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

April 5, 2013

By Michael G. Branson Edited by Cliff Auerswald 14 comments

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 Quit Claim her off before the reverse mortgage is executed, can I quit claim 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?

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 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, 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 Quit Claim 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 mso already have the remainder interest ady 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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14 Comments on this Article

ALICIA W.
April 23rd, 2023

Hi Arlo,

On an enhanced life estate in FL, the remainderman takes ownership of the property when the grantor passes, if there remains equity in the property can the remainderman sell and pay off the reverse mortgage and maintain any excess proceeds?
Reply to ALICIA
- ARLO™
  April 25th, 2023
  
  Hello Alicia,
  The loan becomes due when the borrower(s) pass but the remainderman still owns the home by virtue of the terms of the life estate. The remainderman can pay off the loan with other funds available, can pay it off with a new loan, or yes, can sell the property and pay off the loan with the sale proceeds if that is his/her wish.
  Reply to ARLO
Carolyn
April 14th, 2023

Hello Arlo,

In 2009 my father and siblings signed a "life estate deed" when our mother died. A few years later, my father did a Reverse Mortgage so he could stay in the house. There was no equity in the home. We all were witnesses and agreed it was a good decision. In 2021 our dad passed away. Novad sent paperwork stating the place should be sold at 90% of the loan or given to them.

Well, the home was not worth what had been paid out by Novad (reverse lender), so we told them to take the house. My question is, If my name is on the Title of the house and the "life estate deed," do my siblings, or I have any legal right to the house without paying the mortgage company since the loan was in our Dad's name? Does a title override a deed?
Reply to Carolyn
- ARLO™
  April 14th, 2023
  
  Hello Carolyn,
  
  When you gave your father the Life Estate Deed, you gave him a Deed that vested the property to him for the term of his life. Typically, the Life Estate is made up of the person(s) living in the property known as the life tenant(s), and the person(s) who will receive the property upon the passing of the life tenant(s), known as the remainderman(men).
  Because the life estate is less than full ownership of the property, if the life estate was created before the reverse mortgage was closed, any remaindermen should have been required to give consent to the financing because the new loan would affect a property in which they hold interest (this would be true for any new mortgage for a property subject to a life estate).
  
  If you and other named remaindermen consented to the loan, I can't see how you have a defense for any objection to the loan, but I am also not an attorney. A Deed is a conveyance of the title. A Deed of Trust represents an agreement between a borrower and lender to have a property in trust for the repayment of the loan, and that Deed of Trust transfers the legal title of the property to a third party known as the Trustee.
  So, when you ask, "Does a title override a deed," there are or could be so many different things happening here that would affect your title that may confuse you. Still, you may have already given up some of the rights of your title until the loan is repaid when you allowed (if you allowed) your father to get a new loan.
  However, if you feel that you never did any of those things with the Life Estate and never did grant your consent for the loan, then I would suggest that you contact an attorney in the state where the property is located to have everything reviewed. I can tell you the documents, but I cannot know if they were all used correctly or gave you legal advice. For that, you need to speak to an attorney.
  Reply to ARLO
Karen T.
September 27th, 2022

Hi Arlo,

My father may need a reverse mortgage. The property deed is an "enhanced life estate" also known as a Lady Bird deed in Florida. There is no current mortgage against the property. Can he get a reverse mortgage if the property has a lady bird deed?
Reply to Karen
- ARLO™
  September 27th, 2022
  
  Hello Karen,
  
  In most instances yes. Obviously, the lender would need to review the title to determine that there are no restrictions that would prevent the transaction but many seniors who hold title in such a manner do get reverse mortgages.
  Reply to ARLO
Robert
April 15th, 2022

My son is the remainder man in our Life Estate. When my wife and I pass, can he live in the home without having to sell or pay off the reverse mortgage?
Reply to Robert
- ARLO™
  April 15th, 2022
  
  Hello Robert,
  
  The short answer is no.
  The individuals who owned the property and who qualified as reverse mortgage borrowers established a trust and may be referred to donor, grantor, trustor, or trustmaker but when at least one of the original qualifying individuals under this trust no longer occupies the home as their primary residence, the home becomes due and payable.
  It doesn't delay the due clause if the remainderman, the trustee or other beneficiary is/are are still living and occupying the home, it must be at least one of the original qualified borrowers. The reverse mortgage is not a multigenerational loan and was never meant to be.
  If your remainderman is eligible under the current reverse mortgage guidelines, he can apply for a reverse mortgage of his own and refinance the loan with a new reverse mortgage in his own name. Otherwise, the loan would need to be paid off with other financing, other funds available to him or through the sale of the property at that time.
  Reply to ARLO
Jeanine R.
May 29th, 2019

I deeded my home to my children in a "Lady Bird" or Life Estate deed. I understand I can use my property for collateral for use as I need it. Is this true?
Reply to Jeanine
- ARLO™
  May 29th, 2019
  
  Borrowers with Life Estates can get reverse mortgages. I only advise that you let your children know what you are doing so that they are aware of the loan and what must be done at the time you are no longer living in the property.
  We have had several family members calling here or sending questions who were not aware their mom had done a reverse mortgage and were surprised when the loan needed to be addressed thinking that mom didn't have the ability to take out such a loan.
  Reply to ARLO
Carla R.
December 31st, 2018

My father's widow had a life estate in the home in Texas. The will which was probated states she can live in the house. Somehow she obtained a reverse mortgage even though the house is not in her name. She passed away and I am the heir in the will. What do I do now?
Reply to Carla
- ARLO™
  December 31st, 2018
  
  Hello Carla,
  
  A life estate will qualify for a reverse mortgage because the borrower does have a life interest in the property and that would be the duration of the loan. Now that you own the home as the heir, you will need to decide what you want to do with the property, but the loan is now due and payable. You can refinance the loan with a new loan in your name or you can sell the property and pay off the loan with the proceeds of the sale.
  If the property is not valued as high now as the amount owed on the loan, you have the right to pay off the loan at 95% of the current market value of the home or the amount owed, whichever is less if you still want to keep it. If you are not interested in keeping the property, you can choose to walk away and let the lender foreclose and you do not "have" to do anything. It is completely your decision based on what you want to do and what works best for you.
  Reply to ARLO
Gail Farrer
October 12th, 2018

My sister & I were quit claim deeded to my dad's home. His name does not appear on the title except as"the life estate of". Can he still get a reverse mortgage?
Reply to Gail
- ARLO™
  October 12th, 2018
  
  Hello Gail,
  
  Yes you can as long as you meet the requirements for the loan. Both of the sisters have to be eligible for the reverse mortgage program (62 years of age or over), they both have to occupy the property as their primary residence and there can be no other individuals who have any interest in the property during the term of the life estate. Other than that, you would have to qualify for the loan just as any other borrowers.
  Reply to ARLO