My late father was a reverse mortgage – the amount owed is less than the value of the property?

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I want to repay a mortgage on the reverse mortgage. Should I take a mortgage on property value or simply that due to the reverse mortgage? I am 1 of 3 heirs, and we are the division of property equally. But the only asset of the house. So my question is should I take a loan to the value of the home for their heirs may be 3rd?

  1. Reply
    April 30, 2011 at 12:01 am

    You would need to pay off all liens on the property, before you can transfer it into your names. A mortgage is a lien. So in order for all heirs to be able to get their third, the house would have to be mortgaged for the amount of the lien(s), and then be sold which usually has fees associated with the sale.

    Or, the executor could simply sell the property to one of the heirs or someone else and the equity could be split amongst the heirs at the closing table.

  2. Reply
    Mr Placid
    April 30, 2011 at 12:43 am

    Do any of you actually want possession of the property? If not, you can just sell the home, pay off the mortgage with the proceeds of the sale, and distribute the remainder among the three of you.

    Otherwise, if one (or more) of you want possession of the home, then you can simply refinance the home. The heirs who do not want the property can concurrently quitclaim their interest to the one/ones that want possession of the property.

    Unless the deed had survivorship language, you will need to initiate a probate proceeding.

    See a lawyer in your area for more information.

  3. Reply
    April 30, 2011 at 1:29 am

    sell the house, pay off everything invloved

  4. Reply
    April 30, 2011 at 2:17 am

    Very sorry for your loss, Tynnetta. It sounds like you want to keep the house (which assumes the other two heirs do not want the house).

    Your question has two parts. Each of you inherit one third of the house, but you also “inherit” one third of the loan. I place the word inherit in quotes because while a reverse mortgage is not your debt per se, in order to inherit your third, the loan will have to be paid off first and this debt should be divided in three as well. So the answer is that you need to get a loan for whichever is greater, either the reverse mortgage balance or 2/3rd’s of the home value, factoring in everyone’s third share of the debt. You do not need to get a loan for the value of the home.

    As far as the reverse mortgage lender goes, you only need to refinance in the amount of the loan balance, not the value of the house. They are not entitled to any of the equity.

    However, in order to pay off the other two heirs so that you own the house 100%, you will need to refinance for at least 2/3rd’s of the home value in order to remove the other two heirs from title, but you also have to factor in your portion of the loan that has to be paid off.

    For example, assuming a scenario where the house is worth $ 600,000, you each inherit $ 200,000. At a minimum, you would need to get a loan of at least $ 400,000, just to pay off the other two heirs. But the three of you still have to pay off the loan from each of your portion of the inheritance.

    If the loan balance was $ 150,000, then each of you are responsible for $ 50,000 of the loan (1/3) in order to get your remaining share of $ 150,000 ($ 200,000 inheritance less 1/3 of the loan = $ 150,000 each remaining inheritance). In this scenario, you would need to get a loan for $ 450,000: $ 150,000 to pay off the loan, and $ 150,000 each for the other two heirs.

    If the loan balance were $ 450,000 instead, that means each of you is “responsible” for $ 150,000 of the loan (1/3). If your inheritance was $ 200,000 and each of you are “responsible” for $ 150,000 of the loan (1/3), then the remaining inheritance for each of you is $ 50,000. In this case, you would need to get a loan for $ 550,000: $ 450,000 to pay off the reverse mortgage lender and $ 50,000 for the other two heirs as their remaining inheritance.

    Do not forget to factor in other costs as well, such as probate, appraisal, attorney fees to transfer title, recording fees, transfer taxes, inheritance taxes, any other liens on the property, pro-rated property taxes through the date title is transferred, etc. These costs should be shared among the 3. The cost to obtain a loan is yours alone. All the transfers and payoffs should be done concurrently when you refinance.

    If you do not qualify, then you need to sell the house, and divide what remains after all the liens and expenses are paid off, including the sales commission. You have at least 6 months to sell or refinance the home to pay off the reverse mortgage; if you are unable to do either within that time frame, you can get two 3-month extensions for a total of one year, but you must show a good faith effort doing something.

    As a suggestion, if the other heirs do not need the money, they may want to consider receiving their inheritance in payments from you, as a loan, with interest. Assuming the reverse mortgage balance is small enough and still gets paid off; but it will be easier for you to qualify for a bank loan. This will save all of you the cost of the sales commission.

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