Discover what a real estate investor needs to know about reverse mortgage investing as well as how to approach a real estate seller that has a reverse mortgage on their home.
Getting the Payoff
The amount a seller owes on their property when a reverse mortgage is involved may complicate certain things, such as how much they owe on their property. If you are worried that the seller does not know how much they owe on their property, it is not always a bad sign. Reverse mortgages change the answers some of the questions you may ask a seller about their property and finances.
Let's look at 3 different way a reverse mortgage can play out.
50-65% Loan-to-Value (LTV)
Loan-to-value ratio is the total loan amount that you will potentially be able to receive based on a number of factors such as age.
This can be paid out in one of three ways:
- Lump Sum
- Monthly Installment
- Line of Credit (LOC)
Interest Rates
The interest rates for a reverse mortgage are usually higher because you are lent money based on the property value, not your ability to get a loan. The borrower is not making a payment each month, so the interest rate is accumulating on top of the loan amount. This explains why a seller may not always know how much the payoff will amount to. For the seller, they are only concerned with how much money will go into their pocket.
Reverse Mortgage Payoff Difficulties
I have experienced a lot of difficulty with reverse mortgage companies regarding borrowers requesting payoffs. I have had to get attorney's involved to force these companies to release the payoff for a seller.
Unfortunately, these companies will not approve the payoff until the borrower passes away, as there is a 6 month deadline thereafter.
I recommend some of these prepaid legal services to guide you with your reverse mortgage:
Reverse Mortgage Timeline
As long as the borrower is able to keep up with taxes and insurance, the lender is not going to foreclosure until after the person moves out or passes away. For many older owners who are unable to keep up with the insurance and tax payments, they will be foreclosed upon by the reverse mortgage companies.
Typically it is 6 months from the passing or move-out that they are required to sell. This gives them 12 months in total to get everything in order and sell. While this may seem like plenty of time, it is not. A Probate is often performed when a person is about to pass so they can get their assets in order, such as who will have rightful ownership to their property.
Subject To in Reverse Mortgage
If you are planning on a Subject To in your reverse mortgage, keep it short term. Be quick when choosing this path. I always recommend getting in and out within a month after performing the necessary cosmetic fixes, as reverse mortgage companies will foreclose after the 6 month period is over.
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I m in good health and don’t plan to go any where.
My husband was..WWII DISABLED VETERAN. IN 2015 HE HAD PANCREATIC CANCER. MEDICARE AND VA did not pay all his medical bills. We got threats our house would be sold to pay the medical bills. We were advised a reverse mortgage would
Be the best way to save our home
We got a reverse. Mortgage. My husband passed in 2016
Since then the reverse mortgage has consistently tried to steal my home. The present attempt they are using to take my home
Is for $40.60 taxes. In S.C. disabled Vets do not have to pay taxes on their home. I have a letter from the VA whick clearly states, As the Vets spouse I am exempt. I sent the letter from the VA to the reverse mortgage co. They kept saying the letter was never received 2/1/21 I faxed.the letter from a Fed. Express office 🏢 with the VA letter and a paid.receipt from Greenville County showing I paid the taxes. Two weeks ago I get a message from the bank for reverse mortgage that I have
To pay the 40.60 to stop forclosure. I went to the tax office which confirmed I paid the taxes 2/1/2021
I Fed x. both receipts to the bank as requested on Friday two weeks ago
I have called the bank Every time I get the same answer. My.fax.has not been received and did I send and to where. Of course I faxed the documents to the. Information the bank officer gave me. The advise I was given. Send the documents again. Sure while they are trying to STEAL MY HOME
I SAID YOU MEAN YOU WOULD TAKE MY H0USE FOR 40.60? SHE LAUGHED AND SAID. ” WE HAVE TAKEN HOMES FOR A LOT LESS. Less than 10.00. I am a retired paralegal. This reverse mortgage needs to. EXPOSED.
I WELCOME YOUR REPLY AND ADVISE.
I have a different take on this situation:
1) Interest and fees accrue to the point where it is almost impossible to sell, even at retail.
2) If the owners are no longer able to live independently, the property can be turned over to HUD
I know this because my parents had a reverse mortgage (unless things have changed)
Most of what you said I’m sure it’s true and current.
Thanks Phil, you are awesome!
It’s been a while since we had to do a short sale on a reverse mortgage deal thanks to the rapidly rising prices but if values don’t rise (or drop in value) for many years, it is possible to have an upside down reverse mortgage deal. As for a situation whereby a borrower must move out (such as moving into a nursing home), that would trigger the lender to foreclose.