I may not have the concept right, but I was under the impression that with a reverse mortgage, you don’t get the value up front. Rather, you might get a partial amount, and then a monthly check for a pre-defined term. At the end of the term, the bank has essentially bought the house from you, so hopefully you’re dead or in a nursing home. The bank is then stuck with trying to sell the house for more than they’ve paid you for it over the years.
I obviously don’t know the specifics here, but let’s say she got a $25,000 lump payment and has then been getting $1000 a month for the last year. Wouldn’t she just have to pay the bank back the $37,000, plus interest (possibly), and then get to keep the rest of what the county gives her?
This situation, while unfortunate, has nothing to do with the “reverse” part of the mortgage. It’s a typical eminent domain scenario.
A lawyer might be willing to take on a negotiating case with the state for a contingency fee.
If all negotiation fails with the state, it is possible the bank holding the mortgage would reduce the amount owed to avoid the uncomfortable image of kicking a helpless old lady and a family of 6 out in the street. Banks regularly accept less than what’s due in foreclosures. I can even envision the bank stepping in with their high-powered attorneys and negotiating directly with the state. It would be in their best interests as well as the property owner.
A reverse mortgage is quite flexible and there are many different plans and arrangements.
You can get a reverse mortgage that pays a lump sum up front, or pays a smaller amount each month. You can get one with a line of credit from zero dollars to start or to pay off an existing mortgage and have a line of credit for the equity balance. Or you can pay off an existing mortgage and get a lump sum. Or…the combinations are endless.
These different plans may each have different up-front costs, and that might help make a decision.
In addition, some (all?) reverse mortgages can be paid off either all at once or with monthly payments like a conventional loan, at rates comparable to the conventional mortgage market. They are not the awful debt instruments some people make them out to be if entered into wisely.
I do see it as different. In a regular mortgage, one makes periodic payments, and if you fail to do that, the bank takes your house. In a reverse mortgage, the trigger for the bank demanding payments is death of the mortgagee or the mortgagee selling the house (at least, this is my understanding).
Thus the risks to the mortgagee in the two cases are totally different. The mortgagee faced no risk that she would lose the house (other than this forced sale), by for example not being able to make payments; and presumably this lack of risk was a factor in the bargan when struck.
The forced sale is creating a risk that was not anticipated in the original deal and that’s why it seems more “unfair”. Whether it actually is unfair I dunno. One could argue that the old lady should have anticipated that risk … but we are dealing with a great difference in bargaining ability between a bank and an old lady.
But it worked, she didn’t lose the house as a result of non payment. Given that these folks can’t manage to scrape up a few hundred bucks for a one time appraisal, they’d likely have been homeless for quite a while by now, and this eminent domain problem would apply to the new owners of the house.
I can see the somewhat ironic turn where a person who “secured” her future living situation is now getting the boot. However, the reverse mortgage didn’t put her in a bad financial situation, she and her family were already there.
That is true, although if the mortgagor dies, the burden of payments or liquidation falls on the estate. If the estate continues payments, the bank isn’t going to complain, but upon a sale, they will want their money back.
The risks she took have nothing to do with the eminent domain that caused the problem outlined here. If the state takes your property and doesn’t pay what your mortgage balance is, you are in trouble no matter what kind of mortgage you have.
The assessed value may not equal the fair market value, and it might not be relevant to what the property would fetch in an arms-length transaction.
I can only speak with authority for my local area, but here the Assessed Value does not change from year to year. It only changes if reassessed, normally done years apart, or if a substantial change was made to the property (a room addition, for example).
But the number which does change from year to year is the Fair Market Value. This begins the same as the Assessed Value immediately after an assessment, usually town-wide. Each year, the last year’s value is multiplied by a factor given to the treasurer by the state, a number which represents the average increase or decrease in value of all properties in that municipality.
When the two numbers get too far out of sync for too long, the town is forced to do a municipal-wide re-evaluation. This is expensive, so the towns hold off for as long as possible.
Therefore, my point is that the FMV, or whatever the local equivalent is, is more likely to be a fair sale value than the Assessed Value.
So the private mortgage should be paid by public tax money? Sweet!
Prior to the eminent domain issue, this family was not ‘homeless’ and had their finances delt with. The woman had a place to live, that was actually paying her income, for the remainder of her life. It is the eminent domain action that will make her homeless and destitute.
For those asking what did she do with the $260k. A reverse mortgage is like a sort of “lease to own” situation. The bank pays monthly until the owner dies, then the bank owns the property. It is not a loan. The bank is buying the property. If this woman took out the reverse mortgage 10 years ago, and collected $26k/year, that would have been a little of $2k/mo, less taxes, it probably came out to around $1.5k/mo clear. Added to the $750, then she had a monthly income of over $2k, no rent/mortgage and only utilities, food, etc. That is an entirely reasonable amount of money to live on in many areas.
Once this domain action is completed (assuming that the bank will get any payment on the value of the property), she will only have $750 and need to find a place to live that will likely require rent. Even IF she could find a place for $250, that would only leave her $500 ($125/wk) to live on.
SO, it is the eminent domain action that is going to put this woman out on the streets.
NOW, if the city has a comparable house that has been taken in taxes, then they might be able to swap the house out on reverse mortgage with the mortgage company, then that would be a reasonable solution. If they could work a deal like that, then the woman would continue to have an income, the mortgage company would get the ‘new’ house and the city would get the property they want free and clear w/out cost. Surely that would even save the city money since I doubt they’ve taken many properties for $170k in back taxes. So the city would come out ahead of the game.
Why shouldn’t it? It’s not like the bank or homeowner are forcing the state to buy. The state wants land, the owner of the land deserves just compensation
Let’s say I’m underwater on my mortgage, I may still choose to keep the house and make payments because it’s my home. If someone knocked on my door and offered to buy the house, I’d at least want to get my mortgage paid off before accepting the deal. Not out of some misguided sentiment, but out of basic finance.
Under Eminent Domain, I don’t have that choice, I’m being forced to sell, at the price the government chooses, and wind up in a terrible financial position that I was happily avoiding. Have I gotten just compensation if I go from a happy homeowner making regular mortgage payments to being a broke renter saddled with tens of thousands of dollars of outstanding mortgage debt?
But she did “secure” her future. It is the state that has in effect unsecured it. The whole basis of the bargan she made with the bank was, I am sure if you asked her, that her future would be secured - that she’d have a house to live in for life.
What she evidently did not do (and maybe should have) is insert a clause as to what would happen if the state exercised eminent domain.
I would say that is a unique interpretation of eminent domain law. It would mean that the state pays MORE than the value of the land. Maybe the homeowner can get the state to pay for credit card debts, too? Do you think the value of the land goes up if there is a mortgage on it? That would be news to our appraisers.
I am a Realtor[sup]TM[/sup]. Do you think I could get a buyer to pay my seller’s debts if they are overburdened? If so, then I need your negotiating skills in my office.
This is a much more eloquent way of stating what I’d meant.
I wouldn’t go so far to say she didn’t have a role in her financial demise but a large portion and the straw that broke the camel’s back was in fact eminent domain and all of its zealous elitist supporters.
Also +1. My fair market value is nearly double my assessed value.
I’ll accept that I’m wrong on this point of mortgage v purchase.
But the woman was not handed $260k in one lump sum. That is the accumulated payments over a 10 year reverse mortgage. So for all these people who think that she threw some massive party for the relatives that are living there, that is not the case.
And for those who think she’s irresponsible, a reverse mortgage is a responsible way to assure an income over time for a senior citizen. (I wouldn’t personally want to see anyone take one out because I think they’re a rip off, but they are not irresponsible). This woman established a means of support and now this eminent domain action is going to terminate that and throw her out onto the streets.
What exactly what her part in her “financial demise”?
Ten years ago, she set up a transaction that ensured her a steady income until her death. She was living with her her means well enough to support other family members on that amount. Without the eminent domain action, she would not be facing finding housing on $750/mo.
The eminent domain action is the ONLY thing that is causing her current problem.