How to Purchase a Home That Has a Reverse Mortgage

July 13, 2022 By Michael Branson 62 comments

We are looking to buy a home, and signed a contract for sale for $730,000. The house appraised for just over that amount. Afterwards, we learned that the seller owes more than that ($760,000) on a reverse mortgage. Does HUD/FHA need to approve the sales price before we can close? It seems that because the sales price is within 95% of the amount owed, the seller would be able to complete the transaction. Does HUD/the lender get to keep the difference between what is owed and what the sales price will be?

Are you sure that it is a HUD HECM? That balance seems very high for the HUD loan and while it is possible that it was one of the earlier fixed rate loans for an older borrower with a full draw, it would be very difficult to get that high otherwise unless it was a jumbo or proprietary reverse mortgage and then it is a whole different animal.

I can’t say for sure based on what information I have here. If the loan was done on a proprietary or private program, I could not make the same assurances as to what the options might be.

If it was the HUD program, if the borrowers have passed, the lender would allow the borrower’s heirs to pay the loan off and keep the home at 95% of the current market value but there is no option to sell the home for a short sale and let the heirs keep 5% of the sale proceeds.

If the heirs pay off the reverse mortgage at 95% of the current market value and sell the home at a later date, they may certainly do so but that would be a completely separate transaction.

I’m not sure what you mean by “does HUD/lender get to keep the difference between what is owed and what the sales price will be” because you indicated that the sales price is less than what is owed.

Since that number is a negative number indicating a loss and not a surplus on the sale, there is nothing left “to keep.”

If the loan is insured by HUD as would be the case with a HUD HECM reverse mortgage, then yes, the lender and ultimately HUD would have to approve the terms of the short sale (short sale being a sale for any amount short of the full amount needed to pay the loan off wherein the owner of the property is not bringing in the money to make the lender whole and is requesting the lender to take the loss and accept the sale price as payment in full).

Lenders always have the prerogative on short sales to approve or deny the terms due to the fact that they want to be sure that the sale is at the current market price, is a bona fide “arms-length” transaction and not simply a transfer between two known parties at an agreed upon price that is less than what the property would bring on the open market that would unduly injure the lender and/or HUD.

Once they determine that the price offered is a fair market price and not a below market price for the property and that the sale is in their best interests as well, they will most likely approve the transaction.

After all, if HUD realizes that they will spend as much or more to foreclose and take the property then market and sell it, it is also in their best interest to allow the sale if they believe it to be a bona fide transaction.

Top FAQ’s

Can I buy a house with a reverse mortgage on it?

Yes, you can but the loan is due and payable and must be repaid. This is often overlooked at times when someone buys a home at auction (especially an HOA auction) where the purchaser thinks they are getting a very low price, only to find out later there is a reverse mortgage on the home. Then to make matters worse, the outstanding balance on the reverse mortgage may be equal to the value of the home but even if not, that loan is due and payable and the purchaser has no additional funds with which to pay the loan off. If you plan to buy a home that has an existing reverse mortgage, just remember that the loan will need to be paid in full after the original borrower sells the property pursuant to the terms of the legal documents.

Can you sell a house when you have a reverse mortgage?

You can sell the home and pay the loan off with no prepayment penalty any time you like. You own the home and it is your complete right to sell it at any time you choose.

Can you transfer a reverse mortgage to a new home?

Reverse mortgages are not transferrable. You can only have one reverse mortgage at a time because it must be on your primary residence. If you sell your primary residence or otherwise move from your primary residence, that loan becomes due and payable and once it is paid in full, you are eligible to receive a new reverse mortgage on the new property (subject to your qualifications and the property also qualifying under the program eligibility requirements).

How do you buy a house back after reverse mortgage?

Reverse mortgage borrowers do not need to “buy back” their home after a reverse mortgage because they never sold it. Borrowers always own their home with a reverse mortgage. A reverse mortgage is a loan and just like every other loan, you are using the property as security for the loan. The loan is a lien against the home until it is repaid, (as would be the case when you sell the home, refinance it or otherwise pay the loan off with other funds). But since you own the home, the title stays in your name throughout the process.

What is a short sale on a reverse mortgage?

A reverse mortgage short sale is when the amount owed on the property is higher than the value of the home and the homeowner must seek permission from the lender to sell the property for an amount less than the amount owed on the loan with the lender still accepting the sale proceeds as payment in full for the debt. There are really not many times it makes sense to approach a lender and request permission to accept terms for a short sale on a reverse mortgaged home. There is no recourse on a reverse mortgage and if the borrowers have passed and there are no proceeds to be received from the sale for heirs, it is probably best to contact the lender and discuss letting the lender take the property via a Deed in Lieu of Foreclosure rather than going to the expense and time to market the home when there will be no sale proceeds afterward anyway. If the individual who wishes to keep the home is the borrowers’ heir, there is a provision in the loan that allows the heir to repay the loan at 95% of the outstanding loan balance or 95% of the current market value and that would not be considered a short-sale anyway. It is not a sale if the heir obtains title through a inheritance.

Every so often borrowers find that they just can’t live in a home any longer (i.e., medical reasons, etc.) and they decide to sell the home not knowing its true value. Only after they put the home on the market, they find that their pattern of cash extraction, the lack of appreciation in their market and interest accrual after a long time when they have been living payment free has allowed them to live comfortably but also has allowed the loan to rise above the value of the property. When that happens, they can request that the servicer approve a specific sale transaction that would pay the loan off at less than the full amount owed. The lender would need to review the terms, determine if it is a bona fide sale between unrelated parties and appraise the property. Next, HUD would probably need to approve the terms as this would create a claim to the MIP fund for the loss on the payoff amount. If HUD determines that the circumstances are such that the sale is within acceptable parameters and will result in no more loss than they would experience if they took the property back and sold it themselves, they would probably approve the short-sale offer but the original borrower would not be eligible for other HUD/FHA insured financing unless and until that loss had been repaid.

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About the Author, Michael G. Branson | Mike@allreverse.com

Michael G. Branson CEO, All Reverse Mortgage, Inc. and moderator of ARLO™ has 40 years of experience in the mortgage banking industry. He has devoted the past 17 years to reverse mortgages exclusively.

62 Comments on this Article

Kris
September 14th, 2022

Hi Arlo,

My daughter and son-in-law are purchasing a home that had a reverse mortgage. The owner passed away, so her daughter is selling the home (but does not live there). It is now going to a short sale. Closing was supposed to be at the end of August but now it has been pushed back so they are waiting and waiting. Is it possible for them to rent this home while they are waiting for settlement?
Reply to Kris
- ARLO™
  September 14th, 2022
  
  There is no law or prohibition against the owner renting the house to them, but I do offer this caution. If the reason for the delay is that the heir has not been able to secure the title, if there are other liens or if the short sale is not approved for any reason, there is always the possibility that they would need to move back out again if the sale did not go through. The lender/HUD are under no obligation to approve a payoff for less than the amount owed (short sale).
  
  HUD will review the terms of the sale and before a sale resulting in a loss on the payoff is approved, HUD needs to verify several things. If HUD and lender determine the terms of the sale will pay off the loan at least 95% of the value of the loan and there are no other proceeds available that would lower the loss further, they would then approve the sale. If they foreclose and sell the home, with costs they won't recoup more then 95% of the current value anyway so it is to their benefit to approve the short sale but at any rate, it is not a rapid process when HUD approvals are involved.
  
  But if your daughter moves in and subsequently the terms are rejected, HUD might then need to foreclose if your daughter does not wish to pay more, the heir can't sell at a greater price or otherwise pay off the loan. In that case, your daughter would be forced to move when she received the eviction notice (if not before) and that might put more pressure on her to accept a higher sale price than she is comfortable with once she is in the home. But I'm assuming the sale has not been approved yet so you need to make your decisions based on the best information available to you.
  Reply to ARLO
Darryl Y.
July 6th, 2022

Do I have any costs to me in selling a home when I have a reverse mortgage that is upside down and I have mortgage insurance?
Reply to Darryl
- ARLO™
  July 12th, 2022
  
  Hello Darryl,
  
  There are always costs when selling a home and if the current mortgage balance exceeds the sale price, you would need the lender's approval to sell the home for less than the amount owed.
  If the lender does not approve a sale for less than the full amount owed (which includes any outstanding fees, mortgage insurance premiums unpaid and sums advanced by the lender or HUD, if any), then the lender or HUD would need to agree to accept a short payoff of less than that full amount or they can demand payment in full or not release the home which would defeat your sale.
  Reply to ARLO
Jeannette C.
June 13th, 2022

Hi Arlo,

There is a house that is a foreclosure reverse mortgage. We are looking to purchase this home but are not sure how to go about finding how to purchase it.
Reply to Jeannette
- ARLO™
  June 13th, 2022
  
  Hello Jeannette,
  A reverse mortgage would be just like any other loan. You could approach the current owners to see if you could purchase the home from them before the foreclosure sale. You could bid on the home at the foreclosure sale but those are usually cash sales with the first bid being the lender's bid and is for the amount owed to the lender. The lender will not make a second bid and if the amount owed to the lender is well under the value of the home, the bidding is often competitive with others who look for good deals at foreclosure auctions.
  If the loan balance is higher than the current market value, there will most likely be no bids and then the lender will offer the home for sale through the representative they use for real estate owned sales and I honestly do not know how quickly that will take place because they will need to contact HUD and perform a number of tasks to place the home on the market. In that case, you may need to keep an eye on the property to be ready to act as soon as it is listed for sale.
  Reply to ARLO
Teresa H.
May 19th, 2022

My partner's sister has a reverse mortgage. We would like to purchase her home and have her remain in the house until she moves to a facility or passes. We will pay cash. It has been valued at over $400k and the loan is for about $225k. Other than the market tanking, is there anything else to be concerned about? Any pitfalls to be aware of? Her health is fair at 80 years. We do not need the money or for see needing it down the road. Just seems like it MAY be a good investment opportunity.
Reply to Teresa
- ARLO™
  June 10th, 2022
  
  Hello Teresa,
  
  When you buy the home, the reverse mortgage will be paid in full so you will have no other concerns that any other purchaser of property has.
  I would suggest that you use a title company and have the transaction handled through them with title insurance and that way if there are any liens or other issues of which you are not currently aware, they can be dealt with at the time and then your title will be insured and clear for anything you need to do later.
  Reply to ARLO
  - Michael M.
    August 14th, 2022
    
    I have been renting from my landlord since 2013, he also resides in the same house. Two years ago he obtained a reverse mortgage, he recently passed away and I'm still in the house. How can I purchase this home before the bank puts it on the market?
    Reply to Michael
    - ARLO™
      August 16th, 2022
      
      Hello Michael,
      
      The bank does not own the home. The borrower's state or his heirs own the home depending on whether the title has passed.
      If you would like the opportunity to purchase the home before it goes to a foreclosure sale, you need to contact the heirs of the homeowner to see if you can negotiate a purchase that works for you, them and within the amounts owed on the loan. If there is still equity in the home, they can sell for any amount they wish above the amount owed.
      If the amount owed is higher than the value of the home, then you must also get the lender/HUD involved to approve any terms that include a sale price for less than the amount required to repay the loan in full for less than the amount owed on the current loan.
      Reply to ARLO
Sam
April 21st, 2022

Hello Arlo,

I won a house, as an LLC, in a foreclosure auction for $150k. Turns out the foreclosure auction I won was for unpaid HOA fees and there is a $350k reverse mortgage foreclosure on the property. The house was officially foreclosed on the day I received title and is scheduled for auction in a few weeks. Is there anything I can do to retain title or did I flush my $150k life savings down the toilet? Everyone I have spoken to so far says I have no options. Please tell me they are wrong!
Reply to Sam
- ARLO™
  April 21st, 2022
  
  Hello Sam,
  
  I am not an attorney and I cannot advise you legally. I can tell you though that the lien for the mortgage was still on the property and I hear this all too often from people who think they are getting a great deal at an HOA auction, only to be hit with the sickening realization that the owner who never paid their HOA dues usually had a mortgage as well and it was either a reverse mortgage with no payments and a growing balance or it was a regular forward loan on which they didn't pay either.
  Depending on the value of the property, you may be able to protect your interest, but it is going to be expensive. You would need the cash to pay the reverse mortgage balance to protect your position but then you can protect your position in the property. However, if the home is not worth $500,000 or more (the balance of the reverse and the $150,000 you already put into it), that may not be an advisable option anyway. I would advise you now to contact a real estate attorney to discuss your options but just know that the reverse mortgage is not going away.
  
  I would urge everyone considering buying a home at auction to do two things. Firstly, find out if the state in which the property is located has a right of redemption period after the foreclosure. Even if there is no underlying mortgage, many states have a period during which the owner can still redeem the property even AFTER the foreclosure. Secondly, find a title company that will do a title search and give you insurance. A title company can search to see if there are other liens on the property so that there will not be even more surprises after the foreclosure.
  And then finally, I would always encourage everyone to engage the services of a good attorney who specializes in this area. A fee for an initial appointment is much less costly in the long run than buying a unit you find out later has more owed against it to the HOA and a lender (who is also about to foreclose) than the cost of an attorney consultation and a visit to a reputable title company.
  Reply to ARLO
David
April 17th, 2022

Hi Arlo,
The day I (supposedly) closed on a home I was told it had a reverse mortgage but I was good to go and could move in. I've yet to receive deed or title information and that has me worried. Am I going to be paying on a home that is essentially not in my name? How am I protected or not protected?
Reply to David
- ARLO™
  April 21st, 2022
  
  Hello David,
  
  I am sorry, but I don't have enough information to answer your question.
  Did you close with a reputable title company or closing attorney? Were you given copies of all your documentation which included a copy of the executed Grant Deed? Were you the one taking out a reverse mortgage or you were told it had an existing reverse mortgage that you were supposedly taking over?
  Reverse mortgages are not assumable and if you did not get the loan on your own, that loan will be called due and payable as soon as the lender becomes aware of the situation. If the owner had a reverse mortgage that did not get paid off and somehow, has you believing you "bought" the home, that is not the case because they cannot show a change of ownership or the lender will call the loan due and payable.
  Your whole transaction sounds suspect but I honestly do not know your circumstances because when you mention payments, it sounds like I have my facts/assumptions incorrect.
  Reply to ARLO
John
April 17th, 2022

Hi ARLO,

My mom put my name on the title of her home as a joint tenant years ago. Several years later she got a reverse mortgage on the property. The current balance owed is $90,000. Can i purchase the home from her by paying off the reverse mortgage early?
Reply to John
- ARLO™
  April 21st, 2022
  
  Hi John,
  
  You and your mom can determine how and for how much you can buy the property but once you take ownership of the home from her, the loan would be due and payable.
  In essence the result is the same thing but the real difference is that mom has a loan on the property and that loan becomes due and payable when she no longer lives in the home as her primary residence or sells the property so that she is no longer also on title.
  So, if she sells the home to you, for any amount she chooses, that loan becomes due and payable at that time. It's up to you and mom if that purchase price is $90,000 or what but you would need to send the required payoff funds to the lender and there would no longer be a reverse mortgage on the home.
  Reply to ARLO
Fadia J.
March 22nd, 2022

Hi Arlo,

I bought a house on public auction and I have my certificate of title. Now that I want to resell that house, they told me it has a reverse mortgage lien on it.
Reply to Fadia
- ARLO™
  March 22nd, 2022
  
  Hello Fadia,
  You need to be very careful when you buy property at auction. Many times, there are liens and mortgages that are still on the property after the title changes with the sale auction. You pay off whatever lien allowed the creditor to foreclose but often there are other mortgages and liens in a prior position that are not removed in the sale process.
  You need to do a title search before bidding on any property and get title insurance whenever possible. That loan is valid as are any other liens that were on when you bought the property that were not in junior lien position.
  Reply to ARLO
Randy M.
March 15th, 2022

Hi, Arlo. I found a house to buy which is subject to a reverse mortgage. Homeowner vacated and is starting deed in lieu but confirmed he still has right to sell. The payoff is greater than market value. How do I price the purchase price for the purchase contract? Do I have to submit a set price based on comparables for HUD approval and wait to see if they accept it or counter? Ultimately, I'd like to pay the 95% of appraised value that seller is permitted to sell for but don't know the status of a HUD initiated appraisal. Or can seller obtains a copy of the appraisal and price it off that? What is the best first step?
Reply to Randy
- ARLO™
  March 22nd, 2022
  
  Hello Randy,
  
  The "95% of current appraised value" deal is only available to heirs of borrowers who wish to retain a property and want to pay off the loan when the balance has risen above the value of the home.
  That doesn't mean that HUD may not accept that selling price if presented as an offer to purchase the property as a short sale (a purchase price where the sale price is less than the amount owed on the loan and the lender would need to accept less than the full payoff amount for the sale to proceed because the seller is not going to make us the difference) because they are not obligated in any way and HUD can refuse your offer.
  Your offer would be to the owner/seller of the property who needs to present it to the lender and if the loan has not been assigned to HUD, it would probably need HUD's approval since HUD would then be on the hook to pay the insurance claim on the loss. Long story short, it is not a quick proposition. The first step is to make the offer to the seller and let the seller present it to the lender/HUD for approval.
  You should probably move as quickly as possible because if the home is vacant, the lender may have already begun foreclosure or taken steps to secure the property and if not, would certainly do so in the near future.
  Reply to ARLO
  - Ilene
    September 21st, 2022
    
    I have a friend who's mom passed and has a reverse mortgage. The ouse is in terrible shape. Value is in the land which is probably less than the current payoff. How could we make offer and possibly secure the property?
    Reply to Ilene
    - ARLO™
      September 22nd, 2022
      
      Hello Ilene,
      
      If your friend is the heir, he has the option to keep the home; or sell it for the amount owed on the loan or 95% of the current market value as payment in full for the loan. The lender and HUD do not own the property at this time so the only one who can sell the property at this time is the legal owner. Since the mom passed, that legal owner would be her estate, or if the title has already pass to the rightful heir if or the person or entity to whom she left the property in a legal will, trust, etc.
      I would suggest you speak with your friend to see if he/she has secured title to the home and if they are willing to sell you the property. If so, your offer must be at least 95% of the current market value for the lender/HUD to approve the short sale (short sale being a sale to a third party for an amount less than the amount required to pay off the existing lien in full but the lender accepts the sale price as payment in full for the loan).
      
      If the lender or HUD go through a foreclosure action, the home will be sold first at foreclosure sale where the opening bid will be for the amount owed on the loan. Since you have indicated that the amount owed is probably higher than the current value of the home, the lienholder would most likely win the auction as there would be no one bidding higher than the market value and the lienholder would then own the property.
      They would sell the home by listing it and you could then make any offer on the property you wish and try to negotiate any price. Both you and the lienholder would be free to accept or decline any offers or counter offers of the other party at that point as would any other interested parties.
      Reply to ARLO
Louis
March 9th, 2022

I bought a Condo at auction after the owner passed away. I fixed it and trying to sell it. Suddenly the Title company sent an e-mail stating that there is a reverse mortgage loan pending on it that I have to cure before I can sell it out. Am I responsible to pay off the loan or not? What should I do?
Reply to Louis
- ARLO™
  March 9th, 2022
  
  Hello Louis,
  
  I am afraid I cannot answer this for you and would suggest you contact a real estate attorney to advise you. If you bought a property with liens on the property that were prior to whomever you purchased the home from, those liens do not just go away and if the reverse mortgage was on the property before you bought it, I would think it is still there and that you would need to resolve that lien.
  
  Did you get a title report and insurance at the sale? Who auctioned the property? What assurances were given that there were no liens or mortgages on the property? I think you should speak to an attorney sooner rather than later because if there is a reverse mortgage on the property and the owner sold the home, that lender will call the loan due and payable followed by a foreclosure proceeding if the loan is not paid in full fairly soon.
  Reply to ARLO
Louis
February 16th, 2022

Hi Arlo. My in-laws have an HECM reverse mortgage on their home and both are living in it. My wife and I would like to buy the home and keep it in the family. Whom do we buy the home from - the bank or my-in-laws? I am not familiar with reverse mortgages but it seems that they are accruing serious monthly interest AND monthly mortgage insurance premiums.
Reply to Louis
- ARLO™
  February 16th, 2022
  
  Hello Louis,
  
  Your in-laws own the home and can sell to anyone they want at any time. The sale would be handled like any other sale and I would suggest you use a title company so the transfer is handled as an insured transaction and the closing agent can verify that there are no other liens on title, etc.
  They will contact the lender to obtain the payoff and handle the closing for you when you are ready to close the sale.
  Reply to ARLO
Karen
December 16th, 2021

I want to buy a house that is in reverse mortgage foreclosure. They will accept only the appraised value, which is not reasonable. A 2nd appraisal resulted in a reduction in the list price, but I have talked to another licensed appraiser who feels it is still unreasonably high. Can I get my own appraisal and submit it with an offer? There are still 4 months until HUD will accept offers other than appraised value. House prices have been falling in this area, and it is still about 15% over a fair market value
Reply to Karen
- ARLO™
  December 19th, 2021
  
  Hello Karen,
  You can get whatever you feel would further support your case but the lender is not required to accept any offer less than the amount owed on the loan if they feel it is not warranted.
  It may not be a smart move on their part and they may end up sitting on the property for years but that has happened in the past at times so there is no guarantee that anything you present will be accepted, even if it does seem to make sense.
  You may need to decide if it is worth your efforts to continue to pursue the property if the lender/HUD does not wish to entertain your offer.
  Reply to ARLO
Michele
September 19th, 2021

Hi Arlo,
I was left my father's house in his will and I will be paying off his reverse mortgage. My question is should I go through the same company he took his reverse mortgage with, or should I seek a different HECM lender?
Reply to Michele
- ARLO™
  October 8th, 2021
  
  Hi Michelle,
  
  If you are going to get another reverse mortgage, I would advise you to check with them for sure but also get other proposals as well. Remember, it pays to shop!
  The loan is insured by HUD and there is no reason to pay thousands more for the loan for the "privilege" of staying with the same lender when all the lenders must meet the HUD requirements so all lenders will have very similar underwriting criteria (because it is set by HUD) and the costs and service levels differ by lender.
  I would invite you to check rates and fees to compare, but also on the Better Business Bureau website to see what others have to say about us and the service we give our customers. Remember, this loan is all about you and your needs. Make sure the lender you choose is doing the best for you.
  Reply to ARLO
Lori F.
July 24th, 2021

I am a Realtor who has a client wanting to put an offer on a home listed for $215k with 6% commission (3% to buyers agent). Listing agent informed me that Seller has Reverse Mortgage and a payoff quote of $196k (and pays mortgage insurance). At the time of the loan the appraisal was $200k. If we make an offer of $200k, knowing basic closing costs, will I still be paid a commission for bringing the buyer? Does the listing agent also get the 3% as per the contract? Please advise!! Time is of the essence and my client really wants to purchase this home. My client is FHA approved with cash to close if appraisal comes in low.
Reply to Lori
- ARLO™
  August 9th, 2021
  
  Hello Lori,
  
  I am sorry, I honestly cannot answer this for you. HUD may need to approve any requests of this nature and that would go through the lender. HUD reviews each request on a case-by-case basis if they have not issued guidance to lenders' servicing departments to allow them to accept such scenarios up to certain amounts without HUD approval and I am not aware of any such guidance (not saying they haven't issued it I am not aware of their servicing directives in all cases). You can always make the offer, but they would then need to go to the lender and I do not know how quickly they will be able to respond.
  Reply to ARLO
Karen
May 24th, 2021

Hi ARLO,

My fiance and I are interested in a home that has been empty for several years. This is what we know:

1. Owner had a reverse mortgage in an amount that is more than the current value of the home. The property is posted and there is a HUD case number assigned. A property management company maintains/secures the property, but no asset manager has been assigned to market the home.

2. Owner was in a nursing home prior to his passing in June 2020 and hence the reason the house was empty for so long.

3. Owner seems to have only one heir, an estranged wife. They have been separated for many years (but never divorced). She has her own home where they once lived together. She never lived in the home in the home that we are interested in.

4. The estranged wife has never opened an estate for the deceased (nor has anyone else) and, therefore, there is seemingly no interest in assuming the home or any other of the deceased's assets (assuming there are any).

5. The property remains in the name of the deceased.

6. A tax lien will be auctioned off for the property in the next couple of weeks if the property taxes remain unpaid and we are afraid that this step will only further complicate the eventual sale of the property. We have tried to communicate our interest in property directly to HUD. HUD will only tell us that they are working out the title issues and to keep watching HUDhomestore.com for the property to be offered for sale. It seems crazy to us that they would prefer the property sit empty and deteriorate as opposed to accepting an offer from an interested buyer now. Is there any way to get around HUD to make an offer for this home and if so, how? Worth mentioning is that we tried to track down/contact the bank mentioned on the deed of trust, but it seems to no longer exist! We do not want to approach the estranged wife. Since she hasn't gotten involved up to this point, we believe she wants to steer clear of being involved altogether.
Reply to Karen
- ARLO™
  May 24th, 2021
  
  Hello Karen,
  
  If the title is still in the name of the original homeowner, the lender has not yet foreclosed and neither the lender nor HUD can accept an offer for sale on a property they do not own.
  The only entity who can legally sell the property to you at this time would be someone acting on behalf of the estate or a legal heir who has obtained title probably through a probate. If the loan has been assigned to HUD, they are the lender now and they will need to work on protecting their interest by resolving any tax issues. That may mean that they need to pay taxes to protect their interest in the property, possibly not, but they will keep an eye on that situation.
  The property will go to a Trustee's Sale (foreclosure auction) whereby the opening bid will be the lender's bid in an amount owed to the lender plus costs. If the amount owed is more than the property is worth, then the lender will most likely win that auction as investors will not bid against the lender's opening bid (the lender cannot raise their bid if anyone does bid against them and the higher bid would take the property).
  You can watch that auction to see if it is low enough to bid on yourself and that would prevent you from needing to buy the home from HUD or their agent later. If that amount is too high, then your only other option is to wait for HUD to list the property for sale after the foreclosure is complete and they are the legal owner of the property.
  You could move to purchase from the HUD by contacting them at the website they gave you at that time. But as much as HUD would love to sell the home now and be done with it, they cannot sell you what they do not own.
  Reply to ARLO
Nina
January 20th, 2021

My Mother has a reverse mortgage. The house was built on near surface clay and was "repaired" in 2002 prior to the reverse mortgage. The repair failed and there is major structural damage. I would like to buy the house and property, but the value is significantly less than the mortgage value. Think $200k reverse mortgage with home valued at $50k. Will the bank let me buy the house for value versus what is owed?
Reply to Nina
- ARLO™
  January 20th, 2021
  
  Hello Nina,
  
  If your mother has passed, as the heir you have the right to pay off the loan at the lower of the amount owed or 95% of the current market value as established by an FHA approved appraiser.
  If your mother is still living, HUD will not allow a short sale to a family member at this time at 25% of the amount owed.
  Reply to ARLO
Judith T.
December 28th, 2020

Hi ARLO,
I am interested in a property that had a reverse mortgage. The property is supposed to go into foreclosure or auction. I am aware the condo management co holds the title, but they say they do not know who holds the mortgage. How can I get the name of the mortgage holder? Thank you for your time!
Reply to Judith
- ARLO™
  December 28th, 2020
  
  Hello Judith,
  If the property has not gone into foreclosure yet, the lender does not yet own it and would not be able to give you any information whatsoever about the status of the loan.
  If you want to try to do something before the foreclosure date, you need to try to contact any living relatives to see if they wish to sell the property before the foreclosure action.
  Until that time, the home is still owned by the original owner, their estate, or their heir(s).
  You can always wait until the loan does go to foreclosure sale and then purchase at the foreclosure sale or try to negotiate a sale with the lender after the lender takes the property via a Trustee's Deed because of that sale.
  If you bid at the foreclosure sale, you may need to bid against other buyers as well or the opening bid may be too high as it will be the amount owed to the lender and that may be higher than the property is worth.
  You can wait and watch for the statutory notices of the foreclosure. Until a foreclosure action is complete and the lender obtains title, the owner's heirs still own the home and may be looking for financing on the home now and can pay off the loan at any time.
  Creditors are required to advertise potential sales through advertising, typically for 4 weeks or more in local newspapers where the sheriff's sales are advertised in that area.
  You can find out what paper(s) carry the advertisements of the auctions in your area and watch for the notices on the property in which you are interested and can show up at the auction and bid at that time but as I said, the lender is forbidden by financial privacy laws to give you any direct information about the loan or status otherwise.
  If the loan is not paid off by the foreclosure date and no outside bidder bids higher than the lender's original bid at the foreclosure auction (the amount owed on the loan plus any foreclosure costs), then the property will become real estate owned of the lender and the lender can sell the home at whatever price they and HUD determine best at that time.
  HUD must approve any purchase prices that would result in a loss on the loan (any amount less than payment in full on the outstanding balance on the reverse mortgage) as that would result in a claim that HUD would be required to pay.
  Reply to ARLO
Miami
November 30th, 2020

Hello! I have found a house I wish to purchase whose owner recently passed. The house is going to be put up for auction, but I was wondering if there is any way around that. Could I speak to someone at the bank and purchase the house outright without having to go through the auction process? Could I get a loan, buy the house, and not have to worry about investors wanting to flip it?
Reply to Miami
- ARLO™
  November 30th, 2020
  
  Hello Miami,
  
  The only way you could accomplish that would be to contact the heirs of the deceased property owner and negotiate a sale before the lender forecloses on the property.
  The only entity who can sell you the property now is the rightful heir of the person who owned it.
  The lender cannot sell it to you prior to the foreclosure auction because they do not own it. If it does go all the way to foreclosure auction, the auction will take place with the initial bid being the lender's bid of what is owed on the loan plus any foreclosure costs.
  If no one bids higher, the property will go to the lender by Trustee's sale and Trustee's Deed.
  If the lender is outbid on their opening bid, the lender cannot raise the bid, they are then out of the auction and the party with the highest bid will win the property.
  If the lender becomes the new owner, they will go through the Real Estate Owned process with HUD and the property will be sold in accordance with HUD direction.
  Reply to ARLO
Mia
November 24th, 2020

Good morning Arlo! I am looking for a home in a particular neighborhood, and prices have been outrageous. We recently received a message through our neighborhood app saying that a neighbor had a recently passed and their house was a reverse mortgage. Is there any way to see if the house is going to go up for sale anytime soon? Per the person who we spoke to, the owner of the home did not have any family to speak of. Thank you for your time!
Reply to Mia
- ARLO™
  November 24th, 2020
  
  Hello Mia,
  
  The home may or may not go up for sale and the lender cannot give you any information about the loan.
  However, I can tell you that the heirs have the right to keep or sell the home.
  If they do not wish to keep it or sell it, or there are no heirs, the lender will need to foreclose to take possession of the property. If you are able, there may be an opportunity at a foreclosure sale.
  The opening bid would be the amount owed to the lender. You need to watch the papers or online notices for foreclosure sales to see if the property comes up and at what amount.
  If the opening bid is higher than you believe it is worth or are willing to pay, you might still be able to purchase the home when the home is listed by the lender for sale after they take ownership through the auction.
  If the starting auction price is over the market value, you would not be the only ones unwilling to buy at that starting price and the lender would be pretty assured of winning the auction.
  If the amount owed is below the market value, there may be others also bidding at the auction though.
  Reply to ARLO
Moriah
September 8th, 2020

Hi Arlo, Thank you for this blog. It has been very informative. So, my grandparents live in a house with a reverse mortgage on it. I want to purchase the house, and allow them to stay there, and move in, and help them. What does this process look like? Is this possible? What do I have to look out for? I am not sure how much they owe, or how much interest has accrued, but should I go through a real estate agent or a lawyer? My grandparents are okay with selling me the house. Thank you for your help.
Reply to Moriah
- ARLO™
  September 8th, 2020
  
  Hello Moriah,
  
  It is hard for me to advise you here. I for one would not incur the full cost of real estate broker for a simple family transfer but would want to open an escrow and title order so that the transaction was an insured transaction.
  This would mean that you would have professionals who work with title changes and loan payoffs handling this aspect of your transaction.
  It would make it so much easier for the payoff of the reverse mortgage and for you for the future if your sale transaction is an insured transaction (and it you are going to finance your purchase a new lender would require it).
  If you have any other family members (aunts or uncles who are children of your grandparents, other siblings or cousins) you may want to have an attorney structure the sale just so that there are no possible issues later if someone thinks they didn't get something they should have (sad, but it happens all the time).
  An attorney can certainly advise you on what the best way to handle the transaction so that there can be no family issues later. That would need to be your preference and you know your family situation.
  If you are going to consider using a real estate broker, I would certainly approach one and tell them you will agree to a flat fee well below their standard 6% just to handle the paperwork.
  
  As for the balance, all you need to do is get hold of your grandparents' latest statement and it will tell you the balance owed on the loan.
  It will also tell you what the amount of interest that accrues on a monthly basis and give you an idea of what the balance will be for the next couple months as well as you add interest to the existing balance.
  Your numbers will not be exact unless you know how to compute mortgage accrual, but it will be close enough so that you can make some decisions and plans.
  Reply to ARLO
D. M.
May 3rd, 2020

I am the Administrator of an Estate. The property was had a reverse mortgage and almost 40k in code violations. I tried negotiating a short sale and had a buyer with a fair offer within 40k of the lender's BPO and revised offer at their requested counter amount, yet the lender took the property to auction and took the property back for 30k less than the buyer's revised offer. Am I missing something here, seems like they never intended on accepting an offer?
Reply to D.
- ARLO™
  May 3rd, 2020
  
  Good afternoon,
  
  I obviously cannot comment on their reasons for what they did but I can comment on a couple of things here.
  Firstly, if there is a claim to be paid, HUD must be involved, and the lender may not have had the option to just accept your buyer's offer. And secondly, the auction that gives the property back to a lender is regulated by strict rules.
  The opening bid is the lender's and it is comprised of the amount owed; any amounts forwarded by the lender on behalf of the borrower plus any fees to foreclose. If this amount is higher than the value of the property, the chances are that no one bid against the lender and the lender obtained the property for the opening bid. If anyone does bid higher than the lender, the lender is not permitted to bid against the new bid, the property will go to the highest bidder.
  It does not even need to be underwater for there to be no competing bids in most cases. People who buy properties at foreclosure auctions are looking for good deals and do not always know the total story about the property and its condition.
  If the value is even close, even though it may still be selling for less than full market value, most investors probably would not be interested no knowing what else may be wrong and without a solid profit margin.
  
  When the lender took back the property, that just means no one bid higher at auction. The lender or HUD are not required to accept the short sale that would not pay the loan in full and perhaps they felt the value was higher based on their inspections/appraisals.
  If for any reason they feel that the sale was not a bona fide sale and that there was some connection between buyer and seller, they may have rejected the sale. And, they may have just blown it and missed the opportunity to mitigate more of the loss! We will never know because we are not privy to the thought process behind their decision.
  Reply to ARLO
Ciara
April 23rd, 2020

I live with my grandmother who has a reverse mortgage on her house, I am interested in buying it. Since it is before her death, would the company handling her account still be looking for the full loan balance due, or could I buy it for the 95% market value? (the current loan balance is more that what the house is valued at)
Reply to Ciara
- ARLO™
  April 27th, 2020
  
  Hello Ciara,
  HUD has this option so that when a borrower passes, the heirs can choose to keep the home and repay the loan at the approximate amount that the lender/HUD would expect to get in a sale on the open market anyway. They do not typically allow borrower's heirs to come in and "time the market" so that they can pay off the loan at below the amount owed while the borrower is still alive and living in the property. If they engaged in this practice, people would be forever paying off the homes at downturns and "writing off" the paper losses that show at that time before the market can recover.
  If your grandmother is leaving the home permanently due to health needs, etc., you may find the lender and HUD are more willing to work with you at that time. If they realize that this loan will come to an end one way or the other at this time and this is an opportunity to mitigate losses by allowing you to purchase from your grandmother as she leaves, then they may be willing to allow the alternate pay off. You would need to contact the servicer with your grandmother, explain the circumstances for her plans/need to vacate the property and make the request.
  Reply to ARLO
Mike C.
November 20th, 2019

I'm interested in purchasing a home that has a reverse mortgage on it. From what I am told there is no one left alive on the loan. Can I assume the loan on this property from the reverse loan lender?
Reply to Mike
- ARLO™
  November 20th, 2019
  
  Hello Mike,
  Reverse mortgages as not assumable. When the last borrower on the loan permanently leaves the property, the loan becomes due and payable and must be repaid at that time.
  Reply to ARLO
Ramona
September 15th, 2019

My mom wants to sell me and my daughter the house for just the price that she owes the reverse mortgage for. Can we take out a loan just for that in order to pay the reverse mortgage back?
Reply to Ramona
- ARLO™
  September 15th, 2019
  
  Hello Ramona,
  
  There are no restrictions as far as the reverse mortgage goes about for what amount your mom can sell the home to you and your daughter. If you can repay the loan, there is no requirement for any lender or HUD approval on the transaction.
  With regard to loan programs available to you and your daughter, I am sorry I do not stay abreast of forward lending programs and I would advise you to contact a lender working with those programs to see what you will need to finance the purchase (we do only reverse mortgages and I would not want to give you bad information since the last forward loan we closed was over 12 years ago).
  I would guess you will need at least a 5% down payment to do a "purchase" but perhaps you could arrange for an inheritance gift and a refinance with a healthy equity position that does not require the down payment the purchase would. I would ask your lender about those different options.
  Reply to ARLO
Susan B.
June 26th, 2019

We are looking at a home that has been vacated and has signs to call the reverse mortgaging service department. We would like to possibly buy it if it is going into foreclosure. How do we find out more information?
Reply to Susan
- ARLO™
  June 26th, 2019
  
  Hello Susan,
  
  Did you try calling the reverse mortgage servicing department? If it is just going into foreclosure, the lender does not own it and they cannot sell you what they do not own. If it is already owned by the lender or HUD, they can negotiate the sale of the property with you. If the owners are still in the area, you may be able to find their information by doing a search of public records. You would have to search the records to see who owns the property (any title company can tell you if you are not sure how to do it) and then try searching for the individual online to see if you can locate them still in the area or their family. If you can negotiate a sale and pay off the loan before foreclosure, you may be able to save the costs for the family which might equate to a lower price for you.
  Reply to ARLO
Rag
February 13th, 2019

Husband wants to buy his mother's house that has a reverse mortgage how does reverse mortgage work in order to buy her home
Reply to Rag
- ARLO™
  February 13th, 2019
  
  I am not sure I understand the nature of the question. Are you asking if he can buy the house from the lender or from mom? If mom still owns the home, she sells him the home the same as she would if she had any other loan. They determine a purchase price, enter escrow and close the transaction. The loan will be due and payable when mom no longer owns the home, so he does have to have his financing in place to pay off the reverse mortgage at the close of the transaction.
  
  If mom has passed, she (or more accurately her estate) still owns the home if she has not already put a vehicle such as a trust in place that would transfer title in the event of her passing. In that case, the loan is now due and payable, but your husband only must worry about "purchasing" the home if he is not the one who would be the new title holder.
  If there are other heirs also involved, he would have to negotiate that with them. Again, he must have his own financing in place to retire the reverse mortgage that is now due and payable. And keep in mind, if the loan balance is greater than the property value in this case, the heir(s) can pay off the loan for the existing balance or 95% of the current market value of the home, whichever is less.
  
  If the loan became due and payable and no one stepped in to repay the loan and it did go all the way to foreclosure sale, then whoever bought the property at foreclosure sale, whether that is the lender or another party, would now own the property and could sell the home for whatever terms they wished at this point. Once the home is owned by someone other than the original owner after a foreclosure, the new owner can keep, sell or do whatever they wish with the property.
  Reply to ARLO
Diana
September 17th, 2018

We have made an offer on a house with a reverse mortgage the owners attorney has POA and has accepted our offer. We were told the reverse mortgage company has to sign off on a third party review as it is a short sale. It has now been 10 days. How long does the 3rd party review normally take?
Reply to Diana
- ARLO™
  September 18th, 2018
  
  Hello Diana,
  I wish I could give you an exact timeframe but I can't. I would just advise that you stay on top of them and keep the pressure on. You see, they have to keep HUD involved in this process as well because HUD will pay a claim for any amounts that are less than the amount owed. Therefore, the lender and servicer (if they are not one and the same) must perform certain tasks and receive certain approvals before they can proceed if they want to make certain to receive the HUD insurance payment on any shortfall. This means that you may have to be persistent and patient while the wheels of government slowly grind. In this case, I don't even know whose 3rd party they await at this point. It could be for a value estimate. It could be for HUD to determine the loss they will accept at this time. It could be for attorney review of something else entirely. Stay focused and keep up the intensity and I wish you the best.
  Reply to ARLO
Gerri Donnici
July 14th, 2018

I need to meet or talk to someone about purchasing my dad's home that is on Reverse mortgage. I am his DPOA and he is currently in a facility. My mother passed away November 2016. This process is very confusing and I just want to make sure I am well informed while making this decision. Currently home is under Novad//HUD.
Thanks
Gerri Donnici
Reply to Gerri
- ARLO™
  July 16th, 2018
  
  Hi Gerri,
  You don't have to "purchase" dad's home, dad still owns it. Now that dad is no longer living in the home as his permanent residence, the loan will be called due and payable at some point so you just need to decide what you want to do with the house. Your decision will be whether or not you want to pay off the loan and keep the house (you can pay the loan off with funds available to you or with a new loan), or sell the home and pay the loan off, or if there is no equity left if the home, walk away and let the lender dispose of the property.
  The first thing you should do is look at your father's latest statement and see what he owes on the loan. Then check to see what the homes are selling for in the area for similar properties. Now you will know if there is any equity currently left in the home and can make your decision knowing the financial status of the home.
  If the home has a lot of equity, you can choose to pay off the loan and keep the home or you can choose to list the home and sell it. If the balance on the loan is higher than the property's current value but you still would like to keep the home, as the heir, you have the option to pay off the existing loan at 95% of the current market value. You can also choose to remove all of dad's personal property and let the lender take the home because the lender has no other recourse than to take the home and can look to no other assets for repayment. In other words, you don't have to do anything if you do not want to.
  Since the lender cannot look to any other assets to repay the obligation, if you remove all of dad's personal effects and "broom clean" the home, the lender would probably accept a deed in lieu of foreclosure which would resolve the whole issue a lot faster if that's what you would like to do but in any case you can sell, keep or walk away from the home. Broom cleaning means you don't have to hire a crew to go in and completely scour the home. You just need to have all personal effects removed and the home has to be empty.
  Reply to ARLO
Herbert brooks
December 30th, 2017

How can I buy a home that had a reverse mortgage and the owned died.
Reply to Herbert
- ARLO™
  January 23rd, 2018
  
  Hello Herbert,
  
  The property first goes to the heirs of the borrower(s). They have the opportunity to decide if they want to keep it or sell it. The could opt to just allow the lender to take the home back in a foreclosure action if they are not interested in retaining the property. You would have to try to locate the heirs to see what their plans are, watch for foreclosure notices and possible public sale or wait until it came on the market.
  Reply to ARLO

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