I had the pleasure of speaking to a real estate agent yesterday. She wanted to discuss the reverse mortgage, in particular how it can be used as purchase money after January 1.
The realtor lady showed interest in the purchase program, but before getting needed answers, she decided to go into a long drawn-out story about a person wronged by a reverse mortgage company.
Now, in an effort to put the kibosh on the horrible results of a reverse mortgage going viral and thus wrecking my business, I need you to keep reading past the next few paragraphs. You might stop reading and tell your friends about this horror. And they might believe you.
The real estate agent had a friend, who had a friend, who had a father (Strange how rumours get started) who obtained a reverse mortgage on his home. The father passed away and the house willed to the FOAFOAR (which is much easier than saying Friend Of A Friend Of A Real estate agent)
As it turned out the home had negative equity. The loan balance exceeded the value of the home. It’s a rare thing, but can happen in reverse mortgage world. At death the mortgage company required repayment of the entire loan.
To repay the reverse mortgage lender the FOAROAR sold the property and had to come out of saving an addition 40 thousand dollars to cover the deficiency.
Now, I have doubts about the validity of this story. I have doubts about any story told through a chain of three people, but look…. HUD prohibits mortgage companies from doing what the FOAROAR said it did. The term is “non-recourse”. It means a mortgage company cannot come after the borrower or heirs for a deficiency.
If a deficiency exists at the time of repayment of the reverse mortgage, either the borrower or heirs go through the same drill.
The home will be sold at a fair market value. The lender knows this because it requires the borrower or family to hire a licensed realtor to list and sell the home. When the house finally transfers to the new owner, the lender is repaid the price minus closing costs to sell the home.
HUD makes the rules and the lender is entitled only to these proceeds from the sale of the home. If the loan balance exceeds the net proceeds, it’s tough cookies for the lender. They have to write it off and go on their merry way.
Enough myths exist about the reverse mortgage to fill a book. I thought this example a good one because it does come up a lot. If deciding whether a reverse mortgage is right for you, make sure you get professional advice, rather than chatting with the guy at the coffee shop who “knows someone who knows someone”.
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