Lenders: How do you handle loans for life estates?

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Real Estate Broker/Owner with Erica Ramus - Ramus Realty Group - Pottsville, PA RM420589

We have a property in Berks Co that is being sold with a LIFE ESTATE (elderly woman must be able to live there till she dies).

What in the heck happens with financing on that one?

Buyer is interested and write an offer… accepted… then what?

What kind of loan can a buyer get? 

 

I don’t have a deal yet, just getting prepared. 

 

 

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Comments 15 New Comment

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Rainer
22,714
Sherry Connor
Myers Park Mortgage

Investment property - The borrowers can not prove their right to live there until the Life Estate is gone.

 

March 24, 2008 11:56 AM
Rainer
14,162
J Manno
Summit Realty Group, Inc.

 

I will keep an eye on this post because that is a very good question.

March 24, 2008 11:57 AM
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Erica Ramus
MRE, Schuylkill County PA Real Estate
Erica Ramus - Ramus Realty Group - Pottsville, PA

Have you done a life estate? Is it much harder to get than a regular loan, in your experience?

Someone just called in on it & she doesn't want to pay the mortgage till she can live there, but wants to purchase/settle now. I told her that's not the way we do it.

I guess the woman becomes a tenant and may pay rent if that's the agreement. 

 

March 24, 2008 11:58 AM
Rainer
9,461
Bill Engleman
Schuylkill and Carbon Countynulls FHA & USDA Specialist
Infinity Home Mortgage

Erica, I would have thought financing it as an investment property was the way to go as well. However, is the woman going to pay rent? Why is she selling it? There are a lot of questions on this one. If she is selling because she can't afford it, I can't see how anyone would want to buy it with no opportunity to either live there or rent it. I'd love more details if you have them.

P.S. One of the great things about this business is you're always seeing new things!

March 24, 2008 12:03 PM
Rainer
38,999
Michael Delp
Mortgage Pro

Is the elderly woman the owner of the property? If so, I don't think she can sell it AND keep it as a life Estate. I'm not sure why anyone would buy it unless they are speculating for the future. It would most likely be an investment property loan. That's if a buyer can get a loan at all. It may have to be a cash deal. I think more info is needed for a lender to make a good call on this.

March 24, 2008 12:11 PM
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Erica Ramus
MRE, Schuylkill County PA Real Estate
Erica Ramus - Ramus Realty Group - Pottsville, PA

Elderly woman who wants to be able to stay on her farm till she dies.

Wants to line up a buyer now.  She has a reverse mortgage on the prop so to get clear/good title she needs to pay that off at settlement.

 

The property is under-priced on purpose, to make up for the fact the woman can't/doesn't want to pay rent to a buyer.  

March 24, 2008 12:13 PM
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Erica Ramus
MRE, Schuylkill County PA Real Estate
Erica Ramus - Ramus Realty Group - Pottsville, PA
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March 24, 2008 12:13 PM
Rainer
7,060
Gloria Ruesch
Real Estate Agent - Nebraska- Iowa
NP Dodge Real Estate
This has to be an investment property, however, it is not an income investment property as the life estate does not pay rent.  In order to get a loan, I'll bet your lender will require the life estate to sign the mortgage also.  They are going to want to be able to foreclose all occupants in the event of default.  They are also going to be concerned about commiting waste, however, if the life estate commits waste they can be stripped of their life estate ut its not pretty.  I'd be a little concerned about the relationship between the life estate and the remaindermen who are selling. 
March 24, 2008 12:17 PM
Rainer
38,999
Michael Delp
Mortgage Pro
It sounds like she wants her cake and to eat it too. By doing a reverse mortgage, she basically sold it to the bank already. I am not sure why she wants to sell it. I can see some benefits to her and alot of pitfalls for a buyer.
March 24, 2008 12:36 PM
Rainer
9,461
Bill Engleman
Schuylkill and Carbon Countynulls FHA & USDA Specialist
Infinity Home Mortgage
Michael, I would wager that she needs more money to live on. The reverse mortgage was either a lump sum or a monthly amount that has been used up. I imagine she's hoping to see some money to carry her through. I hope I'm wrong as that's a sad state for an elderly person to be in. Good luck Erica. This sounds like it's going to be a challenge.
March 24, 2008 01:11 PM
Rainmaker
1,842,515
Gita Bantwal
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel
RE/MAX Centre Realtors
I think you should talk to an attorney . There might also be tax consequences. I will bookmark this to see other comments.
March 24, 2008 01:28 PM
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Erica Ramus
MRE, Schuylkill County PA Real Estate
Erica Ramus - Ramus Realty Group - Pottsville, PA
Gita, I think that's what I'll need to do here. At first it looked complicated, but after reviewing everything I don't see how we can do it.
March 24, 2008 06:26 PM
Rainer
38,100
Julie Jalone
MagnumOne Realty

Hello Erica - That is an interesting question and I enjyed the answers but had to laugh when it came down to "talk to an attorney."  I will be watching to see what you learn....not that this pops up every day!

Thanks for droppin by my site and leaving a comment on my blog.

March 24, 2008 07:20 PM
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Jennifer Fivelsdal
Mid Hudson Valley real estate connection
JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571
Erica - I agree with Gita you need the involvement of an attorney in a case like this.
March 24, 2008 11:46 PM
Rainmaker
44,584
D. Bass
Blog: Ask The Underwriter
Alpha Mortgage Training

This would be a purchase, It should be treated as a lease hold see the definition of a life estate from Wikipedia (http://en.wikipedia.org/wiki/Life_estate):

A life estate, is a term used in common law to describe the ownership of land for the duration of a person's life. In legal terms it is an estate in real property that ends at death. The owner of a life estate is called a "life tenant".

Although the ownership of a life estate is technically temporary because it ends at a person's death (a tenancy), it is treated as complete ownership (fee simple) for the duration of the person's life, subject to limitations. Because a life estate ceases to exist upon death, the owner of the life estate cannot leave it to heirs, and the life estate cannot be inherited.

An owner of a life estate cannot also give a greater interest than is owned. That is, a life estate owner cannot give complete and indefinite ownership (fee simple) to another person because ownership in the property ends when the life tenant dies. If, however, the original grantee has sold his life estate [ex. from A to B], B's interest lasts until A dies, allowing B to bequest his interest, sell the land, etc. until that point. Once A dies, however, whoever possesses the land loses it (with the land likely reverting to its original grantor). This is a life estate "pur autre vie," or the life of another. Such a life estate can also be conveyed originally, such as "to A until B dies."

Another limitation on a life estate is the doctrine of waste, which prohibits life tenants from damaging or devaluing the land, as their ownership is technically only temporary.

March 25, 2008 09:42 AM
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Erica Ramus

MRE, Schuylkill County PA Real Estate
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