Reverse mortgages have been around since the 70’s, maybe even earlier.
They go through periods of being ‘pushed hard’ when the market is in a situation for the banks to make out on them. As an example, after the market crashed (2008-2009), home values were extremely low (almost artificially low because the market was glutted). That’s when banks want to push them because they give low appraisals and the banks make very low projects about the ultimate ‘value’ of the house. (at least 15 years ago when I was a Realtor™ in MD that is what they did)They’re almost guaranteed that the property will be worth more than they’re paying for in 10-20 years.
Banks do not want to put out reverse mortgages when the housing market is nearing peak (and they did know that they were heading for a bubble by 2006) because when the bubble breaks, they’re going to have a devalued house.
So, they let out a reverse mortgage to a 74yo woman in 2002 and had it gone well for the bank and she died prior to 2008, they would have made out pretty well letting the RM in 2002 and having property values run up in the bubble.
I’m sure they didn’t expect her to survive this long and that is part of the reason that the market value of the house is already maxing out.
Wouldn’t it make more sense to have a mandatory insurance clause?
I do not understand these agreements as saying that the lender is obligated to provide housing - just that they are obligated not to realize on their security until the triggering events happen (sale or death).
It strikes me that the problem here is that there is a value in this property which exists only for this woman; lifetime residence in this property.
That has real moentary value for her, because she’d have to pay to live anywhere else, but it has no value to anyone else, so naturally it’s not part of the market value.
The constitution requires “just compensation”. So what does “just compensation” mean in this case? Is it simply what the property would sell for on the open market, or is it the value of the property to the current owner, which includes her right of residence. What is “just” in this case? Is throwing her on the street with no place to live just?
I doubt that the framers had anything resembling reverse mortgages in mind when they wrote the Constitution, but they did use the word “just” rather than something analogous to “current market value”. Surely that means compensation that respects our common sense intuition of what’s just and what’s not?
I agree, the bank isn’t obligated to provide her with a place to live.
You can’t insure against everything. Imagine a home in an area where the ground becomes contaminated. An entire town in PA was eliminated because an underground coal seam caught fire and it still burns to this day. There are a few reasons that houses can disappear and not be able to be rebuilt. In this case it is eminent domain. So, logically, the contract would have a force majeure clause that describes what happens. In this case, I’m thinking the bank will treat it as a sale (because technically, it is a sale, just not a voluntary sale).
Most probably they are going to treat it as a “sale” (which, as you state, it is) and thus a triggering event for them to realize on its security. It is not a typical event of force majeure (though those clauses, as you probably know, vary widely, so I suppose it could be).
I agree that the contract really ought to contain specific language as to what would happen in this case - I’m simply assuming it does not.
Events which would result in the homeowner being unable to repair their house despite adequate insurance must be vanishingly rare outside of expropriation.
The issue in this case is which of these three parties - owner, bank and state - should bear the risk that this event realized (that is, that because of the concatenation of circumstances the old lady will be tossed out in the street, when she otherwise would not be). After thinking it through, and looking at my own jurisdiction’s law on the matter, I think the risk should be borne by the state. It is their action which has triggered the event, and any special or unusual difficulties that the expropriation creates they should “make whole”. The contract can of course only allocate risks between the owner and the bank, and IMO neither should bear this risk.
If the bank has a heart :rolleyes: it could take the sale money and purchase another home of comparable worth, then transfer the woman’s interest & mortgage to that.
The bank could probably negotiate a better price than the homeowner, and if they sold it for a fair value, then bought another for that price, the bank would be exactly where they wanted to be, since the major factor here is the life expectancy of the owner, and that would not have changed. Under this scenario, they would get their eventual reward exactly as planned.
In any case, none of that has anything to do with it. The question is what’s just compensation for this woman. It would be the same question if she lived alone.
Actually, I think these will (are?) increase due to increased awareness of contamination issues and increased ability to test for contamination by the average Joe.
I have a friend (equipment operator) who sits in a lawn chair at a job site (has been for about a month) because the LNG pipe they are digging/installing ‘busted out’ the hill side sending hundreds of thousands of gallons of ‘drilling mud’ onto the surface.
The EPA, a couple other agencies and the companies are all fighting about the definition of “cleaned up”, while they wait for the toxic part of the ooze to cease flowing long enough that they can start to physically dig this stuff back out of the hill side. These sites usually end up with various metals and other testable levels of toxic chemicals, even after digging out, because it seeps into the ground.
Down hill and down stream properties are affected when these things blow out.
He’s been working these gas lines for about three years now. The crew he is on has ‘blown out’ at least one hill side a year (it comes from bad calculation about the underlying geology and the fact that he’s on a crew that works the most dangerous slopes in the pipeline.)
The government is not responsible for these clean ups.
The companies may or may not be responsible, depending on the language in the leases. Some of the leases are over 50 years old and have no protections for the land owner. Since a lease allowed the drilling, the insurance company (if there is any insurance on the property) isn’t going to cover damages as a result of commercial activity.
So, the worst case scenario is the land owner is now sitting on property that is condemned and is a toxic cleanup site.
(Newer gas leases since about 2007 have land owner protections and liability is spelled clearly spelled out.)
Interesting. It shows a rapidly declining property value, slightly more than (IMHO) the national average. If that trend is extrapolated backwards, the bank probably lent way too high.
However – and this is based only upon my experience with local customs – it seems odd that an appraisal was done yearly, and I wonder if their appraisals are done at 100% of value. I understand many municipalities appraise at 70% or some other number, and this would distort the numbers that we are looking at quite a bit.
homeowner signs the house over to the bank, and in turn receives the difference between what is owed ($260,000) and the higher valuation ($286,000?) to be used as a deposit on a 2nd house, which then is automatically entered into a similar agreement (no payments required, bank receives it upon her death).
Then the bank takes on the city to get a better price.
Interesting that you say the state should pay a “fair market value” that is higher because the person deserves to be paid more.
Meanwhile , the woman and her extended family may have seen this resumption coming and are working the system … “Hey look, you can’t kick us out of the house and make us live in the gutter !”
Scratching my head over a reply to a post from two years ago … what, exactly, do you mean? That the old lady is seeing this as a cash-cow? You do realize that the “pay more” I was talking about was a place to stay, not a money windfall?
It is interesting to note that the state (eventually) adopted exactly the solution I proposed two years ago - that is, gave her a new place to live rent-free. It was, I contend, the right solution.
If the numbers reported in the original story are accurate, someone in the lending bank has a defective calculator which needs replacing. A 90% loan-to-value ratio (and going up!) involving an 86-year-old should never have been allowed to happen. Even if the mortgage was granted in Mrs. Burnsed’s sixties, which is about the minimum age to get one of these loans, the payouts should have allowed for way more cushion than that.
Even $1,000 per month, with constantly accumulating interest, can pile up to a modest home’s value in relatively short order. Still, they can be useful devices for the right people.
Good on the ODOT for keeping them in a home. The state did the right thing in essentially stepping into the shoes of the bank here. The bank is made whole, and the woman gets to continue living in a home until she passes.
I’m going to cynically predict that when she does finally pass, all the other people living there will start another sob story when the ODOT tries to kick them out.
That the old lady is seeing this as a cash-cow? You do realize that the “pay more” I was talking about was a place to stay, not a money windfall?