Calling all reverse mortgage experts!

[Martin M.]

The facts:

I’m looking at a property in foreclosure in IL. In 2010, there was a reverse mortgage taken out on the property for $280,000. Additional details:

Page 1 of the Mortgage reads…

ADJUSTABLE RATE HOME EQUITY CONVERSION MORTGAGE

and above that there is…

FHA Case No. 145-7452891-823

I made up the case number, but you get the gist.

For example’s sake, let’s assume that there is $200,000 outstanding on the remaining balance for this reverse mortgage.

In 2012, there was a line of credit mortgage taken out on the property for $30,000. Let’s call the lender for that one Main Street bank.

Main Street Bank has foreclosed and the property is due for auction in 2 weeks. I am aware that this is junior in lien position to the reverse mortgage. For example’s sake let’s say Main Street Bank’s opening bid is $23,000.

My Questions:

1. What action would I need to take to determine if the reverse mortgage is FHA insured? Or is that assumed because there is an FHA case number listed on page 1?

2. If the winning bid at auction exceeds Main Street Bank's opening bid, let’s say for example the winning bid is $26,000, does that mean….

A)  The excess $3,000 (above what Main Street bank are owed) will go towards paying the reverse mortgage and the winning bidder will ALSO need to pay the outstanding balance of the reverse mortgage to get clear title, i.e. $197,000

OR

B) The excess $3,000 will go towards paying the reverse mortgage and the winning bidder will NOT need to pay the outstanding balance of the reverse mortgage to get clear title – and the reverse mortgage lien is simply removed/detached from the property, because it's FHA backed.

3) UNITED STATES OF AMERICA is listed as a defendant in the case. I understand that this will be listed when IRS liens are attached to the property, but do you also see this listed as a defendant when FHA backed mortgages are interested parties in a case? There are no IRS liens recorded with the county for this property.

Thanks in advance for anyone who takes the time to answer

[Wayne Brooks]

@Martin M.
-the RM is in first position so it absolutely will remain attached to the property. It is difficult to calculate the current balance on the RM. Yes, the RM is fha insured, but that makes no difference.

-The surplus from the 2nd mtg foreclosure, if there is any, typically goes to 1) any junior lien holders…if none 2it goes to the owner. The first mtg lender (RM) position is not affected so they get no surplus

Make sure you do a good title search.