First off, I absolutely LOVE this site! So informative as it relates to reverse mortgages. Thank you for helping us navigate this reverse mortgage world. My parents had a RM. Mom passed away last year; dad this past June. They had a Living Trust and will. Their house was in the Trust with instructions to sell it and distribute assets to my siblings and me, and their church based on percentages. One of my siblings wants to purchase the house. The lender appraised value is $450k. The realtor comps show it could sell for approx. $500k. My siblings and I want her to have the house but not simply at the loan balance amount of approx. $330k. We are willing to sell it to her for the appraised value and possibly for $400k. She can only afford to get a loan for $366k to pay off the reverse mortgage which as you can see leaves her also with a substantial amount of the equity. As you can imagine my siblings and I are not good with that. She says she cannot afford or qualify to get a loan for more to give us more of the share of the equity as our inheritance. I should add we want to see her get the house but not at the cost of less than what we’re sure our parents intended us to all have. (I think our parents would be pleasantly surprised to know how much equity was in the property) Of course we would prefer to settle this without putting it up for sale and paying commission and fees.

QUESTION: Can you think of another way to make this a win/win? As the co-successor of my parent’s Living Trust I am looking for a win/win solution. Thanks a million!!

Hi Victoria,

You have a dilemma, and I cannot really advise you but maybe I can throw out a little food for thought.  The lender’s appraisal in this case is a moot point.

The property is worth more than the amount owed of $330,000, so the appraisal is meaningless.  So, the real issue is what to do with the house?

How to keep the most money with the heirs, can you structure it so that one of you can buy and keep the property (even she cannot get a loan large enough to cash out the remaining siblings)?

First thing you all need to do is agree upon the value you will use.  The reverse mortgage lender appraised the home at $450,000 and your realtor said $500,000.

Appraisers can only value from closed sales and realtors are usually a bit optimistic so unless there are houses that are very similar to yours that have recently sold and closed at a number you can hang your hat on as a reliable indicator, the value is probably some place in the middle.  But you all must decide what number you are going to use.

At what are the real estate fees in your area?  4 – 6% with 5 – 7% total costs on a sale are somewhat common in most markets.  What is it in yours?

In other words, if you must sell the home to someone other than your sister, would you pay a real estate agent 5% then another 1% in closing costs for a total of $28,500 in costs on a $475,000 sale price?  If so, that would take you down to about $113,500 in equity after all costs and the existing loan was paid off.

I’m only using $475,000 since that is in the middle of the appraisal but not as high as the real estate agents estimate.  You can use any number you want to run figures.

Here comes the “horse trading”.  You must decide what your sister can come in with out of pocket to augment the $36,000 above and beyond the payoff she thinks she can get with a new loan and what you ultimately decide on for a sale price if you sell to her.

I don’t know how many siblings there are, but it sounds like there are at least 3 of you and possibly 4 or more just by the way you speak. At $475,000, the remaining would be $113,500, when divided by 3 or 4 does not total a ton for each sibling.  Are there any siblings doing better than others who can afford to delay their payments?

The reason I ask is because if you cannot do the sale to your sister and must sell on the market, at $475,000, with 4 that would be $28,375 per sibling and at 3 that would be $37,833 per.  If one or two siblings could afford to wait for their part of the inheritance, possibly they could take a Note and Deed for their portion to be paid later?

And if the agreed upon price is less than $475,000, the amount per sibling would be even less.  If you were to do this, you would not have to exclude the costs to close the sale on the property and so the amount per sibling would be affected by no sale/closing costs at this time.

Just a thought.  In the end, there is no magic pill.  The property is worth what it is worth and has only so much equity.

Unless your sister has the cash to bring to closing to add to the loan amount, she can receive to make everyone whole, there will be a shortfall and the only thing you can do is decide what you are and are not willing to do to either eliminate or delay the paying of that shortfall.

Whatever you all decide, I wish you the best.

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