Be Careful of the Reverse Mortgage Info Messenger

Written by Xerine Raziel

Saturday, 20 December 2008

A realtor called me the other day. I was marketing the new reverse mortgage purchase money available after the first of the year.

by XerineRaziel

A realtor called me the other day. I was marketing the new reverse mortgage purchase money available after the first of the year.

She expressed interest but not before going into a long, horrible and sad story of a friend of a friend who had an unbelievably bad experience with a reverse mortgage. I was intrigued from the get go.

Now, in an effort to put the kibosh on the horrible results of a reverse mortgage going viral and thus wrecking my business, I need you to keep reading past the next few paragraphs. You might stop reading and tell your friends about this horror. And they might believe you.

Like most stories that may not be true the story is told second, third or fourth hand. In this case, the agent had a girlfriend, who's friend's father had a reverse mortgage on his home. After his passing the home made it's way into the hands of the FOAFOAR (I'm going to use this acronym for the Friend Of A Friend Of A Real estate professional).

Well, more money was owed to the lender, at the time of his death, than the home was worth. According to the realtor the mortgage company required repayment of the entire amount owed.

The property eventually sold to repay a portion of the money owed the lender. The lender forced the FOAFOAR to pay the remaining balance of forty-thousand-dollars.

Is this story possible. I suppose so, but it is highly unlikely. FHA makes up the rules for lenders in the reverse mortgage business. One of the rules states that a lender cannot force the borrower or family to make up the difference if there is a deficiency. Thus the term "non-recourse" is associated with reverse mortgages.

If there is negative equity at the time the home is to be sold, either voluntarily by the borrower or after death by the heirs, the process is the same.

The mortgage company will require a real estate agent to list and market the property for sale. In the process the realtor will furnish comparable properties so the mortgage company knows the property will be sold at a fair market value. Eventually the home is sold and the lender is repaid the sale price less closing costs.

Per FHA rules this net amount is what the reverse mortgage lender can get from the borrower or heirs. It can't get the remaining balance, if one exists. It's not a great deal for the lender. It must write off the difference as a loss.

A bunch of folklore is flying about concerning the reverse mortgage. You may have a financial obstacle in need of an answer. The reverse mortgage may or may not be a great tool for you. Make sure you have real facts at your disposal before making a decision.

Article Author:

Learn about other folklore plus the Quintessential Guide to the Texas Reverse Mortgage. To learn some great questions to ask try 5 hard hitting questions for the mortgage company before getting your Reverse Mortgage in Texas.

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