Buying a home with a Reverse Mortgage

[Curtis H.]

So I have learned that when trying to create a list with owners who have less than 10% equity, I accidentally made a list of a bunch of reverse mortgage owners and mailed all of them. LUCKILY I only mailed one zip code. But the phone rang...

Situation...

85 year old lady with a BofA Reverse Mortgage and following details...

Amount - $735K in 2009

Home is worth $550K-600K MAX right now if completely dolled up

Loan term 70 months @ 2.74% ADJ

Lives with 1 dead beat son, the other son is in jail. Both supply no income. Believe it or not this is a good area.

She wants out but is too old to think about how to make that happen and what to do with her sons.

She is ok with living in an apartment

My thoughts so far...

From what I have researched, if she is the only borrower, when she dies the sons have to pay off the loan immediately or they are kicked out anyway because the bank will sell to get their money back. So either way they are going to have to move whether she sells to me or the bank sells it when she passes.

This is for me to live in, not an investment opportunity. So there doesn't need to be a whole lot of meat on the bone. My primary goal is to get into a place with as little out of pocket money as possible. Making the payments isn't a problem. This scenario may not work because my guess is a significant dollar amount will be required to be payed immediately when she sells. I don't know that figure, nor would she tell me how much she is getting monthly.

Has anyone bought a home that has a reverse mortgage on it?

[Account Closed]

Reverse mortgages don't make good subject-to deals as they are due and payable when the borrower (or the living spouse) dies or when the property is no longer their primary residence. The borrower and their heirs can pay off the loan at any time for 95% of current market value. So if your borrower owes $735K and wanted to sell today, the bank has already agreed to a short sale as part of the mortgage terms. The payoff is 95% of the appraisal value. There is no deficiency judgment on a reverse mortgage.

Do you know the seller's actual mortgage balance? $735K is the max amount on the line of credit. If she's already borrowed more than the value amount, she will get no proceeds out of the sale.

The short answer is no, you cannot take over payments on a reverse mortgage and live in the property. IMO, reverse mortgages lenders are staying on top of residency (and deaths) of their borrowers and are calling loans due and payable in full relatively quickly.