Author Topic: Funding Private Reverse Mortgage- Good idea?  (Read 2959 times)

peoria

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Funding Private Reverse Mortgage- Good idea?
« on: February 09, 2016, 11:40:31 AM »
I am looking for advice and /or opinions on something we are thinking about.
We are considering possibly funding something that basically amounts to a private reverse mortgage.

We would be using a real estate lawyer and a title company to set up the agreement, check the property for title issues, etc.

About the deal:
What we would do-
Fund (and pay directly) property taxes, property insurance, and maintenance projects for a property.

What we would get-
A lien on the house for the amount of money that we put towards the above items.
A legal option (not obligation) to be able to purchase the house at a discounted price ($150k) based on today's market value ($190) when the couple passes away or decides to sell the house.

About us:
Unmarried couple m-48 f-38
Assets approx. 1.45 mil
Debt 250k mortgage
Annual income $120k after taxes
Annual saving $90k (including amounts paid towards principal on mortgage).
Annual spending $30k after taxes

About the possible lendees:
Elderly couple that have been family friends of my SO since he was little, and that he considers his aunt and uncle. M-90 F-80
Savings depleted.
Small pension plus social security as income
Own a house in southern California, but have a reverse mortgage on it.
Have 8 additional family members (leaches) living in said southern California house - one pays $250/ month rent, one contributes food to the household, others pay nothing.
Some sporadic rental income from vacation home that rents as a vacation rental. Own this one outright. Loves this house and the opportunity to get away from the craziness of the primary house.

About the house:
Built 1982, 2000 sq ft, 6000 sg ft lot, lots of deferred maintenance, and decorating from the 80's. 4 bed/3 bath
Zillow est of $235k
My research using realtor.com makes me believe that it would sell for about $185-190k
In a small mountain town in southern California.
Taxes about $2k annual, insurance about $2k annual.


Guesl982374

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Re: Funding Private Reverse Mortgage- Good idea?
« Reply #1 on: February 10, 2016, 07:49:14 AM »
Own a house in southern California, but have a reverse mortgage on it.

Have 8 additional family members (leaches) living in said southern California house - one pays $250/ month rent, one contributes food to the household, others pay nothing.

These two lines alone make me want to run. You are going to be competing with the original reverse mortgage bank and 8 people who will most likely feel entitled to the house. No thanks. If you feel the need to give a gift to the "aunt & uncle", that's your choice but I wouldn't assume that I would see any of that money back.

peoria

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Re: Funding Private Reverse Mortgage- Good idea?
« Reply #2 on: February 10, 2016, 09:18:12 AM »
Sorry if it wasn't clear, but they have a reverse mortgage on their primary, and the leeches are there.

This is a secondary vacation/rental home.

former player

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Re: Funding Private Reverse Mortgage- Good idea?
« Reply #3 on: February 10, 2016, 10:02:22 AM »
Why are you proposing this?  Do you want the house, and if so is it personal or an investment?  Or are you just trying to help out this couple?

If you want the house itself, I would be very wary.  You not only have the 8 leeches to deal with, but you may also have debtors from eg. health and social care costs coming after the house as an asset to be sold.  If you do, you are potentially looking at ensuring that all of them are happy before you get to keep the house without a legal fight.

How are the costs you put into the house to be agreed?  These will affect whatever is left via the couple's inheritance, so you need a clear, binding and unarguable means of settling what these have been over a period which is potentially two decades.  And you will still probably get the heirs and debtors arguing and unhappy about costs from however many years ago.

I'd want to be clear about the circumstances in which the lien becomes due: on death of both?  on death of one? on either or both becoming incapable of using the house?

I'd also be clear on what maintenance means: to my mind it doesn't include updating.

You would be much better off doing a more traditional equity release, paying over a lump sum or an annuity in return for a certain percentage of the equity.  That way, you are far less likely to have arguments over how much you have put into the house.

terran

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Re: Funding Private Reverse Mortgage- Good idea?
« Reply #4 on: February 10, 2016, 10:15:11 AM »
What about buying the house outright now and letting them use it?

JustGettingStarted1980

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Re: Funding Private Reverse Mortgage- Good idea?
« Reply #5 on: February 10, 2016, 10:56:05 AM »
What about buying the house outright now and letting them use it?

Terran's idea seems more full proof. Buy it and let them live there if you want to help.

peoria

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Re: Funding Private Reverse Mortgage- Good idea?
« Reply #6 on: February 11, 2016, 09:08:10 AM »
Thanks,

We were opposed to buying it now for a couple of reasons.

1. They have leeches that they can't say no to. They did a reverse mortgage with a lump sum for the primary residence 5 years ago, and the money is gone.  They have said that they do not want a lump sum.
2. They are against selling it.
3. We live in Arizona, and only really wanted to commit money at this time.

We are now reconsidering, and buying it, and giving them a life estate is now a possibility.
We would probably end up having them put the money into a life annuity with cash refund, so that they get monthly payments rather than a lump sum.

terran

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Re: Funding Private Reverse Mortgage- Good idea?
« Reply #7 on: February 11, 2016, 09:19:15 AM »
1. They have leeches that they can't say no to. They did a reverse mortgage with a lump sum for the primary residence 5 years ago, and the money is gone.  They have said that they do not want a lump sum.

In that case perhaps you could buy it from them and they give you a private mortgage so you're paying them monthly rather than a lump sum? Gets a little messier, but it still seems cleaner than possibly having to fight with heirs about whether you can buy the property at below market when they pass.

peoria

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Re: Funding Private Reverse Mortgage- Good idea?
« Reply #8 on: February 12, 2016, 02:49:26 PM »
That could be a possibility also, thanks.