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 to have had the Counseling but where I am fuzzy is, title would still be held in the Life Estate, correct? Are there any negatives here?
Also, if I Quit Claim her off before the reverse mortgage is executed can I Quit Claim her back same Life Estate and if so would that entitle her to the same rights as an heir for the RM upon my death?
Let me make sure I have the facts straight; your sister granted a property to you for the term of your life (a life estate). This property has no liens or mortgages on it now and you wish to do a reverse mortgage.
If I am correct in that those are the basic facts, then I can offer the guidelines which will tell you what must be done to complete a loan under these circumstances.
You can close a loan on a property in a life estate in all states except Texas but there are very specific procedures you have to follow 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, both the borrower and anyone who has remainder interest in the property typically have to attend the counseling as well as 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 not be able to afford 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 what the agreement between you and your sister is regarding the value of the property and the lien situation when she or her heirs get the property back.
Also, you could not Quit Claim her back on title after the loan closed as any change of title after you complete a reverse mortgage would be cause for 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 originally established. If she was the grantor she may also already have the remainder interest and therefore, already will own the property when you pass.
Here again the help of a competent attorney will be able to 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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