Question from an ARLO Reader:

I am considering a reverse mortgage and have my debt-free property in a Life Estate; my sister is the Grantee.  I understand she would have to sign the loan/closing docs without having had the counseling, but I am confused about whether that title would still be held in the Life Estate, correct?  Are there any negatives here?  Also, if I quitclaim her off before the reverse mortgage is executed, can I quitclaim her back the same Life Estate, and if so, would that entitle her to the same rights as an heir for the reverse mortgage upon my death?

Can you get a Reverse Mortgage with a Life-Estate?

Let me make sure I have the facts straight: your sister granted property to you for the term of your life (a life estate).  This property now has no liens or mortgages, and you wish to do a reverse mortgage.

If I am correct in that those are the basic facts, I can offer the guidelines to tell you what must be done to complete a loan under these circumstances.

You can close a reverse mortgage loan in a life estate in all states except Texas.

You have to follow particular procedures, and I’m not sure about a few things based on your questions.  What I cannot tell from your question is who will have the reversionary or remainder interest upon your passing (it could be your sister or other parties).

In any case, the borrower and anyone with a remainder interest in the property typically has to attend the counseling and sign the security agreements, the notice of right to cancel, and the Truth in Lending Disclosure.

While the holders of future interest do not sign the loan agreement, they do sign the Deed of Trust, the Riders, and Rescission.  Possible negatives could be that your sister may be unable to pay off the debt when the property reverts to her and may be forced to sell the property.

She could never be forced to pay more than the property was worth, but I do not know the agreement between you and your sister regarding the property’s value and the lien situation when she or her heirs get the parcel back.

Also, you could not quitclaim her back on the title after the loan closed, as any change of title after you complete a reverse mortgage would cause the loan to be called due and payable. I cannot comment on her rights as an heir.  That would depend on how the legal documents are drawn and should be done with the advice of competent legal counsel.

This all gets back to how the life estate was initially established.  If she was the grantor, she must already have the remainder interest and own the property when you pass.  Here again, the help of a competent attorney will tell you who has what rights based on the way the documents are drawn now and what you would need to change to accomplish what you would like.

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