Reverse Mortgage with life estate

[Ex-Flyboy]

I've run into a good one. I've searched the forums and it appears there are a multitude of opinions.
Got a request to do an FHA appraisal, noticed it was a reverse mortgage but didn't think much about it. Everything on CRS where I normally get my Tax Card information showed sale in 1995 as qualified warranty deed. Just by luck while doublechecking myself on my sketch, I happened to download the tax card and noticed in the bottom right hand corner in itsy-bitsy print the following statement

400-1376 GIVES TO SU--- D. BU------ AND RI----- D. C-------- AFTER LIFE ESTATE.

Did some further checking with register's office and yep, there it is, a quit claim deed giving a life estate to their children. No mention of a mortgage, no mention of life estate being subject to any current or future mortgages, just a simple life estate.

In the meantime, I have sent my client this info and waiting to hear from them. If I have read interpreted what I have found on this site correctly, I cannot appraise it in fee simple.

It appears to me the simple answer is to let the lender deal with the borrower and the remaindermen to either dissolve the life estate or to make a new one that would mention the mortgage holder as having the first position.

Is that correct?

 

[Pamela Crowley (Florida)]

Sounds about right to me, but I am not an attorney so this is not legal advise.

Do you have the FHA case number? Please be sure to inform FHA of this condition.

 

[Webbed Feet]

Mr. Paschall,

Great thread! I really shows how appraisers screw up in not obtaining a copy of last recorded deeds for all assignments!

It also shows how people really screw up inheritance situations when real estate is involved. For themselves, and for the inheritors half the time. I think you are using the terms incorrectly. If mom and dad have granted Life Estates to the kids, then mom and dad hold an Estate in Reversion. The kids hold the Life Estates. There is no remainderman, unless mom and dad created a third party that gets the total estate in fee simple upon the death of all the kids, instead of it going back to mom and dad. This later case would make no sense. Because that would mean mom and dad have no remaining estate at all! In fact, none of this makes much sense, because deeding the entire real estate to the kids and leaving mom and dad a Life Estate, would make much more sense. I suspect another screwed up mess created by people with no business making changes to the "Estates" they own without professional advice.

No typical lender will lend on an Estate in Reversion, or Remainder, because the lender cannot foreclose, take possession, and sell the real estate. They only have nonpossessory interest in real estate to sell. No typical lender will lend on a Life Estate, because the mortgage is extinguished with the life of the estate holder. So nobody to pay off the mortgage, and they cannot foreclose on the Reversion or Remainder Estates that would instantly get the entire estate in Fee free of any mortgage.

You could use a HC the estate is held in "Fee Simple", but what would be the point if all the estate holders will not agree to deeding the Life Estates back to the Reversion holders? Next, even if the Life Estate holder(s) all should agree to subordinate their Life Estates to a mortgage so mom and dad can have an income off the equity, if the Life Estates are not extinguished it means no "Fee Simple Estate" exists and will not exist ever again until they are. This would place the lender into using an appraisal of a nonexistant Estate (and one that will not comply with the HC at any point) as a document to determine the risk for the loan? I guess the lender could, but don't bother coming back at the appraiser if it ever blows up. The lender never had the Estate the appraisal provided value for. This is what your client, if a MBer, will have a hard time wrapping their head around.

Webbed.

P.S. By the way. If mom and dad are the "Borrowers"... they are now trying to borrow money on real estate they have no right of possession for! They gave away the rights of possession when they granted Life Estates to the kids. Legally, the kids now only have the right to occupy the real estate, unless they have leased or rented it back to mom and dad.... So mom and dad are now tenants of some kind. See the problems? I believe a Life Estate holder can have any Estate in Reversion or Remainder holder evicted for trespassing. These later estates may have rights to inspect for harm being done to the property by a Life Estate holder. But they have no right to occupy the real estate.

But I am only guessing wildly out of total ignorance. Because I am not qualified to make any legal determination, so I am speaking about a hypothetical situation of course! ....

 

[Fred]

At this point, there are likely three possible subject properties
The life estate, the remainderman interest and the hypothetically re-joined interest. Identifying the client's exact intended use should lead you to understand what they need to make their decisions.

 

[Russ Kitzberger]

If the report will be on the URAR, assumption 1 regarding legal matters regarding title would apply. A life estate is a form of freehold estate, so it is a legal opinion on title that is needed.

On a practical level, I would advise the client because before completing any more work. They may want to cancel or postpone if there is a title search and opinion of title needed. Also, HUD has some requirements regarding mortgages on properties with life estates. I found some information in MORTGAGEE LETTER 97-15. It is not appraisal related, as such, but is just additional information. I did not check to see if it is the most current letter regarding life estates and HUD.

If the client wanted to have the fee simple interest appraised anyway, I would note prominently in the additional comments section what deed and other information I have found and reiterate that I am not providing any opinion pertaining to title or title marketability. I would scan a copy of the deed in the report for good measure.

If they want you to appraise the present value of the life estate or the present or future value of reversionary interest, then the URAR is probably not the best form to use. They will probably not be interested in this unless they find a lender who loans on reversionary interest or life estates. If the report is on a different form, I would check the language on the form regarding title and marketability.

 

[Russ Kitzberger]

This life estate business is not much different than a dower interest.

In Ohio, if an appraiser has ever appraised a property where someone has transferred of "reality owned as an estate of inheritance" to a married person, the appraiser likely appraised a property were the spouse of that person had a dower interest. Dower is defined by: a "life estate in the property amounting to an undivided one third interest in any property so transferred." Quote and definition of dower per Book entitled Ohio Real Estate Law, Greenwood Publishing 2003.

Example: Mary Smith leaves her home through a transfer on death deed to her two children, John and Adam Smith. They record the death certificate, title transfers to John and Adam Smith.

Soon after, the appointed attorney wants an appraisal of the house for the estate. You appraise the property noting the previous transfer on death and the present owners of public record as John and Adam Smith.

I have not seen an appraiser provide an opinion or commenting on the fact if John and Adam are even married, and the possibility of dower. Further, an appraiser has never commented on the status, strength, or legality of the wives life estates in the property

Another example is John Smith is the present owner of public record. An appraiser appraises the property for a refinance. I have never seen an appraiser interview the owner to find out if they are married and determining if there is a dower interest held by the spouse.

I submit that doing so would be rendering an opinion of title and title marketability, which is beyond the scope of an appraiser. It is a job for an attorney. Could an appraiser note that owners of record are reported to be married, and that Ohio has dower, and place it in the report, I guess it couldn’t hurt.