Reverse mortgage fiasco

Miscellaneous and Personal Stuff I Must Share
41

That is so, but the old lady in the article will not care, because she is dead.

The whole basis of the deal (from her POV) is that she gets the security of living in her home plus the money the bank is willing to lend against the value of the property.

When she is dead, the estate has the choice of redeeming the property by paying the bank back, or allowing the bank to realize on its security, with all the risks for each party that entails … but the whole point is that the “trigger” for this is supposed to take place either by her choice (to sell the property) or because she has died.

Thus, the lady is getting “security” out of the deal - security that she will not be homeless.

While that may well be true, a person who has made a “reverse mortgage” deal is in fundamentally a different situation than a person in a regular mortgage deal.

A person in a regular mortgage situation is supposed to have an income comming in, to make the payments. It could be that they could lose their job, or otherwise become incapable of paying - they are taking that risk. Should the state take their property they can begin paying on another property - it will not leave them homeless. Indeed, if the bank has lent too much money against the value of the house, it is the bank who will be taking a bath - depending on the laws of the jurisdiction, the homeowner may be able to walk away laughing and rent another place tomorrow, with his or her income-stream; the bank loses the benefit of his or her payments. That’s the risks in a traditional situation.

OTOH, a reverse mortgage is supposed to be for elderly people who do not have income comming in, and so most likely COULD NOT make mortgage payments. “Trigger” the deal before they die by a forced sale, and they will not be able to simply rent another accomodation, because they have no payment-stream they can make - they were RELYING on having the house available to live in!

This case perfectly illustrates the two kinds of “value” a house has - its value as a financial asset, and its value as a place to live in. The “reverse mortgage” person loses the latter value, when they have bargained for it, and the “traditional mortgage” person likely does not.

42

Unless I missed some detail in this thread, we don’t know that. It is entirely possible she was handed $260K in one lump sum, and it’s possible that is the accumulated interest and principal to date, or a combination, like a previous loan payoff plus accumulated interest.

Yes, and that’s the sad part. Eminent domain can be a bitch.

43

“just compensation” is a direct quote from the Constitution.

We are talking a transaction which causes a family to go from:

Living in a clean and safe home with manageable financial requirements

to:

Homeless, looking for a 5 bedroom rental for under $300 per month, if they want luxuries like food, heat and electricity.

A transaction that includes “just compensation” should not result in the party with no choice in the matter picking through the ruins of their finances, trying to find some way to avoid living under a bridge.

Well, if they come to me and want to buy my house, they’re paying off my mortgage. I’m not agreeing to any transaction that leaves me with huge debts and no cash in hand.

These are not people shopping their house, they are having their house taken by force, and left ruined after the governments “just compensation.”

44

Her grandson posted that fact (and descriptions of the family members living there) in the comments on the article. FWIW, only two of the family members are able to work. Two are minor children, three? are seniors and/or disabled, two are actually working in low paying jobs. The grandson is a college student.

45

Maybe I’m naive but if the bargain was that the bank was guaranteeing that she could continue to live in that house for the rest of her life and if, for whatever reason, they are now unable to fulfill that guarantee, shouldn’t they have to meet that guarantee as best they can by providing a comparable living situation and continued payments per the contract? She would, of course, give them whatever the state pays for the house since the value of the house is the only thing she owes them in return anyway.

46

What you get depends on the jurisdiction.

Here in Ontario, for example, under the Expropriation Act the person against whom an expropriation order is made is entitled to more than simply fair market value:

In my jurisdiction, this case would fall under para. 13(2)(d), and the old lady in issue would have an arguable claim. But other places do it differently. I dare say that I see nothing wrong (and much that is right) with this statute: the state ought to pay more where “special difficulties” are created, because the state is using its coercive power to force someone to sell when they don’t want to.

47

I don’t disagree with you, in fact, your description is excellent. I guess I was approaching the problem from a financing point of view (not much difference in loan types) rather than a personal point of view (big difference in having a home to live in or not).

48

The issue is what was in the contract. The contract may well be silent as to what ought to happen if the state expropriates (it’s an unusual situation). The issue is who should bear the burden of this risk: the bank, the state, or the old lady?

IMO, as I demostrate above, the fair result would be for the state to bear this burden and craft a payment that (a) pays off the value of the land to the bank; and (b) ensures that the “special difficulties in relocation” of the old lady are dealt with as well.

That is the possible result were this to take place in my home province of Ontario, based on the statute I posted.

49

Who actually owns the house at this point? Someone’s name is on the deed right? Is it the bank? The woman? Some third party who holds deeds in reverse mortgage deals?

50

Now we’re getting to the nitty-gritty of the loan document details, and that is what defines “you can live there until you die.” I doubt if that was the exact wording. More likely it’s 5 pages of dense legalese that might seem like that simple sentence, but has dozens of loopholes.

I just signed a loan document, and it was 145 pages long. Really. With very few blank spots, very small type, and very small margins. And it included other documents by reference.

Malthus, I understand your reference to the Ontario Expropriation Act, but it seems like a stretch for such factors as “(b) the damages attributable to disturbance; (c) damages for injurious affection; and (d) any special difficulties in relocation…” to be covering private homeowner debts. If the courts have so ruled, so be it, although I doubt if Ontario law carries much weight across the border. :slight_smile:

A reverse mortgage is no different from a standard one in this regard. The name on the deed is the homeowner’s; the financial institution has a lien on the property. There is no third party.

51

Am I understanding correctly that they can’t even move towards the possibility of some equitable situation without a few hundred for an appraisal of the house?

Surely some charitable individual could help with that? If I knew these people and I thought it would help, I’d pay for the damned appraisal.

52

One of the posters in the comments section of the news article brought up an interesting point. If the government is saying, thru tax assessments (or whatever that value number is) that the property is worth $X, then that is the minimum amount they should pay the owner. Offering a penny less makes a mockery of the whole idea of property assessment and taxation – assess it high so you can get more taxes, but buy it low because it’s not worth that much?!

For that matter, I imagine there would be a civic-minded local appraiser who would donate his time, or at least defer a fee.

53

I’m not seeing why I’m asking the state to cover her debts. I’m asking the state to cover the “special difficulties” in “relocating” her - the exact language of para. (d).

The whole issue raised by this example is that the state, by expropriating, is likely to “relocate” her into a cardboard box under an overpass. I’m saying it should ensure that this doesn’t happen, and that the language of the statute seems on plain reading to say as much.

Thus, the result (as I read it) would be that the financial risks fall where they may, but that the state makes special provision, above and beyond the financial risks, that this lady not be rendered homeless because of the exercise of its powers.

Well obviously, that’s why I keep saying different places do it differently. But I assume you know that. :wink:

54

If they happen to be building a bridge about where the house is I think I see a solution :slight_smile:

I came back to say basically what davidm said.

The bank made a deal with the lady. You get X a month and get to live here till you die. Well, due to the State “here” is going away. Lady had nothing to do with “here” going away. The bank gets to find a comparable “here” for her to live in. Then the State and the Bank get to duke it out in court.

55

I assume the homeowners just don’t want the process to move forward because they know any appraisal isn’t going to get them what they want - that is, to keep living there.

56

Clever, but evil. I like. :smiley:

57

That’s exactly what you are proposing, that the state cover her debts. If she owes more on the property than it’s worth, the difference is the debt you are proposing the state pay.

Perhaps “special difficulties” is a catch-all, like using “inattentive driving” if the cop can’t figure out what to write the ticket for. It seems like a stretch. If I knew more about legal reference searching, maybe I could find a court case that applies, but that’s more work than I’m getting paid for on this case.

No, but staying there is the least likely outcome. An appraisal might get them more money and/or avoid a greater debt to the woman or her estate.

I hope something better than either of those options can be worked out. Let’s see if that volunteer lawyer can work some magic.

58

Does this property even have a “fair market value” in the usual sense? By contract, it can’t legally be sold, other than to the state by force, and one buyer, buying by force, is hardly a market.

59

I am? I don’t think so.

If this woman died, the bank would have a claim on her estate. She has no money and no property other than this house. What would the bank get, other than the market value of the property? Nothing, that’s what.

I’m not proposing that the state “pay her debts” and I have no idea how you are reading that in. What I’m proposing is that the state pay the bank what it would get anyway (the market value) and then, totally unrelated and gratis, above and beyond the market value of her property, find accomodation for the lady owner, thus dealing with the “special difficulties in relocation” caused by her unique situation - for example, by having the state pay rent on a property for the lady to live in.

60

Obviously. They are going to be expropriated no matter what they do. I see it as a tactic of despair, not a serious tactic to deal with the issues.