What You Need To Know: Buying A Foreclosed Reverse Mortgage Home

Real Estate Agent with United Real Estate TX #0552717

My very first transaction as a REALTOR involved a reverse mortgage and I've hated them ever since. This is my most recent experience and it has done nothing to change my opinion.Foreclosure

A buyer client asked to see a foreclosure. He is an investor, but claimed he wanted to purchase the home to fix up and live in. I had previously shown the property to another buyer who didn't take more than one step inside before retreating. I prepared him for the condition and he didn't seem too perturbed upon seeing (and smelling) the house. Someone had died inside and had not been discovered right away.

In the "Private Remarks" section of the MLS listing were the words "See virtual tour and URL's icon for more information on 24 CFR 206.125." We knew it was a foreclosure because the Seller Type was listed as Lender/REO. But this 24 CFR 206.125 was a new wrinkle.

Here's what it means: the owner of the property had a reverse mortgage and the note was in default due to the mortgagor's death, failure to pay taxes, or both. 

This complicates things more than with a normal, plain vanilla foreclosure. HUD has regulations which control the terms for the acquisition and sale of these types of properties, and the seller has restrictions and obligations for the sale of the property.

I drew up a full price offer, including multiple extra documents required by the bank, submitted them, and waited. We were eventually notified of a multiple offer situation, so the client added another $1,500 to the offer and we waited again. Finally, we were told the bank had accepted the offer.

With a 24 CFR 206.125 property, the seller obtains a HUD appraisal and the sales price must be at least the appraised value or more. There is NO negotiating on price. An inspection period is allowed, but the seller will not make any repairs (unless required by local law) and, again, will not negotiate the price. There is an appeals process, but the buyer must first pay for an inspection and obtain the written inspection report and/or written reports by professional roofers, licensed plumbers, licensed electricians, etc. The process can take many, many months to appeal.

My client wanted an inspection.  The seller does not turn on the utilities. The listing agent does not turn on the utilities. The buyer's agent must get the utilities on in their own name, not the name of the buyer. This is not fun.

So, after the utilities were on,  the buyer had an inspection done, had roofers out, had a foundation company check the foundation. He didn't like the results. He wanted a price reduction. The seller said no.

Then the client asked me to run a search for all properties that had 1) sold in the past year and a half with the 24 CFR 206.125 notation, 2) that had been on the market for at least 31 days, and 3) where the sales price was less than the list price.  Of the 125 properties that sold as reverse mortgage foreclosures in our North Texas MLS, only two sold at less than list price. One had been on the market for 170 days, the other for 240 days. The property my client had under contract was listed for less than 75 days.

In email conversations with the listing agent, she told me that there were still many months left before the HUD appraisal expires, and that the number of days before the property will be reassessd is not the days on market in MLS, but the number of days of marketable title. 

My client was given two choices: continue with the purchase of the property or terminate.  He terminated.

This is a cautionary tale for those wishing to purchase a foreclosed reverse mortgage property. The next time I see "property subject to 24 CFR 206.125" I'm going to suggest that my client reconsiders and finds another property.

Reverse mortgages are sometimes known as Home Equity Conversion Mortgages (HECM).





Posted by

Lorrie Semler, e-PRO, GRI, SRES, CPRES, CRS
Addison Resident/Addison Specialist                                                      Subscribe Button
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Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

I know the sale of homes with reverse mortgages that have been foreclosed upon can be difficult.  I had one two doors from my own home a few years back. It took a good year, just to get the service company to kick into gear, and determine the owner was no longer occupying.  She was in nursing home, where she ultimately died.  It finally did sell, however, and we have good neighbors once again.

Apr 10, 2015 12:12 PM #1
Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Hun... - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

Lorrie, anything to do with a reverse mortgage sounds labor intensive. I've only done one reverse mortgage and have not yet worked with sale of a reverse mortgage foreclosure...I think I'll keep my distance!

Apr 12, 2015 06:14 AM #2
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

Lorrie, thank you for the head's up on reverse mortgages.  I will not forget  "24 CFR 206.125!"  Thank goodness the two reverse mortgage seller transactions I have completed were not foreclosures!

Apr 12, 2015 09:34 AM #3
Richard Woodward NMLS#217454
Service First Mortgage, NMLS #166487 - Dallas, TX
Service Beyond Expectations! Your Texas Lender

I hate it Lorrie Semler, REALTOR® in the Dallas area. Call/text 972-416-3417  that you had a bad experience with this transaction.  Reverse Mortgage foreclosures are rare in Texas and with property values increasing rapidly, I'm sure the likelihood of seeing one any time soon is low.  With that said, thank you for sharing the 24 CFR 206.125 code.  This gives other less experienced agent the insight to prepare thier buyers for the possible pitfalls. 

Apr 15, 2015 01:28 AM #4
Lorrie Semler, REALTOR® in the Dallas area. Call/text 972-416-3417
United Real Estate - Addison, TX
Real Service. Real Results. Real Estate

Richard Woodward NMLS#217454 I found 125 that sold since the beginning of last year in our MLS. I'm not sure if that's rare or not, but I do hope that I never run across one again. Because the utilities had to be turned on in MY name, I'm trying to collect from the buyer. I had him sign an amendment to the Buyer Representation Agreement stating that he would be responsible, but until I have that check in my hot little hands, I'm technically still not done with this transaction.

Apr 15, 2015 01:33 AM #5
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Lorrie Semler, REALTOR® in the Dallas area. Call/text 972-416-3417

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