Life estate VS fee simple

[PropertyEconomics]

A Life Estate is a Partial Interest in real property.

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

There is nothing that says such a report cannot be valued on a form. I would like to see this regulation .. anywhere if you can find it.

 

[RSW]

What if the holder of the life estate were to sign off and release the life estate?

 

[Fred]

A Life Estate is NOT the same as Fee Simple.
I agree with all here .. a Life Estate and a Fee Simple Estate are absolutely not the same.

The remainederman is the one who holds the fee simple, and it is encumbered by (or divided by, if you prefer) the life estate.

Three possible subjects emerge: one of the two partial interests (the life estate or the remainderman interest); or the hypothetically rejoined fee simple.

From a mortgage standpoint, the problem is that neither the LE, nor the RM can sign an enforceable lien against the other party’s property. They would have to create an agreement to pledge both interests, and then the appraiser could do a meaningful “as-if fee simple” mortgage appraisal. I don’t think it is likely that a "bank" would knowingly accept as collateral a partial interest that ends at an unspecified date, or a partial interest that begins after an unspecified date.

 

[Pamela Crowley (Florida)]

What if the holder of the life estate were to sign off and release the life estate?

Then it could be appraised again under the new ownership circumstances.

 

[RSW]

Then it could be appraised again under the new ownership circumstances.

If that be the case, then, the lender could direct the appraiser to appraise the subject in Fee Simple and the appraiser could comment on the life estate in an addendum. Correct?

 

[Don Clark]

A Life Estate is a Partial Interest in real property.

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

Actually it is not a partial interest at all. It is a complete interest in real estate so long as the life estate owner lives. It is however a defeasible interest. It is defeated by death of the life estate owner. Any liens, encumberances, mortgages, are extinguished on the death of the life estate holder. As Steven said, the life estate owner cannot commit the remainderman to anything unless the remainderman agrees to it.

But, during the lifetime of the life estate holder, the owner of the life estate can do anything they want with the property except commit waste, or legally diminish what belongs to the remainderman.

 

[Mztk1]

They would have to create an agreement to pledge both interests, and then the appraiser could do a meaningful “as-if fee simple” mortgage appraisal. I don’t think it is likely that a "bank" would knowingly accept as collateral a partial interest that ends at an unspecified date, or a partial interest that begins after an unspecified date. [/FONT]

And that is exactly what the lender is looking for. They don't care about the value of the life estate or the remainderman. They plainly want an appraisal for mortgage purposes and on the URAR we do not state what the property rights currently are, we state what rights we are appraising and we also state we will render no opinions about the title.

I think it is very clear from the report that when checking "Fee Simple" you are merely stating you are appraising the fee simple rights and that you are not making any other claims.

The way I handle it, and I know it is unpopular with everyone else, is state what rights I am appraising, "Fee Simple", and not what rights the property is currently held in. And then, in the body of report I state anything that is contradictory to a clear and free title, easements, encroachments, PUD/HOA deed restrictions, life estate, etc.

 

[Mike Seward]

Thanks for all the replies.

This is for a non FHA reverse mortgage where the life estate holder AND the remainderman are on the note. All interests are pledged to the bank and the bank is happy.

I'm thinking that even though the bank has gathered all of the bundle of rights, the ownership is still that of a Life Estate.

 

[Mike Seward]

I posted before Jim's post appeared. His post makes sense. Why not say we are appraising a fee simple interest and explain that the current form of ownership is that of a life estate?

 

[c w d]

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.

Dave makes several good points here.

In particular he says "I would be very concerned about such a stip. I don't know where the request is coming from.....". ALWAYS ask for the stip sheets. I can't count the number of times I've gotten requests from the "underwriter" and through a little investigation have found out the appraisal didn't make it to the underwriter yet. The request being made is a "red flag". Such requests may indicate just that; that the appraisal may not have made it to the UW as of yet and the MB is trying to smooth over any potential "problems" with seeing his commission fulfilled. Hand written instructions or emails through various people about what the "underwriter" wants are not stipulations. The stip sheets do come directly from the underwriter and are unmistakable and good documentation to have in your work file. If you can't get the stip sheets it's either a lazy MB or one trying to work an angle.