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FHA -With a life estate

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Deadbusiness

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Oct 29, 2006
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Certified Residential Appraiser
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Virginia
I don't want to get into the other issues pertaining to the appraisal to derail the questions I have so I'm not providing everything but hopefully enough info.

I got an order for an FHA appraisal (reverse mortgage) and did the inspection. It was a single family with some maintenance issues which would need to be repaired to meet requirements. I looked at the tax records again after the inspection and noticed it was a life estate (should have caught that before I went to the inspection but oh well).. It was confirmed by the city records as a life estate. The current occupant has the life estate interest in his name and is trying to borrow via reverse mortgage.

I have encountered only 2 life estates. The 1st time was for a conventional loan. After going back and forth with the lender for several days, the lender finally wanted no part of the loan since the old dude conveyed with the house in the event of a foreclosure.

In my current case, I told the lender about the life estate and was answered with "proceed". I wrote back that I could handle it one of two ways.

a)Remove the life estate and put the ownership back to the holder of the life estate. I'm not sure how practical that is.

or

b)Reassign for incompetence of current appraiser. I know nothing about calculating the deduction for a life estate except there is something about actuary tables prediciting the current owner's life expectancy. etc.

My questions are:
1) I didn't think life estates qualified for FHA loans but couldn't find the info in the not so user friendly HUD website or 4150.2. There were some random things that came across when I googled which made me rethink that position but none of them appeared to be reliable sources. Am I correct in believing that an FHA reverse mortgage can not be done for a life estate holder? Anybody have a link I can forward to the lender?

2) If it can be done, would this still require a (life estate) deduction via actuary tables like a non FHA appraisal?

3) Does somebody actually work at the FHA support center answering phones or is everything computer automated due to layoffs and budget cutbacks? Is there a super secret appraiser number to actually get to speak to an expert on appraisal issues?

Before dumping on me, I have admitted I know nothing about valuing life estates and don't want any part of them until I take a course down the road. I won't be accepting the assignment either if the life estate is to remain in place. I also admit I am not sure about the FHA handling of life estates and have no idea where to track down thier policy regarding life estates. Any help is appreciated.
 

The Warrior Monk

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New York
I can't answer your question with regard to FHA guidelines since I don't do FHA work, but lenders typically don't lend on such properties.

With that said, in such assignments, the issue of property rights appraised must be addressed. You do not have fee simple rights. There are two properties: a life estate and a remainderman interest. In my experience, the phone calls are typically for the appraisal of remainderman interests, not the life estate.

In all cases I've ever come across, the lender wants the property rights merged; i.e., end the life estate. Even if this is the case, it is important to keep the dates straight. Though the property rights might be merged at a date, say after inspection and before the closing, the fee simple rights do not exist on the date of value (assuming it is the date of inspection).
 

wickedness1

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Jul 12, 2007
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Certified Residential Appraiser
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Ohio
I would call the FHA HOC & Virginia's HOC is the Philadelphia office at (440) 440-8647. I will send you a private message with the name of a contact who should be quite helpful :)
 

CGgonnabee

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Apr 10, 2008
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Virginia
I have not had much success with phone calls to to FHA...I guess you could try taking a bubblebath with the speaker phone and listen to elevator music and maybe get lucky after hearing umpteen times how important your call is to them.

However, I always get responses to my e-mails, but it usually takes 7-10 days. The responses are clear, concise, and considerate.
 

wickedness1

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Certified Residential Appraiser
State
Ohio
I sent him a direct contact at FHA, so he should be able to get answers tomorrow :)
 

hglenbetts

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Dec 3, 2007
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Certified Residential Appraiser
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Michigan
You stated.. b)Reassign for incompetence of current appraiser. I know nothing about calculating the deduction for a life estate except there is something about actuary tables prediciting the current owner's life expectancy. etc.

There are incompetent appraisers, and there are good appraisers that acknowledge a lack of competency for an assignment.

I'm guessing your the second.;)
 

Webbed Feet

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Feb 11, 2005
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Certified Residential Appraiser
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Canada
Tell your client to call the "Super Secret" lending number at FHA/HUD

Mr. Engle,

I have to chop this up to make some points for you and myself both.

I don't want to get into the other issues pertaining to the appraisal to derail the questions I have so I'm not providing everything but hopefully enough info.

I got an order for an FHA appraisal (reverse mortgage) and did the inspection. It was a single family with some maintenance issues which would need to be repaired to meet requirements. I looked at the tax records again after the inspection and noticed it was a life estate (should have caught that before I went to the inspection but oh well).. It was confirmed by the city records as a life estate. The current occupant has the life estate interest in his name and is trying to borrow via reverse mortgage.

Just to make you feel better, I say it is utterly neglient of ANY mortgage broker or loan officer to take loan origination documents from a proposed borrower and then order a real estate appraisal without bothing to first obtain title information on the subject property. These people not being aware of a current granting of a life estate BEFORE they hire an appraiser is just utterly ignorant as long as that life estate has prior been recorded. I could forgive them regarding an unrecorded granting, but a recorded one? That should tell any appraiser right off the bat they are working with an complete moron that doesn't know how to be diligent in their chosen profession. More on this later.

I have encountered only 2 life estates. The 1st time was for a conventional loan. After going back and forth with the lender for several days, the lender finally wanted no part of the loan since the old dude conveyed with the house in the event of a foreclosure.

The lender didn't want the old dude? Gosh, I'm sure he was good for something. Maybe they could have used him to play Santa Claus once a year at the company holiday party! ... ;)

I believe some education as to what happens when any lender attempts to foreclose on a life estate without having both the life estate holder and either the remainderman estate or estate in reversion tied up all together under that mortgage is in order. Do some reading on it. Last time I checked on it people can't be deeded as it's not legal to consider them to be personal property anymore, and they certainly are not real property either.

In my current case, I told the lender about the life estate and was answered with "proceed". I wrote back that I could handle it one of two ways.

a)Remove the life estate and put the ownership back to the holder of the life estate. I'm not sure how practical that is.

or

b)Reassign for incompetence of current appraiser. I know nothing about calculating the deduction for a life estate except there is something about actuary tables prediciting the current owner's life expectancy. etc.

I would like to put forth to you that as the appraiser you have no legal ability to remove anyone's estate from anybody. So "A" is not something that you can "handle" for your client. I appreciate your "B" selection as I respect any appraiser for knowing what level of incompetency they currently exist at. Your level, based on your post, is you don't yet know that your immediate response to your client telling you to proceed should have been asking them proceed with what? You should have immediately asked the lending buffoon what estate they want appraised? The Life Estate? The Remainderman's Estate or the Estate in Reversion? Or the hypothetical rejoining of those estates as if the life estate had been extinguished? This latter one hypothetical because it does not currently exist. Bottom line here, until you understand how these types of estates work, it is impossible for you to comply with the SOW Rule.

My questions are:
1) I didn't think life estates qualified for FHA loans but couldn't find the info in the not so user friendly HUD website or 4150.2. There were some random things that came across when I googled which made me rethink that position but none of them appeared to be reliable sources. Am I correct in believing that an FHA reverse mortgage can not be done for a life estate holder? Anybody have a link I can forward to the lender?

Why are you taking YOUR time to research this ????? The bloody mortgage broker or loan officer is supposed to be the expert on requirements of the fricking loan they are selling!!!!!!!!

Your dog in this fight is to ask yourself if under USPAP you can produce a credible result for the intended use. So beyond that is it your job to play loan lawyer regarding the intelligence of underwriting a mortgage for a reverse loan that only mortgages a life estate or a remainderman's / reversion estate? Is it your place to determine what types of estates other rather stupid parties are or are not allowed to write mortgages on?

We should not begin to confuse our duties of credible assignment results as if that means we are required to play lawyer regarding the intelligence of the proposed mortgage for other people. If we are aware of an "appraisal" prohibition published by a secondary player that would be a different matter. A good example would be Fannie saying the classic "five acre appraisal" assignment is not kosher for a Fannie intended use. Your client should be finding out what types of estates qualify for an FHA reverse mortgage.

2) If it can be done, would this still require a (life estate) deduction via actuary tables like a non FHA appraisal?

If you are contracted to opine the market value of a life estate the methods, or appraisal theory used, to do so remain the proper methods or theory to do so regardless of any type of loan involved. Appraisal methods may circle around the definition of value being requested, but not the types of loans there are available. At least an example of our methods used in our approaches to value getting altered expressly due to a loan type does not come to mind as I type this.

3) Does somebody actually work at the FHA support center answering phones or is everything computer automated due to layoffs and budget cutbacks? Is there a super secret appraiser number to actually get to speak to an expert on appraisal issues?

Again, it is your client that should be using the super secret lender number to speak to an FHA expert on lending issues. I believe if you just ask your client "What estate do you want me to value? The hypothetical one that does not exist? The Life Estate only? The remainderman / reversion estate only? And do you really understand what these questions imply?" should be enough to turn a light on in the brain of the person on the other end of the phone. If not you've got a very inexperienced lending staff person that I personally would tell to go find someone in their office to educate them before proceeding.

Before dumping on me, I have admitted I know nothing about valuing life estates and don't want any part of them until I take a course down the road. I won't be accepting the assignment either if the life estate is to remain in place. I also admit I am not sure about the FHA handling of life estates and have no idea where to track down thier policy regarding life estates. Any help is appreciated.

This falls under your "any help" request. Why would you not accept an assignment calling for a market value opinion of the hypothetically rejoined estates back into a Fee Estate just because people intend to leave the life estate in existence? What do you care about that for? ... What? .. As an appraiser your going to ask all the parties to sign a contract regarding their intentions before you'd take that assignment? .. We are not enforcers. .. Your only concern is if your client should ask for such a SOW and then demand reporting on 03/2005 forms coupled with a demand for excusive use of CB1 only. .. At that point you have a no-can-do SOW as there is no allowable way to bring in such a hypthetical condition.

Again, the lending side of life estates and FHA is not your problem, that is a lending issue. Your issues are the agreement of an acceptable SOW, obtaining competency if a SOW places you out of competency, and deciding to either accept the assignment type or not. You are not required to teach your client about lending requirements that they should have researched themselves. But it would be nice of you to suggest that THEY do so before THEY proceed.

Appraisers are responsible for knowing appraisal requirements. Loan origination staff need to be responsible for knowing lending requirements.
 
Last edited:

Mr Rex

Elite Member
Joined
Jan 12, 2004
Professional Status
Certified Residential Appraiser
State
North Carolina
I think its a pretty interesting question and would like to know the answer. A reverse mortgage is likely one case (if not the only) that the life estate might not matter in the valuation when the borrower is the life estate holder, since in essence the reverse mortgage is a quasi life estate type situation, and HUD takes title at the borrowers death @ which point the life estate expires so to speak.:icon_mrgreen:
 

PropertyEconomics

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Joined
Jun 19, 2007
Professional Status
Certified General Appraiser
State
New Mexico
I was thinking the exact same thing Mr. Rex .. I dont know, however, if the holder of a life estate has the power or ability to mortgage. That would be established by the life estate document ... and in fact, I would think the life estate, having been created first, would be first in line ahead of the reverse mortgage which may very well nulify the qualification of the property from mortgaging.
 
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