Reverse mortgage default

[pamrs]

I am in Texas.

Despite my warning not to do so, my mother and her deceased husband -- neither of which was competent to evaluate any contract -- got a reverse mortgage in April (on the 2 story condo in which my mother had already fallen down the stairs once. Oh, well.)

The appraised value of the property was $110,000, but compared to other units selling for $95,000, realtors have told me it is worth $75,000 because it is in terrible condition. The amortization schedule assumes a ridiculous appreciation rate of 8%, since property values never went up anywhere near that much and are currently dropping precipitously .

They got $63,000 out of the house, netted $20,000 after paying off the $35,000 mortgage and $7000 closing costs. However, the amortizaton schedule says their beginning balance is $70,000 and at the end of one year will be $75,000.

Paying a realtor to sell the home would mean a net loss. What happens if she defaults on the loan, as she will not be able to take the financial hit of selling?

Isn't there something wrong with assuming an 8% appreciation rate when there is nothing to substantiate it?

Thanks,

Pam

 

[seniorjudge]

I am in Texas.

Despite my warning not to do so, my mother and her deceased husband -- neither of which was competent to evaluate any contract -- got a reverse mortgage this year (on the 2 story condo in which my mother had already fallen down the stairs once. Oh, well.)

The appraised value of the property was $110,000, but compared to other units selling for $95,000, realtors have told me it is worth $75,000 because it is in terrible condition. The amortization schedule assumes a ridiculous appreciate rate of 8%. They got $63,000 out of the house, netted $20,000 after paying off the $35,000 mortgage and $7000 closing costs. However, the amortizaton schedule says their beginning balance is $70,000 and at the end of one year will be $75,000.

Paying a realtor to sell the home would mean a net loss. What happens if she defaults on the loan?

Isn't there something wrong with assuming an 8% appreciation rate when condos in the complex keep dropping their prices and stilll sit on the market?

Thanks,

Pam

The mortgage will be paid off when she sells or when she passes.

If there is not enough money to pay it off she (or her estate) will be liable.

 

[pamrs]

Isn't there something wrong with the original loan if she can't afford to pay it off right out of the gate, before any interest and appreciation charges have accrued, because the loan amount plus fees equaled the actual resale value of the home?

What if she simply tells them to take the house back?

 

[pojo2]

If there is not enough money to pay it off she (or her estate) will be liable.

You sure about that?

A reverse mortgage costs more than a regular mortgage because there is no known time limit. Some of the cost is insurance for the lender. If the homeowner lives so long that he owes more than the house is worth, the insurance reimburses the mortgage company for the difference. The debt is never passed on to the estate or heirs.

 

[pamrs]

I discovered that this reverse mortgage (Financial Freedom) is non-recourse, which means all they can take is the house. And when they discover it was appraised $20,000 over market, and the loan balance is now at the actual sale value, they will figure out that this was not a very good deal for them or anyone else.