Life estate VS fee simple

[PropertyEconomics]

When doing a URAR report I am not appraising the house "as though" it were a fee simple interest. The report isn't asking me to identify the rights the borrower is in possession or will be obtaining with the sale.

My scope of work tells me to identify which rights I am appraising, either fee simple or leasehold, where the leasehold is a situation where I am appraising a house owned by the borrower that is on a leased lot. Further, my scope of work tells me not to render any opinion about title - so I don't.

This isn't a situation where I making a hypothetical, it is where I am stating what rights I am appraising, not what rights are owned. Those rights are intangible and exist no matter who the title is currently contructed.

So you are appraising rights which do not exist and you think thats not misleading?

What if they asked you to appraise the leased fee interest in a house that was owner occupied. Would you do that too because they requeseted it?

 

[Terrel L. Shields]

If a frog had a pocket to carry a pistol in, he wouldn't be afraid of snakes.

An unencumbered fee estate does not exist in 99% of all houses we appraise as of the effective date. Heck an owner holding a mortgage in itself encumbers title.

some people argue that encumbering the mortgage is a right of the owner of the fee simple. SLUGER... you can sell, lease, use, give away, enter, or refuse to do anything...and in some cases it happens.

Many many properties don't have control of the mineral rights yet most appraisers still mark the box "fee simple". It is something less than fee simple. The life estate makes the owners part less than fee simple. The fee simple value of this situation will require the hypthetical condition that it is unencumbered.

I would not be surprised that the bank is taking the fee simple interest...i.e.- the life estate holder is going to sign the mortgage too. Sadly, a lot of them don't know what they are signing.

 

[Pittsburgh Pete]

So you are telling me that a life estate is not an interest in real estate?
I dont believe I am the one confused here.

Look at it this way ... a Life Estate is much like a Leased Fee .. use and occupancy of the property has been granted to anohter .. the only difference is they arent paying lease payments and the term remains unknown.

My bad. A life estate is a fee simple interest but only temporary. So no matter how you look at it, you are valuing a fee simple interest. The life estate is merely a "temporary" fee simple interest. Sorry for the misstatement.

 

[PropertyEconomics]

My bad. A life estate is a fee simple interest but only temporary. So no matter how you look at it, you are valuing a fee simple interest. The life estate is merely a "temporary" fee simple interest. Sorry for the misstatement.

Pete ... the fee simple interest will not be realized again until the holder of the life estate dies. Lets assume for a moment that the life estate holder is 25 years old ... and lets assume that the actuarial tables say this person will live for another 50 years ... and lets assume there is a 30 year mortgage on the property ... and lets assume the owner of the property (the remainder man) doesnt make their first payment. And lets assume the life estate holder does not sign the mortgage or relenquish their rights.
Are you telling me the lender is going to foreclose on the fee simple interest in the property when its occupancy and use remains encumbered by the life estate for another 50 years?

 

[Mztk1]

Jim, a mortgage can be paid off and has a set duration. A Life Estate must wait for a death known only to the Grim Reaper.

Which mortgage? First, Second, Third. With death we are human, with mortgages like cats...

 

[Mztk1]

So you are appraising rights which do not exist and you think thats not misleading?

What if they asked you to appraise the leased fee interest in a house that was owner occupied. Would you do that too because they requeseted it?

No rights actually exist PE, rights are a concept; so in that sense we all are misleading.

As for leased fee interest, I don't appraise the leased fee in my mortgage work. I appraise either Fee Simple or Leasehold.

 

[Mr Rex]

Which mortgage? First, Second, Third. With death we are human, with mortgages like cats...

hat

The life estate is first in line. Even gives taxes a short run for the money on whos on first, whats on second. Mortgages come afterwards the big dogs eat.

 

[Mztk1]

If a frog had a pocket to carry a pistol in, he wouldn't be afraid of snakes.

some people argue that encumbering the mortgage is a right of the owner of the fee simple. SLUGER... you can sell, lease, use, give away, enter, or refuse to do anything...and in some cases it happens.

Many many properties don't have control of the mineral rights yet most appraisers still mark the box "fee simple". It is something less than fee simple. The life estate makes the owners part less than fee simple. The fee simple value of this situation will require the hypthetical condition that it is unencumbered.

I would not be surprised that the bank is taking the fee simple interest...i.e.- the life estate holder is going to sign the mortgage too. Sadly, a lot of them don't know what they are signing.

Encumbering with a lease is a right of the owner of fee simple too. A utility easement, even 5' of the property line, encumbers the property and the owner has no choice; so does the deed restrictons from the HOA.

 

[Mztk1]

hat

The life estate is first in line. Even gives taxes a short run for the money on whos on first, whats on second. Mortgages come afterwards the big dogs eat.

But it does not preclude the ability to appraise the "fee simple" rights of a dwelling.

 

[PropertyEconomics]

But it does not preclude the ability to appraise the "fee simple" rights of a dwelling.

Jim .. how do you get around the "as is" requirement when the fee simple estate doesnt exist on the property you are appraising?