Reverse Mortgage Short Sale

By
Real Estate Agent with Homesmart ~ Scottsdale ~ Tempe

 

 

Reverse Mortgage Short Sale

 

What will happen, when a home owner has a Home Equity Conversion Mortgage (HECM) (aka Reverse Mortgage) and their home is no longer worth what they borrowed?   

 

This client needs to sell their home and they will owe around $200,000.00. 

The home will probably sell for about $70,000. 

 

Has anyone had experience with this? 

 

What do our mortgage folks know about this? 

 

Thanks for your input. 

 

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Keller Williams
Short Sale Specialists & Pre-Foreclosure Education
Keller Williams Arizona
Tags:
arizona real estate
reverse mortgage
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Anonymous
Tobias

I am currently involved in a reverse mortgage on a home that was left to me by my uncle. I live in Philadelphia and helped my uncle get home hospice set up for his house in Maryland, and traveled between Maryland and Philadelphia for the last six months of his life. When he passed in December, I started to prepare the house for sale. This also involves many trips between Philadelphia and DC, time spent away from my family, expenses and the frustration of having to sell a house in this market. Financial Freedom just notified me that they will foreclose on the property and I will end up with nothing in return for the time, effort and money I put into the house to try and salvage a legacy for my family. All the advertisements I see for reverse mortgage tout how beneficial they will be to the heirs. I see no benefit at all in this deal and thought I might be able to salvage it with a short sale. I know I cannot benefit directly from the short sale, but it is very frustrating to see all of my efforts and my personal money and time that I put into this project go down the drain. There doesn't seem to be any help out there for the situation.

Jun 08, 2010 04:09 PM #29
Rainer
213,941
Doreen McPherson
Homesmart ~ Scottsdale ~ Tempe - Tempe, AZ
Phoenix Arizona Real Estate ~

Tobias,

I am sorry to hear of your uncle passing on.  Thank you for sharing your experience here.  I wish I had an answer for you, but I don't.  I do not know much about reverse mortgages, other than they provided a percentage of the equity in the home to the owner, while allowing them to live there with no payment.  It's unfortunate you spent the time and money trying to sell it with nothing in return.  I had no idea they actually foreclosed a reverse mortgage.  I don't think anyone expected the market to do what it has, otherwise reverse mortgages would probably have been handled differently.  Again, I am sorry for your loss and that you had the additional heartache of dealing with the situation with his home.

Jun 13, 2010 08:30 PM #30
Rainer
213,941
Doreen McPherson
Homesmart ~ Scottsdale ~ Tempe - Tempe, AZ
Phoenix Arizona Real Estate ~

Hi Erika,   Thanks for providing this information!  Hope you have a great week.

Jun 23, 2010 08:43 PM #32
Rainer
11,365
Erika Walker
Dyer-Walker Real Estate - San Marcos, CA
"Selling Real Estate with a Touch of Class"

HI Doreen! Your welcome! lol I'm still getting the hang of this active rain. I think I'm going to the camp in San Diego! Good Luck to you!!! :)))

Jul 07, 2010 04:33 AM #33
Rainer
213,941
Doreen McPherson
Homesmart ~ Scottsdale ~ Tempe - Tempe, AZ
Phoenix Arizona Real Estate ~

Hey Erika!  Write a post about camp, so I can come comment on your blog!  :-)

 

Jul 07, 2010 10:28 PM #34
Anonymous
Will

Erika, can you please point me in the right direction regarding your post of June 24th? "Unfortunately, the bank will not allow an arms length transaction. So, immediate family members cannot buy it."

I am researching this exact situation. I have an heir to a client who has a HECM and wants to buy the property back once his father passes. I want to know if the Arms length rules are lender specific or if HUD will allow it.  If the house sells for market value and the deficiiency balance will be collected via an MIP claim, who cares if a family member buys it or if a total stranger buys it. The bank will become whole after the MIP claim anyway.

 

Aug 10, 2010 11:25 AM #35
Anonymous
Erika Dyer
I spoke to someone at the reverse mortgage company for 45 minutes. He said a family member cannot purchase it. It cannot be an arms length transaction. I agree with you 100%, who cares! Unfortunately, after my reading and talking to him, reverse mortgages are to benefit the homeowner and the investor. And once the homeowner has passed, the investor wants his money back period. That's why HUD guarentees 95% of it and there's no short sale transaction. They don't need us. It's set up like a prenuptial agreement! And sucks for family members! If you can find anything different, I'm all ears!!!
Aug 10, 2010 11:38 AM #36
Anonymous
gardner hart
have reverse mtg property value is way down here in fla so would like to sell it to my son what is the process for me on a short sale can i get it appraised then noify the lender and do theyhav to accept the value by appraizer as long as they are locensed by the state thnks im in fla
Oct 07, 2010 05:52 AM #37
Rainer
11,365
Erika Walker
Dyer-Walker Real Estate - San Marcos, CA
"Selling Real Estate with a Touch of Class"

Hi Ms Hart,

Reverse Mortgage Companies unfortunately will not allow an arms length transaction. They specifically work in the best interest of you and the investor. They allow you to reverse the mortgage for income; however, once you pass, they call the note due. If you tell them you want to sell the property; they will order an appraisal, and will request 95% of the appraised value. The remainder of the money needs to be paid by you or the family. They do not pay any additional fees like a normal short sale. Agents, taxes, any shortages. Again the agreement is between you and the investor. I understand the property values have decreased tremendously in Fl, are you wanting to sell for that reason alone? Is the property still paying you?

Oct 07, 2010 06:26 AM #38
Rainer
213,941
Doreen McPherson
Homesmart ~ Scottsdale ~ Tempe - Tempe, AZ
Phoenix Arizona Real Estate ~

m/m Hart,

If you are able to live in your home, I would think the value would not matter.  If you have to move out, it will be sold.  My understanding is you are not liable for the difference in the value.  

As has been mentioned above there are restrictions as to who can buy the home.  

My advice would be to consult with an attorney to make sure you are and stay in a secure financial place.  

Oct 07, 2010 06:06 PM #39
Anonymous
Fernando

Regarding Erika's comment:

#38: "If you tell them you want to sell the property; they will order an appraisal..."

My parents are currently living in Florida with a reverse mortgage balance of $145,000 their house is currently worth about $90,000, lost half the value already. They want to sell it for medical reasons, is is possible to short sell it.

Thanks, Fernando

Dec 18, 2010 01:46 AM #40
Rainer
213,941
Doreen McPherson
Homesmart ~ Scottsdale ~ Tempe - Tempe, AZ
Phoenix Arizona Real Estate ~

Hi Fernando,  I'm going to suggest you seek legal counsel for your parents situation.  You may save all involved much time and energy by checking before you list the home.  

Dec 18, 2010 04:47 PM #41
Rainer
11,365
Erika Walker
Dyer-Walker Real Estate - San Marcos, CA
"Selling Real Estate with a Touch of Class"

Hi Fernando, In addition to what Doreen said, I'd give the mortgage company a call as well and see what they say. However, from my research Reverse Mortgages are between the home owner and the investor, and when the home is sold the investor wants their money back. I don't know of any home sold that was in a reverse mortgage through a short sale. 

Dec 19, 2010 05:26 PM #42
Rainer
213,941
Doreen McPherson
Homesmart ~ Scottsdale ~ Tempe - Tempe, AZ
Phoenix Arizona Real Estate ~

Bottom line, Fernando, get legal advice before you put time, energy and money into the process of selling.  

Dec 20, 2010 04:16 AM #43
Anonymous
Ken Thiemann

I am a Washington State Realtor and I am attempting to close a short sale on a HUD insured reverse mortgage.  We have an otherwise qualified FHA buyer but Bank of America says their interpretation of HUD guidelines prevent them from paying typical, ordinary and customary seller and buyer loan costs.  For instance, despite the fact that nearly all closing in Washington State are handled through an independent 3rd party, an escrow or an attorney, Bank of America says HUD guidelines forbid them from paying a closing settlement or escrow fee.  They justify their decision by claiming that since Washington Law doesn't specifically dictate that closings have to occur through an escrow company or an attorney, they cannot be considered typical, ordinary or customary.  Except for the closing of a FHA repo, in my own 38 years of experience in real estate, I have not had a circumstance where a closing or settlement fee was not paid in some fashion.  In the case of the FHA repo, HUD has a specific closer located in Snohomish, Washington, who is under contract with FHA to handle those closings.      

The bottom line though, our FHA buyer will likely be unable to complete the purchase because, like a majority of FHA buyers in our jurisdiction, the buyer lacks the additional funds, beyond the down payment, to complete the FHA purchase.   Bank of America's contention is, the data we've provided concerning what is typical, ordinary and customary in our jurisdiction has been deemed unsatisfactory.  Yet, Bank of America has been unable to identify for us what exactly would be deemed satisfactory. 

My questions are;

1).  Is there any recourse against Bank of America?   

2).  Is it really the intent of HUD to essentially make it impossible for a FHA buyer to purchase a home where it involves the short sale of a HUD insured reverse mortgage?  In the case mentioned above, due to Bank of America's rigid unrealistic interpretation of the HUD guidelines, that is exactly what is happening.    Is that really what we want?

I would be extremely interesting in a response to our situation and my questions.

Dec 26, 2010 04:47 PM #44
Rainer
213,941
Doreen McPherson
Homesmart ~ Scottsdale ~ Tempe - Tempe, AZ
Phoenix Arizona Real Estate ~

Ken,  I have some opinions that I won't be sharing, but unfortunately, I do not have answers for you.  

My personal advice to clients would be to stay away from these homes until; 1) the home has foreclosed and is for sale for real; 2) wait until they make some real rules for how to handle these sales.  

Otherwise, it's a waste of your time and theirs.  

Dec 26, 2010 06:41 PM #45
Rainer
11,365
Erika Walker
Dyer-Walker Real Estate - San Marcos, CA
"Selling Real Estate with a Touch of Class"
Ken and Will- from my reading and conversation with the reverse mortgage companies. Reverse Mortgages only benefit the owner. The investor gives the money to the owner, when the owner dies, the investor wants their money back- period. They will not allow a family member to buy the property. Period. If you do a short sale, the buyer/ sellers family must pay the cost of doing it. They do not pay for anything. It is a deal between the owner and the investor- no one else. I haven't seen, heard or read anything different.....
Dec 27, 2010 04:18 AM #46
Anonymous
Tony

I have read all of the responses and have not seen reference to what happens to a reverse mortgage principle who is still surviving, but the property value has decreased to below the value of the reverse mortgage value (payments made). Does the investor (Bank, etc) stop payments if the reverse mortgage is a periodic payment and forclose on the property or does the investor continue payment to the full extent of the contract, knowing the property will never recover the investment?

Mar 22, 2011 01:08 PM #47
Anonymous
soldit

Just sold deceased parents house in short sale that had HECM with Financial Freedom. 3 months waiting for deed in lieu with no response and many phone calls,  put house on market and acceptable offer in 3 weeks, received DIL acceptance and short sale acceptance on same day. Had to complete sale due to liability of breech of contract. We closed on house about 3 weeks later. HUD has specific guidelines about closing costs. Sold house for 95% and most closing costs were paid by lender or HUD and realtor commission and property tax. We'll see how IRS plays out with this.   

Mar 25, 2011 05:47 PM #48
Anonymous
cassondra moore

We are trying to buy the house next door I missed the public sell which was not posted on or near the house it was posted in a small newspaper. I found out that no one place a bit on it and the Wells Fargo N.A. as trustee for Riverview was highest bitter in the amount of 45,000 Well, now I know that Riverview HECM 2007-3 is the reverse mortgage. They condition of the house is bad i don't think they came out to look at it.. How can I get in touch with these people to see if they will sale it?

Thank you

Aug 30, 2011 03:24 AM #49
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Doreen McPherson

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