Divorce Equity Buyouts - Using A Reverse Mortgage

By
Mortgage and Lending with AmeriFirst Financial Inc, San Diego, CA NMLS 259027

Divorce is an unfortunate occurrence, yet it has become common in our culture.  Among the most prominent demographics to experience divorce are senior citizens.  There are even nicknames such as "Gray Divorce" and "Silver Splitters" to describe the dissolution of marriages amongst this population. 

Did you know that a Reverse Mortgage may be a perfect solution to help Divorcing Seniors who are seeking an Equity Buyout?  Below is a sample case study of a divorcing couple we recently assisted:

Husband (70 years old) & Wife (67 years old) decided to get divorced.  The marital home ("Property A") was owned free & clear (there was no mortgage balance left against this property) and had a present market value of $400,000. 

The goal was for the wife to retain ownership & occupancy of "Property A" and allow husband to pursue a new home for himself ("Property B").  As both spouses were retired and now on a fixed income, their goal was to have the smallest mortgage payments possible for each of their respective homes. 

In this particular case, a Reverse Mortgage Equity Buyout was the perfect solution.  The wife was able to access $200,000 from "Property A" via a Reverse Mortgage to allow the husband to cash-out his share of the $400,000 equity without the need to make a monthly payment on the $200,000 she borrowed. 

The husband was able to use the $200,000 he received via the Reverse Mortgage Equity Buyout on "Property A" to purchase his new "Property B" while utilizing a Reverse Mortgage Purchase Loan.  Ironically enough, the purchase price for his new "Property B" home was $400,000.  He took the $200,000 he received from the Reverse Mortgage Equity Buyout on "Property A" and applied it as a down payment.  The remaining $200,000 was acquired via a Reverse Mortgage Purchase Loan with no monthly mortgage payments due.  When all the smoke cleared, both parties had their respective homes, while equally divvying up the equity in the marital home, and each ended up with no mortgage payments to make moving forward.

Qualification calculations for Reverse Mortgages hinge on many factors (one of them being the age of the youngest Borrower).  Reverse Mortgages may not always be the best solution for any given situation (divorce or otherwise). The purpose of this article is to account for the fact that Reverse Mortgages may very well be the best solution for Senior Citizens pursuing a Divorce Equity Buyout.

In conclusion, we’ve all heard nightmare stories of what can happen when someone gets advice from the wrong person.  In a divorce equity buyout, the stakes can be high.  There are specialized professionals in both the Mortgage and Real Estate industries who have acquired knowledge specific to help with these dynamics.  During this significant transition in life, I highly recommend consulting a Certified Divorce Lending Professional (CDLP) for any residential mortgage questions, and a Certified Divorce Real Estate Expert (CDRE) for any residential real estate questions.

Comments (8)

Anna Banana Kruchten CRS, Phoenix Broker
HomeSmart Real Estate BR030809000 - Phoenix, AZ
602-380-4886

Jason in our market many people have been using reverse mortgages for several reasons and your explantion for those divorcing is excellent.  Thank you for this great and easy to understand tutorial.

Dec 03, 2021 08:38 PM
Jason E. Gordon

Thank you for your feedback Anna Banana Kruchten CRS, Phoenix Broker (much appreciated)!

Dec 08, 2021 03:40 PM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good morning Jason E. Gordon ,

What an excellent explanation of a good use of utilizing the reverse mortgage. It was easy to understand and you are right using the right specialized professionals makes all the difference in these transitions in life.

Dec 04, 2021 04:30 AM
Jason E. Gordon

I appreciate the feedback Dorie Dillard Austin TX 


Most industry professionals are not aware of the underwriting & logistical nuances present amidst a divorce...definitely a good idea to get these cases in the hands of specialists!

Dec 08, 2021 03:42 PM
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, eXp Realty - Kalispell, MT
Helping your Montana dreams take root

That's a perfect use of the reverse mortgage and in this case worked out quite equitably.

Dec 04, 2021 05:14 AM
Jason E. Gordon

Absolutely Kat Palmiotti (thank you for your comment). This particular scenario worked out about as fair, equitable and in alignment with the goals of both divorcing parties.

Dec 08, 2021 03:43 PM
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hello Jason - divorce is an unfortunate part of life in our culture but this is the first time I recall hearing of a reverse mortgage as a solution.  Interesting.   Knowing the right professionals can lead to increased knowledge.  

Dec 04, 2021 05:49 AM
Jason E. Gordon

Thanks Michael Jacobs 


A Reverse Mortgage is another tool in the toolbox that can work perfectly in certain situations

Dec 08, 2021 03:43 PM
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

Thanks for the information, hadn't thought about a reverse mortgage for a divorce situation. Makes good sense. 

Dec 04, 2021 07:47 AM
Jason E. Gordon

Anytime Debb Janes EcoBroker and Bernie Stea JD, I appreciate your comments

Dec 08, 2021 03:44 PM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello and Thank You for the interesting blog to share with us here in the Rain.  Make it a good day!

 

Dec 04, 2021 09:20 AM
Jason E. Gordon

Thanks Will Hamm (you too)!

Dec 08, 2021 03:45 PM
Mike McCann - Nebraska Farm Land Broker
Mike McCann - Broker, Mach1 Realty Farmland Broker-Auctioneer Serving Rural Nebraska - Kearney, NE
Farm Land For Sale 308-627-3700 or 800-241-3940

In all the years of reverse mortgages...this is the first time I have read an article that made sense to use one.  I wonder what the interest rate was and the length of the loan? 

Dec 08, 2021 06:23 AM
Jason E. Gordon

Thank you for your comment Mike McCann - Nebraska Farm Land Broker 


Most often, you will find that Reverse Mortgage clients opt for the adjustable rate feature and keep the loan until the last borrower permanently vacates the subject property. It's always best to know the specific logistics & goals in order to determine the best course of action.

Dec 08, 2021 03:47 PM
Dorte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Jason,

What happens, if the owners use up all their equity and the market takes a breather? What is the maximum age they should expect to live to before possibly being kicked out?

Dec 08, 2021 08:51 PM
Jason E. Gordon

Hello Dorte Engel, thank you for your question. Borrowers are never "kicked out" of their home for equity reasons, which is one of the best features of the HECM Reverse Mortgage program.

Dec 10, 2021 09:53 AM