Telling borrower his home has no value

[Restrain]

I've got a problem. Oh, it's not an appraisal problem; the answer is clear. The problem is that the home has no remaining economic life even though the people are living in it - and think it has a lot of value.

Quick summary - the home is over a 100 years old and has had minimal repair. The second floor is unlivable, with no interior walls or ceiling and holes through the wall. It literally has been used to keep the rain out of the first floor. After inspection, it was obvious that the home was beyond rehab. No one would spend the money to fix it up. They would raze the home and put something else on the site.

Now I have to tell the homeowners that the home that they wanted a reverse mortgage on to fix up has no value beyond site value. This is one of the bad parts of this business - bursting other peoples' dreams.

 

[Mountain Man]

Been there, done that. Kinda wrenches at the heart. The last time I had one of those, I called the LO from my office and explained what I saw. LO said to cancel, and asked how much for an inspection fee was. I told 'em to not charge a thing, send back all fees. They needed it more that I did. It always seem to come back to you in other ways, LO became one of my best lender/clients. And honest to boot!

If you have a Habitat For Humanity, or a Christmas in April chapter in your area, see if they may qualify. Our local Board of Real-e-tors sponsors homes every year.

 

[jtrotta]

Would have to agree with Mell on that one, sometimes there's just nothing you can do; many years ago had to go to court on one where this little old lady had lost her husband; kids were out of work; if I remember (she was in her late 60'-early 70's) correctly she owed about $6,000 on the note and the mortgage company wanted the house- Forclosure*. Even on my worst day the property was worth $65k and no one wanted to help - judge said my hands are tied and gave her 120 days to get her stuff out.
There are some things you just have to live with in this business, but it surely shows you what mankind & womankind are made of.


Good Luck 8)

 

[Doug Walters]

After inspection, it was obvious that the home was beyond rehab. No one would spend the money to fix it up. They would raze the home and put something else on the site.

Now I have to tell the homeowners that the home that they wanted a reverse mortgage on to fix up has no value beyond site value. This is one of the bad parts of this business - bursting other peoples' dreams.

Just a thought,
Are there any other loan programs available to these borrowers like the FHA 203(k) or Fannie Mae's rehab loan program? Depending on the experience of the LO, they may not be aware of these programs or they don't offer them. If the first floor and/or the foundation are good, it may be feasible (unless it's as bad as you have noted) but not practical for the borrower. Reverse mortgages are not generally used for fix ups but to convert the equity in the home for income. Makes me think the folks who are owners are elderly with limited income and few choices.
DW

 

[Leon Stewart]

It's always best to inform the lender as to what the situation is, and opt-out. The LO could make a determination whether to go 203K or not, but that might not be to anyone's advantage since some rehab jobs can cost more than what the Market can support. On a reverse mortgage the lender is working for a situation where the loan amount is significantly less than the future market value. But I don't know how HUD calculates a situation where a 203K is also processed as a Reverse Mortgage. It seems as if that would be an "Oxymoron".

leon