Life estate VS fee simple

[Mike Seward]

Here is a stip I received where the subject's ownership is that of a life estate.

"1. Appraiser to mark "Property Rights Appraised" to "Fee Simple" on the appraisal.... the lender's appraisal review dept said that even thought it is in a life estate, it is still considered fee simple and that if you would feel more comfortable, you can add a comment regarding the Life Estate. "

I'm thinking that life estate ownership doesn't have the same bundle of rights as a fee simpl estate.

Any thoughts?

 

[The Warrior Monk]

Theoretically, the fee simple could be appraised, but it requires the use of a hypothetical condition. The life estate (or remainderman interest) is a different property than the fee simple, and it is not likely that the value would be the same.

Typically, lenders will not lend on such properties. If they foreclose on such a property, they will own a property with a life tenant that they cannot get rid of. Obviously trying to sell such a property will be a major headache.

It would be very concerned about such a stip. I don't know where the request is coming from, but it would be very odd coming from an underwriter. Chances are the property doesn't qualify for a loan.

 

[Pamela Crowley (Florida)]

If a Life Estate isn't a problem, then they can close it with the appraisal just the way it is.

A Life Estate is NOT the same as Fee Simple. To do what they want you to do would leave you in the position of delivering a misleading appraisal report. This is a factual issue that is now the lenders problem.

Amazing what some will ask for, isn't it?

 

[PropertyEconomics]

I agree with all here .. a Life Estate and a Fee Simple Estate are absolutely not the same. It sounds as though someone has taken the underwriters comments and twisted them some in order for the loan to go through. I dont think and underwriter would make such a stipulation. I would ask to speak to the underwriter directly but in no circumstance would I change the property rights to anything different than those which actually exist on the property.
Someone is trying to get the appraiser to LIE, ie commit fraud, to help them close a loan ....
I find it amazing what some people will do to try and make a few bucks. In this instance truth is truth and you are to be complimented for sticking to your guns.

 

[The Warrior Monk]

Even if the appraiser lied, if the life estate is recorded, chances are the title company will catch it.

 

[Mztk1]

Did you appraise the life estate or the fee simple interest? Are your comps Life Estate properties (at least one) with adjustments made to show the market difference, or are your comps Fee Simple properties only?

 

[Don Clark]

It is a defeasible fee estate, not a fee simple. fee Simple means no conditions into perpetutity. A defeasible fee means it can or will be defeated due to some act, like dying.

I would enlighten the client. I would not change the report.

 

[lizhorvath]

Agreed- a Life Estate takes away from the Bundle of Rights - for example, to Use, to Enter or Leave. Fee Simple implies that these rights are intact. If there is a life estate, then the property is NOT fee simple!

Makes you wonder why they REALLY don't want to lend money here...

 

[Mike Boyd]

Maybe the holder of the life estate has already died and they need a value AFTER the date of death. Talk to the client and if that is the case, ask them for a copy of the death certificate. Otherwise, you are correct.

 

[Louis Pompeo]

A Life Estate is a Partial Interest

A Life Estate is a Partial Interest in real property.

It is a complex assignment and cannot be valued in a form report.