Author Topic: Family funded reverse mortgage?  (Read 2812 times)

kendallf

  • Handlebar Stache
  • *****
  • Posts: 1064
  • Age: 54
  • Location: Jacksonville, FL
Family funded reverse mortgage?
« on: April 30, 2017, 08:46:26 PM »
Wondering if anyone here has experience with a "family funded" reverse mortgage.  Essentially, family members sign a loan agreement, take a lien on the property, and provide monthly payments as the bank would.  When the owner dies or the property is sold, the loan is repaid. 

National Family Mortgage specializes in setting these up; they have a hefty fee of $2500 but for this they'll prepare the contract, file the lien, and help track disbursements, calculate interest and balances, etc. 

https://www.nationalfamilymortgage.com/lend/retire-in-comfort/lender-benefits/

We're considering doing this for my mother to allow her to stay in her home longer.  I have some siblings who can't/won't contribute, which is why having a third party to document and file the mortgage is attractive.  I'd like to avoid acrimony in the eventual estate proceedings, and if she ends up with significant medical bills we'd have primary status to be repaid when the house is sold.

Anybody done this?  Thoughts?  Pitfalls to avoid?

The Money Monk

  • Pencil Stache
  • ****
  • Posts: 619
  • Location: Nevada
Re: Family funded reverse mortgage?
« Reply #1 on: May 01, 2017, 12:26:56 AM »
Wondering if anyone here has experience with a "family funded" reverse mortgage.  Essentially, family members sign a loan agreement, take a lien on the property, and provide monthly payments as the bank would.  When the owner dies or the property is sold, the loan is repaid. 

National Family Mortgage specializes in setting these up; they have a hefty fee of $2500 but for this they'll prepare the contract, file the lien, and help track disbursements, calculate interest and balances, etc. 

https://www.nationalfamilymortgage.com/lend/retire-in-comfort/lender-benefits/

We're considering doing this for my mother to allow her to stay in her home longer.  I have some siblings who can't/won't contribute, which is why having a third party to document and file the mortgage is attractive.  I'd like to avoid acrimony in the eventual estate proceedings, and if she ends up with significant medical bills we'd have primary status to be repaid when the house is sold.

Anybody done this?  Thoughts?  Pitfalls to avoid?

I think the pitfalls would mostly be non-financial. Obviously reverse mortgages can work out, or nobody would do them. I think any trouble will come in the form of family drama. Doing it through a third party will help protect you legally, but it won't do shit to prevent any drama.

I don't know your family at all obviously, but that would be my first concern, just knowing how peoples' minds work.

GizmoTX

  • Handlebar Stache
  • *****
  • Posts: 1447
Re: Family funded reverse mortgage?
« Reply #2 on: May 01, 2017, 05:25:42 AM »
There is a high probability that you will be blamed for 'deluding Mom into signing over her house' even though you alone are funding her. Ironically, because you alone are funding her. This risk of family feud exists even with recommending a regular reverse mortgage with an outside company, when family members realize the house must be sold to pay off the RM when the parent must move to managed care or dies. And if Mom lives a very long time or needs substantial care, you won't recoup all of your payments. In the meantime, older homes often become money pits -- are you prepared to also pay to keep the home in good condition for the later sale?

A RM kicks the financial problems down the road at a very high price, IMO. Sure, parents usually want to stay in their homes 'forever', which literally means they don't realistically expect (want) aging to make this impossible. It's better to sell the house before it becomes absolutely necessary, & use the proceeds for a CCRC type community or senior rental while the parent is still healthy enough to qualify.

chasesfish

  • Magnum Stache
  • ******
  • Posts: 3516
  • Age: 38
  • Location: South Carolina
Re: Family funded reverse mortgage?
« Reply #3 on: May 01, 2017, 05:39:26 AM »
Watched something similar happen in my family, specifically with my step-mom's mother.

Dad and step-mom essentially do a reverse mortgage (differently then you outlined, but same idea), mom way outlives her life expectancy, then dad and step-mom get blamed for "stealing her house" by the other three siblings who never really pitched in to help.  They still don't talk to this day. 

Another note - The house also wasn't taken care of well by mom in her older age, so the value wasn't as much as it should be and I directed my dad to just wholesale the house instead of trying to repair it.   It was a desirable shell/location, but someone needed to make the decision to either put 10k into it for a rental or 25k into it to re-sell.   He found one of the local large real estate investors and it took about 5 minutes to find a mutually agreeable deal.

Remember, "mom and dad's" existing house is really emotional.   I may have a similar decision to make with my in-laws one day, after watching that the only thing we would ever do now is purchase a new construction or nearly new single-level house, preferably in a development with exterior maintenance included.   We'd then either rent it to the in-laws or let them stay there for free.

Good luck, its a really tough situation without many good options.



affordablehousing

  • Bristles
  • ***
  • Posts: 499
Re: Family funded reverse mortgage?
« Reply #4 on: May 01, 2017, 11:50:04 AM »
Thanks Kendallf for raising this and it seems like an interesting service. I could imagine a lot of situations this would help address, and for the $2500 you may actually be buying the reassurance of having some official process in place with regards to other siblings. Any time someone dies and there's an inheritance it's a fight, but in lots of circumstances, it might be really important to age in place, rather than accelerate death and go to a home.

Interesting to think up this option.

kendallf

  • Handlebar Stache
  • *****
  • Posts: 1064
  • Age: 54
  • Location: Jacksonville, FL
Re: Family funded reverse mortgage?
« Reply #5 on: May 01, 2017, 04:24:40 PM »
I'm too lazy to quote, but answering a few items:

The benefit of doing this over finding her a conventional reverse mortgage is saving thousands of dollars in fees and PMI.  No real effect on her while she's alive, but it would reduce the equity in the house for the eventual estate.  It also avoids a forced immediate sale if she were to go into assisted living or the like. 

Yes, I am thinking about the possibility of family feuding later.  That's the main driver in using a company to process the paperwork, track payments, etc.  I'm also running it by all of my other siblings in advance and asking if they can contribute, even though I know the answers already.  I believe I can even set them up as contributors and track any one time or irregular contributions for eventual payback when the house is eventually sold.

I'd love to move her out and buy her a manufactured home near her friends, but she is digging her heels in pretty hard.  She's still mentally sharp, she's driving and even working a few hours a week.  If this buys her a few more years in this house, I'm good with it. 

My brother and I are already maintaining the house and we'd prep it for sale eventually as well.  We're going to have to put another roof on it in about a year, and I'd love for the money for this to be accounted against the reverse mortgage for eventual repayment.

ooeei

  • Handlebar Stache
  • *****
  • Posts: 1143
Re: Family funded reverse mortgage?
« Reply #6 on: May 02, 2017, 12:03:20 PM »
I'm too lazy to quote, but answering a few items:

The benefit of doing this over finding her a conventional reverse mortgage is saving thousands of dollars in fees and PMI.  No real effect on her while she's alive, but it would reduce the equity in the house for the eventual estate.  It also avoids a forced immediate sale if she were to go into assisted living or the like. 

Yes, I am thinking about the possibility of family feuding later.  That's the main driver in using a company to process the paperwork, track payments, etc.  I'm also running it by all of my other siblings in advance and asking if they can contribute, even though I know the answers already.  I believe I can even set them up as contributors and track any one time or irregular contributions for eventual payback when the house is eventually sold.

I'd love to move her out and buy her a manufactured home near her friends, but she is digging her heels in pretty hard.  She's still mentally sharp, she's driving and even working a few hours a week.  If this buys her a few more years in this house, I'm good with it. 

My brother and I are already maintaining the house and we'd prep it for sale eventually as well.  We're going to have to put another roof on it in about a year, and I'd love for the money for this to be accounted against the reverse mortgage for eventual repayment.

Unless you have very financially secure and savvy siblings, I'd run away from this as fast as possible.  They might all seem fine with it now, but in 10 years or however long when you appear to be getting "more than your share" of the estate, bad feelings could easily surface.  Maybe they'll claim they didn't really understand it, maybe they really don't, maybe they'll be pissed that it appears that you're making money off of your mother's declining health, who knows.  It could just be an emotional thing that they see you get a big check after your mom dies and even if they logically know it's legit and you paid a lot over the years, there's some part of them that thinks you screwed her/them over for your own benefit.  They'll start remembering every little way they helped her and wonder where their check is.  Every emotion and feeling they have will be amplified because of the grief of the situation.

My girlfriend's family had a terrible falling out when they sold their communal house.  Everybody thought they were entitled to a big chunk of it for all the different ways they'd helped.  One person bought groceries more often, another paid more on the mortgage, another financed repairs, and the math they had in all of their heads worked out to where none of them was happy with what they got when they sold it.  This was a family that lived together for 20 years in a multi-generational situation, and now half of them don't talk to the other half. 

Two of my aunts don't talk to each other any more because of a home construction incident where one person's company was supposed to repair something on the other ones house, and the job wasn't done to their satisfaction.  It went to court and everything, and the only time they've really talked in the last 15 years or so was at their parents' funerals.  I'm betting they could have used a different construction company for an extra $2k and avoided all of this, and it would have been money well spent.

If you do decide to proceed, I highly encourage a very explicit contract that everyone needs to get in on, along with potential outcomes of the contract.  What's paid in, what gets paid back out, all of that.  Explicitly line out how nobody is making money on anything, and keep it as impartial as possible. It won't totally protect you, but it might help a bit.  For some personality types the numbers just aren't going to matter.  They're going to see their mother die, and one sibling is going to "get rich" off of it.  I'm just thinking of how many people I've listened to argue with me that renting is throwing money away, even after explaining in detail why it is way cheaper for me and many other people.  "But when you rent you don't get to keep any of it, when you buy it's like paying yourself, it builds equity."  That's as far as the analysis ever gets with a good portion of people, no matter how much the alternative is explained.  These are the same type of people who will say or think "Mom died and you got a check for $100k while the rest of us got $10k. You made $90k off of her dying."  That's as far as the analysis will ever go.

If it was my family and my decision, I'd be getting as far out of the situation as possible, and having a third party company do the reverse mortgage.  The extra $10k or whatever it is you lose to fees will be well worth avoiding the drama that could come out of self funding it.  I'm guessing you have at least 2 siblings, so that's about $3k each out of your estate some day.  A small price to pay for harmony.
« Last Edit: May 02, 2017, 12:11:34 PM by ooeei »

frugaliknowit

  • Handlebar Stache
  • *****
  • Posts: 1687
Re: Family funded reverse mortgage?
« Reply #7 on: May 02, 2017, 01:28:48 PM »
Too much can go wrong for too little potential reward.  Let the loan sharks "have their lunch".