How to Obtain a Partial Reconveyance from the Lien-holder

October 29, 2018

My neighbor has a reverse mortgage loan, but she has passed away and her relatives live in the home. They are now in the process of selling the home. They have 5 acres with the home and I am interested in buying an acre of the land that borders my property. Is there a way to buy the land and will the proceeds go to the mortgage company and reduce the amount owed on it or could it go to the relatives who live in the home? Or will I need to wait for them to find a buyer who is also willing to sell the acre to me and have this all done at the closing when it sells? I’m willing to pay for the survey to cut out the acre of land from the 5 acres. The relatives are also willing to accept my payment in exchange for a clear title to the acre of land. – Mike

Hello Mike,

Ordinarily, the fact that the loan on the property is a reverse mortgage is immaterial. The process would be the same as it would be with any piece of property on which there was a lien and the owner wanted to sell a piece of the encumbered property. The owner of the property would have to contact any lien-holders/lender and request that they issue a partial reconveyance on the land they wish to sell.

The lender would determine the value, risk etc. and then decide if they are willing to release a portion of their security and if so, how much payment they would require from the owner to grant the partial release.

But do the relatives/heirs have title to the home yet? Has it gone through probate and do they have the legal right to sell it at all yet? That would be their first step. Often the heirs are doing both at the same time, but they can’t complete a sale if they don’t have title to the home.

The lender of the reverse mortgage would not discuss several things with them until they are the rightful owners of the property, but I honestly do not believe they would entertain a partial reconveyance in any case at this point and I will explain why.

If the heirs wish to sell a portion of the property after they perfected their title, they would have to approach the lender and request a partial reconveyance for the land you wish to purchase. Since this is not until after the probate has been completed, it would presumably be months after the lender has already called the loan due and payable and then that process would also take time.

Under normal circumstances in a case where an owner requests a partial release, the lender must determine not only the value of the acre you want to buy but also the effect not having that land will have on the remaining parcel if the loan is to remain outstanding. But in this case, the loan has been called due and payable and the lender is already looking for payment in full.

The lender must comply with HUD rules about ordering and completing an appraisal on the property and I would not count on them agreeing to stop and start the whole process of new appraisals with the acre split off for alternative valuation prospects. That would mean that if the heirs wanted to sell you the piece of land at this time, they would need to be able to pay off the reverse mortgage loan.

If they did this with cash available to them, they would not have to worry about other lenders but obviously if they used another loan to pay off the reverse mortgage, they could very well run into the same issue with the new lender. And if the heirs need the sale of the property to pay off the loan, then you will be back to trying to negotiate with the new owner to see if that owner wishes to sell (and hope that they don’t have a loan and need to get a lender approval and partial reconveyance to sell).

I’m sorry, this probably is not the answer you were looking for because waiting for a new owner puts you back to square one. You don’t know if the new owner will want to sell, at what price, or if their debt position in the property will make it feasible if they have a lender involved. But it never hurts to ask! The heirs can always approach the reverse mortgage lender and if there is enough equity, who knows?

ARLO recommends these helpful resources:

America's #1 Rated Reverse Lender Celebrating 20 Years of Excellence.

TALK TO OUR HUMAN EXPERTS TOLL FREE: 800-565-1722

LAUNCH REVERSE MORTGAGE CALCULATOR

Have a Question About Reverse Mortgages?

Look no further. Michael G. Branson, our CEO, brings a wealth of knowledge directly to you. With a robust 45-year tenure in mortgage banking and 19 years dedicated solely to reverse mortgages, he's the expert you want on your side.

Post your question in the comments below and anticipate a personalized response from Mr. Branson himself, typically within one business day. He's here to illuminate all angles of reverse mortgages, ensuring you're equipped with the knowledge to make informed decisions. Take this opportunity to gain insights from a seasoned professional.

8 Comments on this Article

Trice T.
October 20th, 2020

My dad died with mortgage on a house. He had a wife buy she signed her rights over to my brother. My brother paid the loan and is now waiting on deed. How long does the deed take to come back and are their anymore legal steps to be taken?
Reply to Trice
- Michael Branson
  October 20th, 2020
  
  Hello Trice,
  
  There is no "Deed" from the lender which changes the title.
  The lender would send a Reconveyance to the county recorder which removes the lien from the property after they receive and process the payoff but that does not change the title to your brother.
  My suggestion is that you contact a title attorney and have the title granted from your father's estate and wife to your brother if you have not already done so.
  There may be other steps that need to be completed for the title transfer not to have any issues later.
  If they just do it on their own at the county recorder's office, it would be considered an "uninsured transaction" and it could affect the ability to sell the home or finance it later.
  There may also need to be other steps taken because of the passing of the husband.
  Lenders and other purchasers later may not be able to obtain title insurance and if that were the case, it creates problems for your brother.
  It is much easier to do it right now than to try to fix it later.
  Reply to Michael
Alice Z.
May 10th, 2020

Can I give away a vacant lot attached to my reversed mortgage property without paying a penalty?
Reply to Alice
- Michael Branson
  May 10th, 2020
  
  Hello Alice,
  That all depends on the legal description of the property. If the land you speak of is part of the lot secured by the loan, you would not be able to Deed any portion of the property to someone else without the lien holder's approval and willingness to issue a partial reconveyance of that part of the lot. It would require a lot split as well.
  To accomplish this, you would need to be sure that the smaller lot meets all zoning requirements and I am sure the lender would require an appraisal of the property without consideration of the land you are referring to in order to be sure that the lender's security will not be impaired. It may require a pay down of the existing loan, if they can do it at all.
  If the lot you refer to is actually a second parcel, it probably is not covered by the loan anyway and in that case, you can do with it as you please. If the property is its own individual, second parcel, it would not be included under HUD guidelines and in that case you do not need the lender's permission to sell or gift the land to someone else. You should check with a title company to determine which is the case for your property.
  Reply to Michael
Mariam B.
January 29th, 2020

We have had a reverse mortgage contract for 10 years. Under that contract we have 3.4 acres with the house. Our question is: is there a possibility of having 1/2 or 1 acre released back to us with the sale of that land the money going back to HUD leaving 2.4 acres with the original contact?
Reply to Mariam
- Michael Branson
  January 29th, 2020
  
  Hello Miriam,
  
  That would require a partial reconveyance and a lot split and in my experience, that cannot be cone once the property has been used for a loan that is included in a mortgage backed security (which by now yours most likely has). However, it never hurts to ask! I would contact the servicer and let them know what you propose and see what they say. The worst they can do is say no.
  Reply to Michael
Kiyah
April 9th, 2019

My mother passed away in November 18 and my father 12 years ago. They still owe $65,000 on the mortgage. The house is in bad condition and we want to keep the land in the family as plots beside it belong to other family members. We don't want to pay the loan in full due to the home not being worth that much. What other options do we have?
Reply to Kiyah
- Michael Branson
  April 9th, 2019
  
  Hello Kiyah,
  
  You do have the option to pay the loan in full at the lower of the balance owed or 95% of the current appraised value. So if you find that the house is only worth $50,000 even though the current balance on the loan is $65,000, HUD allows the heirs of reverse mortgage borrowers to pay the loan in full at 95% of the value of the home or in this example, they would accept $47,500 and the loan would be repaid. As an heir, you never have to pay more than the property is worth with a reverse mortgage to pay off the loan if you wish to keep the property.
  
  Contact the lender and let them know that you wish to keep the home and they will contact an FHA licensed appraiser to conduct an appraisal. At that point, you need to be ready to pay off the loan with either funds available to you or with new financing though. Once the value has been determined, the lender and HUD will be looking to the heirs to repay the obligation or they would have to ultimately foreclose on the property to protect their interest in the loan and at that point, it would be too late to exercise your right to pay off the loan and keep the property. The only option you would have left would be to buy the property in an open sale and that would most likely be at market value or whatever the competition might demand.
  Reply to Michael

America’s #1 Rated Reverse Lender

ARLO™

In your current area 100 homeowners are currently utilizing reverse mortgages to better enhance their retirement years, with 500,000 nationwide!

Great! It looks like your home value estimate is about

Please provide your estimated home value

The minimum qualifying age for a reverse mortgage is 55

Great News! Your ARLO™ analysis is ready

How to Obtain a Partial Reconveyance from the Lien-holder

Have a Question About Reverse Mortgages?

Leave a Reply to This Article