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