I wanted to share a situation that happened to my family. It just doesn't make sense for the government to apply the "arms length transaction" rule in this situation. Feedback and insight is welcome.
My grandmother and grandfather had their first home built in 1971 in Phoenix. They lived in this home until the day they both died.
My grandfather passed first and then my grandmother lived for a while after him. Her health began to deteriorate and she could no longer work. She had a very small balance left on the mortgage. I think it was around $20k. But, because of her situation, she decided to get a reverse mortgage loan. She had done it without the feedback from family. She felt like it was her only option. But, the interest rate is really high and the balance quickly grew.
The Reverse Mortgage was giving her a few hundred dollars a month and she had social security coming in also. But, was still on a very fixed income.
After she passed away, my aunt wanted to buy the home as a short sale. She would be a first-time homeowner and has a great job, down payment money, etc.. But, due to the "arms length transaction" rule, the bank would not allow the home to be purchased at market value. They said she could purchase the home for the full balance of $240k. Well, the home is only worth about $40-60k in today's market. The reverse mortgage was done in 1/08 and they had appraised the property around $300k at that time. The home is in South Phoenix and the depreciation in that area is devastating. Well, obviously no bank is going to lend $240k on a home valued in the $40-60k range, so the family is going to lose the home to foreclosure.
It's a very sad time for my dad, uncles and aunt. They grew up in that home. Both their parents passed away in that home.
It makes me sad too. But, being a REALTOR, home is where the heart is. A house is just wood and nails. It's just hard for other people to understand that. Memories are comforting.
At this time, my aunt is trying to pull out all of her retirement and we are hoping to bid at auction for it. I hope we can win it back! Wish us luck!
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