Life Estate, Will They Lend With This On The Deed?

[OSU Beavers]

I found this burred in the sales agreement:

"Expressly reserving life estate in the above described property unto the Seller and its assigns. The Seller shall have full ownership, possession and the use of the property, as well as rents, revenues and profits generated by the property during the term of the Seller's natural life."


Will the bank lend with this on the deed?

 

[Restrain]

That totally depends on the lender. It will have an impact on value because the Buyer does not have full use and control of the property until the death of the Seller. More likely will lend if it is a specialized lender or local bank.

That being said, I have seen this in sales within family members, or in a situation where a commercial development is surrounding a residence, and the homeowner doesn't really want to move. Developer will buy the home with a 'Life Estate' provision.

 

[gregb]

It would not be a fee simple transaction; good luck finding comparables subject to a similar life estate. They exist, difficult to track down though.

 

[Restrain]

In your valuation process, consider a discount based on potential life expectancy. Just a suggestion.

BTW, whether a lender will lend on a transaction is not the worry of the appraiser. It is the responsibility to analyze the contract, ad estimate market value. 99% of the time, no issues. It is that 1% like this that jumps up and can bite you if you are not careful.

 

[Mike Kennedy]

Until the Life Estate expires (Cert.of Death is recorded) by Attorney or Heirs, OR is revoked (and termination is recorded with Deed) by whomever holds it while still living - the interest in the real property is NOT "freely available" to the OPEN competitive market. SOW discussion with the Client necessary - appraisal under H.C. appropriate.

OREGON - see "quit claim deed" (and other options)
http://www.realestatelawyers.com/resources/real-estate/state-deed/oregon-deed.htm

 

[glenn walker]

Only if it's a private lender or an entity that does not sell to Fannie, Freddie or money center banks and they understand if somebody lives to be 105 they could be in a real jam : ) LOL

 

[Mark K]

I found this burred in the sales agreement:

"Expressly reserving life estate in the above described property unto the Seller and its assigns..."

"...the Seller and its assigns."

I've seen life estate clauses but none ever included this. Never heard of LE that was "'assignable".

Normally they state something like "for the remainder of the life and/or tenancy of Joe Smith" or similar.

And NO, I doubt the lender will be interested in this scenario.

A call to the client is definitely warranted.

 

[OSU Beavers]

In my 24 years in real estate I have only seen a life estate clause ONCE before on a purchase contract. The sale was all cash for a house in a downtown commercial district.

In this case it is my concern, because if the buyer/borrowers fail to make the payments the lender has no way of securing the collateral as long as the little old lady seller is still alive.

 

[The Warrior Monk]

FWIW, I've come across a few instances over the years of a property with a life estate and a mortgage. All were through local banks and non-GSE. From what I was told, the person holding the life estate had to sign documents that the life estate would terminate if the property were foreclosed on, thereby protecting the lender's interest.

 

[Mike Kennedy]

It depends on how the life estate was created and the wording of the deed. A life estate tenant may retain full ownership (fee simple) until death, in which the deed will THEN be conveyed to the remainderman. In this scenario, the life estate tenant would be responsible for the taxes and all debts. In most jurisdictions, if the life estate tenant does not pay taxes or debts, or fails to properly maintain the property, a judge can either accelerate conveyance of the deed or cancel the life estate to be repossessed by a lienholder. The original poster might want to discuss options with a real estate attorney based on the details of the ACTUAL deed obtained from the Lender or Owner.