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Jan 11, 2019Very complex one, at least for me. My brother is 75 and lives with his 'significant other' who is 70. They have been together for over 25 years, never married but believe they are in a 'common law marriage' in Texas. The house they are living in was inherited from her mother, has no liens or mortgages, and the deed is in her name only (my brother's name is not on it anywhere). She took out a reverse mortgage back in 2012 with house appraised for $93,000, mainly due to many repairs which were needed. Current COMPS on homes in their neighborhood are in the $200,000 range or above. Her RM was for around $45,000 of which they used large sum to replace carpeting, tile flooring and some other things. They received their final payment this month and have received letters from the RM company that they may want to go into another loan if they so decide.This leads up to my questions:1. It is my belief that if she were to pass away and being the only name on the RM, my brother would be 'up the creek' so to speak unless he could somehow prove their 'common law marriage status' is valid and he inherits the home in her will. She has no living family members or children; a hand written holistic will in which she leaves everything to my brother. Even then, I expect that even if he inherited the house, he would have to pay off the existing RM along with the probate and court fees, possibly through getting another RM, but do not know what paperwork is needed but would be massive. I have told him that he may be homeless if she passes and he has no legal right to continue living in the house. Also, raised the issue of even getting the 2nd RM to pay off the first one if the ' five times rule" I read in an earlier post is not valid. He can't afford a conventional loan as he only gets SSA benefits of about $1100 per month and the taxes, insurance and utilities will eat up most of that. 2. I told them that they will not have to repay any of the RM they have now until either she passes away or sells the house. If this happens, is there an estimated time to take care of this if she passes. Would they try to come in and force my brother out of the house? rn3. How do the appraisals requested by a RM company such as yours, reflect what the house is worth? Does it reflect what comps are in the area and then deduct any obvious repairs that need to be done or what? My reasoning in this is that their house is now 'appraised by the CAD" for around $180,000 but I believe that it is worth more if it is fixed up. Thank you for your help.

By Dan (in Dallas Texas) on 01.11.2019

Hello Dan,

Let’s start first with the biggest issue of the home and what happens if your brother’s significant other passes before he does.  The fact that she has the property in her name alone as well as the loan would mean that the reverse mortgage would become due and payable.  If your brother was unable to pay the loan off by getting another loan, forward or reverse, he would have to sell the property or would risk losing the home to foreclosure.  I cannot comment on the process to put the property into his name after she passes because I am not a licensed attorney, but I must believe it is much easier to do that now while they are both living than to wait until one has passed.

My suggestion would be to contact an attorney now while both parties are still living and have that attorney advise you on the best way to handle this, but if the best avenue is to change the title now as I believe he will advise, then that can all be done without having to go through probate while both parties are available to sign all legal documents.  Then, if you want to be sure that both parties can remain in the home for life regardless of which individual dies before the other, they can refinance the loan in both of their names at this time ensuring that the loan would not be called if either were to pass before the other.  This is one time when the 5 times benefit is not as significant as there is a definite benefit to the couple otherwise that can be determined with the loan (the right to remain in the property for both spouses).

About your question on valuation, the appraiser will look at the sales data in the area and determine a value based on that sales data.  He or she will adjust as needed to the current sales for any differences in the properties which will also include condition.  Ideally, the appraiser will try to find sales that require as little adjustment as possible because anything requiring more than 25% adjustment really isn’t considered a comparable sale. 

In other words, if their home is in such disrepair that all the recent sales in the area are completely new or remodeled homes, the appraiser can’t just use one of the new or remodeled homes needing no repairs and “guess” at what some buyer would be willing to pay for a home that would need extensive repairs by comparing to a home in “as new” condition. 

The appraiser would have to find sales in similar condition, size and age to see what knowledgeable buyers in that market are willing to pay for a home such as that and then can make some adjustment for known differences with support from market sales.  HUD calls this an objective adjustment because the appraiser will use actual sales data to support the adjustment and HUD will allow this type of adjustment if it stays within acceptable limits. 

The subjective adjustment is one that has no support, but the appraiser looks at something like an outbuilding and gives it $5,000 value but none of the comparable sales have barns and so there is no way to know that the barn is worth $5,000.  HUD will not allow this type of adjustment.

So, when you ask what a company such as ours will determine a value to be, that’s a simple question with a simple answer.  We don’t.  We don’t value the home at all.  We use a licensed FHA-approved appraiser and under HUD Appraiser Independence Rules, we don’t even choose the appraiser.  An independent management company does.  We cannot even suggest a value when we order the appraisal from the management company. 

In fact, HUD just changed the process that all appraisals are delivered through their HUD EAD portal before it even goes to the lender for HUD review and approval!  The appraiser will employ both HUD guidelines and USPAP (Uniform Standards of Professional Appraisal Practice) but in the end, appraisal is an opinion of value and is not an exact science.


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