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Question about a Reverse Mortgage

#1
What is the name of your state (only U.S. law)? Oregon.

We have a RM from 2007. It is more than the house is worth but Fed insurance will take care of that, should we move. We live in a rural, wooded subdivision and if there is a serious fire and our home and 2.5 acres are totally burned up, we don't think we would like to rebuild here. It would look like the surface of the moon with burned tree stumps.

Our H/O policy says we can cash out and rebuild/buy/rent elsewhere. We might do this. Smaller house or condo or ???

H/O policy rebuilding costs might give us 1/2 of the RM balance. What comes next? Have not discussed with RM lender. Can't quite think this thru. Any help/suggestions/comments?

Thank you
 


#2
I'm not certain what you're asking. Are you saying you have more insurance than the mortgage amount? If so, you can do whatever your want with the extra money. But, you will first have to pay off the lien on the property based on the RM. Any check you get will have a limitation on it between you and the bank. Either by a separate limitation or just by making the bank and you the payee.
 
#3
Rebuilding costs in OR are about $100 to $125 a sq.ft. We have 2200 sq.ft. home. We bought here in 2006 for $500K, paid $400K cash and a $100K mortgage. Did a RM in 2007 and another in 2008. We took out $190K total. Recent RM lender statement shows outstanding principal balance of $380K.

Just not sure what would happen if a big fire burned our home and 2.5 acres and the surrounding 50-100 acres or more.

If a small to medium house fire and the woods/vegetation were OK, we would repair/rebuild.
 
#5
In short... you get nothing

You get nothing, you owe nothing, it's a wash.

Good news, you don't actually OWN or HAVE anything at this time other then a roof and a free place to stay. If/when you home burns down, you move, and are starting over.

RM's aren't really for people who are planning to move on, they are for people to finish out their retirements and independent living days in their homes until the time comes that they are either in a pine box, or a retirement community. The bank took a bad risk on your home, the bank is going to lose their butt, you on the other hand won in this deal, you got the cash and a free place to live for as long as you would like.

It doesn't sound like your home has burned down, so thats a good thing. A tornado could wipe out my home, or an asteroid, or moon bears could move in. I'm not fretting over it at the moment because it hasn't actually happened.

So to confirm, the HOI pays off the bank, any remainder goes to you. Doesn't sound like there will be a remainder at this time.
 
#6
So to confirm, the HOI pays off the bank, any remainder goes to you. Doesn't sound like there will be a remainder at this time.
Actually, the insurance goes to rebuild the home. The bank could not legally prevent it from being used that way. If the homeowner did not want to rebuild, they could pay off the lien and deal with what is left.
 
#7
Actually, the insurance goes to rebuild the home. The bank could not legally prevent it from being used that way. If the homeowner did not want to rebuild, they could pay off the lien and deal with what is left.
ACTUALLY the type of HOI the home owner has will come into play here. There are "market value" policies that will essentially pay out an appraised value for the home for the purchase of a new home, and "Replacement value" policies that will pay to rebuild said home.

In the end the homeowner in this case likely needs to talk to a licensed insurance agent in the state of OR. Tranquility are you a licensed insurance agent? I am a licensed LO in the state of Oregon, from that perspective I will tell you that the Mtg company has done their due diligence on the types of policies they will accept on these types of loans most likely.

In the event of a total loss, it would meet the criteria of "left the home" which is a reason to "call" on a RM. That means that the bank gets the house. END.

Again a licensed insurance agent is a better resource for the questions about this homeowner and the policy they currently have. But no, they won't get to relocate if the house burns down. Thats not how it will work, which is the actual question of the OP
 
#8
Do you have a cite for that proposition? I can understand that if a person violated the terms of the mortgage for being under-insured the bank can consider it a default. Otherwise it seems such a determination would be in violation of HUD guidelines.
 
#9
What is the name of your state (only U.S. law)? Oregon.

We have a RM from 2007. It is more than the house is worth but Fed insurance will take care of that, should we move. We live in a rural, wooded subdivision and if there is a serious fire and our home and 2.5 acres are totally burned up, we don't think we would like to rebuild here. It would look like the surface of the moon with burned tree stumps.

Our H/O policy says we can cash out and rebuild/buy/rent elsewhere. We might do this. Smaller house or condo or ???

H/O policy rebuilding costs might give us 1/2 of the RM balance. What comes next? Have not discussed with RM lender. Can't quite think this thru. Any help/suggestions/comments?

Thank you
I am not a licensed insurance agent in the state of OR.

In my career I have seen policies written and worded differently for different homeowners. Yes there are minimums that various mortgage companies require (typicall 125%) to keep the note good.

I have spoken to many a borrower who was under or improperly insured yet met the lenders minimum insurance requirements.

So, again OP's QUESTION that OP wanted an answer to, is IF the HOUSE BURNED TO THE GROUND could they relocate with the funds to rebuild. I supposed they could but they wouldn't have the mortgage with the note holder any longer. Moving out of the residence would cause this type of note to be called.

More specific questions about what the OP's specific policy covers should be directed to the insurer.

There are four levels of coverage, called "actual cash value" (lowest coverage), "replacement cost", "extended replacement cost", and "guaranteed replacement cost" (highest coverage, but not necessarily available). Higher coverage carries higher premiums. Lenders typically require coverage of 125% of replacement cost, though this may be scaled down if the land accounts for an unusually large part of the house value.

If the insured has exceptionally good coverage they may get more $$ then would be required to rebuild.

Depending on the coverage the insured could even get the funds to replant the lost trees.

Are you an LO or an Insurance agent? I am an LO, have been since 1996. have been licensed in the OP's state of residence since 2005.

In any event the answer to the OPs question is no, it is not at all likely. The insurer will have to rebuild this home, the bank essentially owns this home... You can stay in this home, or you can move to a smaller home surrendering this home to the bank per your reverse mortgage agreement.
 
#11
The bank can't foreclose on the house unless the borrower defaults. They can't just declare a total loss a default.
It's not foreclosure. It's a note call. It happens on a REVERSE mortgage, it is supposed to happen on a RM under the following reasons:

1. You and Your spouse both die
2. You and your spouse move out of the home
3. You and your spouse sell the home

Then the bank gets the home, the bank sells the home like in a foreclosure and any remaining monies are paid to the heirs OR the previous home owner.

So in an event of a total loss, if the homeowner wanted to relocate because the NEIGHBORHOOD looked like the "surface of the moon" and they wanted something smaller that would fall under 2/3 so the bank would then CALL THE NOTE they would get their $$ the homeowner would get what remains. In this case the OP has indicated nothing would remain.

In the event of a deficit balance (the OP indicated that they were now upside down, due to market conditions and the addition on monthly compound intrest being the most likely causation) the bank is just out, this is a very real risk to the bank when they make a loan like this.

RM's are only available to persons 62 and older, you can borrow at a higher LTV if you are older. A person who is 78 can borrow more than a person who is 62. Each month instead of a monthly payment the payment is essentially rolled into the balance. In some cases borrowers can elect to be paid in the form of a check monthly, or they can get a lump sum, or they can RM a balance that would have a payment that would exceed their desire to pay or ability to pay.

I don't know what you know about annuities but they work something like that. It's essentially a gamble with the bank. Since THIS borrower will have 0 equity to leave to an heir it is in their interests to remain in this home as long as possible. This is not always the case, but in this case it applies.

THIS IS NOT A REGULAR BORROWER, THIS IS NOT A REGULAR LOAN, THESE ARE NOT FORECLOSURE PROCEEDINGS
 

FlyingRon

Senior Member
#12
With a lien on the property, that payout is going to be made to both the homeowner and the bank. The bank is unlikely to endorse over the check unless they are sure that the property was restrored or the money sufficient to pay off the lien is made to them. It really doesn't matter if it is a reverse or regular mortgage. No bank is going to allow you to take an insurance payment and leave them holding a destroyed property.
 
#13
Read your mortgage: you are likely required to have HOI sufficient to either make the property whole again, or pay off the mortgage. If you pay off the entire mortgage with insurance proceeds, and it becomes lien-free, you can sell it for whatever you can get and move on then. In your theoretical scenario.
 
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