Hello Arlo, 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 the house appraised at $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 reverse mortgage was for around $45,000 of which they used a large sum to replace carpeting, tile flooring, and some other things. They received their final payment this month and have received letters from the reverse mortgage 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 be the only name on the reverse mortgage, 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 handwritten 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 reverse mortgage along with the probate and court fees, possibly through getting another reverse mortgage, 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 reverse mortgage 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 reverse mortgages 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? How do the appraisals requested by a reverse mortgage 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 on 01.11.2019
Let’s start first with the biggest issue of the home and what happens if your brother’s significant other passes before he does. 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. The fact that she has the property in her name alone and the loan would mean that the reverse mortgage would become due and payable. If your brother could not pay the loan off by getting another loan, forward or reverse, he would have to sell the property or risk losing the home to foreclosure.
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. Still, 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 can 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 five times benefit is not as significant as 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 data. They will adjust as needed to the current sales for any differences in the properties, including condition. Ideally, the appraiser will try to find sales requiring as a minor adjustment as possible because anything requiring more than 25% adjustment 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 entirely new or remodeled homes, the appraiser can’t just use one of the new or refurbished homes needing no repairs and “guess” at what some buyer would be willing to pay for a home that would require extensive maintenance by comparing to a house 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 adjustments 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. HUD will allow this adjustment if it stays within acceptable limits.
The subjective adjustment has no support, but the appraiser looks at something like an outbuilding and gives it a $5,000 value, but none of the comparable sales have barns, 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 we don’t even choose the appraiser under HUD Appraiser Independence Rules. An independent management company does. We cannot even suggest a value when we order the appraisal from the management company.
HUD just changed the process of delivering all appraisals through their HUD EAD portal before it even goes to the lender for HUD review and approval! The appraiser will employ HUD guidelines and USPAP (Uniform Standards of Professional Appraisal Practice). Still, in the end, an appraisal is an opinion of value and is not an exact science.