Hey guys, today we are going to talk about reverse mortgages.
We get a lot of questions about these in our office about whether an investor can purchase a house that’s a reverse mortgage. Or if it’s possible to do a short sale and a reverse mortgage.
So, I want to go over a couple things with you guys so that you know when you’re going to these appointments and hopefully have more opportunities to be able to buy these houses.
What is a reverse mortgage?
So let’s start with what a reverse mortgage is. The homeowner is basically giving all of their equity back to the bank in exchange for living in the home. They still own it, but they live in the home and they don’t make a payment.
So the idea is great. They’re not making a payment they’re generally older so they’re in retirement and they’re on a fixed income. The problem is, what’s not explained to the homeowner is that they still are responsible for taxes and insurance. So if you’re trying to save money because you don’t have it, and you have to pay a large tax bill or a large sum, a lot of times these homeowners end up in foreclosure, which comes in the investors who are, marketing to these pre foreclosures or people on the auction list.
Two Problems With Reverse Mortgage
So there’s two different ways that a homeowner can end up on the foreclosure list if they have a reverse mortgage. It’s not like a regular loan, and the only way is if they don’t pay their taxes, so they’re behind in default, the bank does have the right to foreclose on them, or if the borrower passes away.
So let’s start with the first one, so if the the borrower doesn’t pay their taxes, they absolutely can do a short sale or they can sell it to you. But the biggest thing that you as an investor or you as a realtor, If you’re wanting to list the home, is to make sure that you get the payoff. So the payoff will increase every single month that the homeowner does not pay. That’s the deal. They give up their equity, and every month that balance goes up until they pass away. So make sure that you know what the payoff is.
Then you include all of the fees associated with the house. So like we said, taxes are not included. So generally, it’s a couple years behind. We’ve seen people that have gotten loans like loan sharks for taxes, and their fees are astronomical, and insurance as well as closing costs. So if you’re going to make an offer for a property, you need to make sure that all of that’s included because the homeowner is not going to pay anything. They do not have any funds, that’s why they’re in this situation.
So the second way that a reverse mortgage can be in foreclosure is if the borrower passes away, so the bank can start to foreclosure proceedings. Generally the people that you’re going to be dealing with are the heirs, which are the next of kin, the relatives, whoever is getting the house, once he’s passed away through a will or, just living in the home.
So a lot of times in these situations, there’s no funds, or there’s no will. So how you are able to go around that is you can do an affidavit of heirship. Now, it depends on your state, because we’re in Texas here locally. So in Texas, the title company that you’re working with, can draw up an affidavit of heirship questionnaire, and we will give it to the homeowners, or give it to the heirs and get them to sign. Now the problem is, and this is why we prequalify them upfront, is that the heirs all have to be on board.
First we identify who actually is next of kin, who actually gets the house, whether it’s through if the homeowner passed away, and they didn’t have a spouse or they did. It could go a million different ways. But we identify who actually has the right to the house, and then we have to make sure that every single one of those heirs sign off, so that the title company can put the title in the correct name, so we can identify who’s actually signing.
Then for the bank, we can make sure that the right person is signing. If your state does not allow affidavit of heirships, in lieu of going through probate, you will have to go through the courts to assign an executor of the estate.
This is really important because the bank will do a short sale for the reverse mortgage, but they have to identify who has the right to sign, otherwise, you’re not going to get anywhere. It doesn’t matter if you have the heirs on board, the bank will not speak with you without proof. So we do all of that upfront to make sure that once we get the short sale open, it’s a smooth process.
The other good thing about doing a reverse mortgage with a short sale is that it’s a much easier process, in the sense that we don’t have to get their financials, the borrower’s or the heirs are not financially responsible. So we don’t have to go through that whole process, the bank will order a third party appraisal, and they will determine, how much they’re willing to accept based off of that appraisal. It’s very straightforward.
A lot of times when you hear people saying that they are not able to get anywhere with the banks on these type of loans, is because they have direct contacts. So, they have so many loans, we have a lot of contacts at different banks that we’re able to get it streamlined, but it is possible. So you absolutely can buy a reverse mortgage, or buy a home with a reverse mortgage, and you can absolutely do a short sale for a reverse mortgage. So, if that’s you and you have that situation, feel free to call our office, we’d love to help.
We also have a Facebook page,The Only Short Sale Group Worth Being A Part Of so you can bring your questions there, so everybody can learn from each other, as well as see the content that we’re putting out. So, hope you can join us and hopefully this was helpful for you and your business.