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: 

• Reverse Mortgage Property Eligibility: Acreage & Zoning
• How to Sell Your Home if You Have a Reverse Mortgage Loan
• HUD Property Requirements