FHA -With a life estate

[Doug Wegener]

Complex appraisal

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.

Complex appraisal. Very complex. Beyond the scope of your license. Seek help from a certified appraiser or decline the assignment.

 

[wickedness1]

Complex appraisal. Very complex. Beyond the scope of your license. Seek help from a certified appraiser or decline the assignment.

Doug, this situation calls for more that just a "Certified appraiser". I do not feel that I would be competent without seeking help from another Certified Residential or Certified General that can educate me further.

I know what Life Estates are, as a matter of fact my neighbor's house is in one. But to appraise a Life Estate is a whole different story. If I recieved the assignment, I definately would disclose to the client my lack of competency and if they wanted me to proceed I would consult heavily with other Certified Residential or Generals that can teach me.

 

[Webbed Feet]

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:

UGH!!!!!!! m2:

No......Upon the death of the measuring life the life estate portion would revert back to the ownership of the remainderman or reversion owners who would then hold title to the entire shebang..... The HUD mortgage would no longer be valid and HUD would be screwed and tatooed.

You kinda left out the part that the other estate holders have to agree to their estates being subjugated to the mortgage. That the life estate holder cannot mortgage that which the life estate holder does not own.

 

[Webbed Feet]

Complex appraisal. Very complex. Beyond the scope of your license. Seek help from a certified appraiser or decline the assignment.

Mr. Wegener,

And exactly which appraisal assignment(s) is, or are, the complex ones? Because I don't see where the SOW has been determined yet regarding what estates and one possible one is not complex at all, barring other factors, if the assignment is not for a FRT. Now I know somebody is going to thiink FHA is an FRT assignment. But I know whoever that is that thinks that has not read the exclusion list and never asked themselves what entities are, and are not, representative of appraisal orders involving a FRTion.

 

[wickedness1]

UGH!!!!!!! m2:

No......Upon the death of the measuring life the life estate portion would revert back to the ownership of the remainderman or reversion owners who would then hold title to the entire shebang..... The HUD mortgage would no longer be valid and HUD would be screwed and tatooed.

You kinda left out the part that the other estate holders have to agree to their estates being subjugated to the mortgage. That the life estate holder cannot mortgage that which the life estate holder does not own.

Could the remainderman or reversion owners take out a mortgage while the life estate owner is still alive? Or do they have to wait until date of death? Just curious :icon_idea:

 

[RSW]

This is a very interesting question! I would think that a reverse mortgage could not be made on the life estate but rather on the fee simple rights. The property is most likely recorded in someone elses name and they are most likely not living at the address of the subject property. They would not qualify for a reverse mortgage since it is not their actual adress and they are not living there. Now, how could this be done correctly? Maybe do the appraisal with using a hypothetical subject to the life estate being removed. I don't think HUD/FHA will take the life estate as currently stated.

 

[Deadbusiness]

Cert

Complex appraisal. Very complex. Beyond the scope of your license. Seek help from a certified appraiser or decline the assignment.

I am certified but have been too lazy to get the AF upgrade (not that being cert has made me any better equipped for this case). Thank you every one for the responses. I'm not going to even touch it unless it converts to fee simple. Thanks for the super secret FHA numbers.

 

[Webbed Feet]

Could the remainderman or reversion owners take out a mortgage while the life estate owner is still alive? Or do they have to wait until date of death? Just curious :icon_idea:

One small point not considered, but has to be looked at in life estates, is there is no requirement that the measuring life of the life estate has to be the life estate holder. The measuring life can be anyone. This small point is not pertinent to your question however.

Any owner of any estate of any type can attempt to obtain a mortgage on that estate. So the question is not if the measuring life has reached an end or not. The question is will any lender underwrite such a loan or private investor invest in such a loan? In the face of the failure of the borrower of such a mortgage what does the lender or investor actually have upon the foreclosure of the loan? How marketable is that estate when the remainder of the life of the measuring life is uncertain?

As only the real property interests actually owned can be mortgaged, what interests does the morgagee get if the loan is forclosed? Remainderman and reversionary interests are not possessory interests while a life estate is in force.