The Reverse Mortgage

In a nutshell, a reverse mortgage is a loan secured by real property. The loan is made in monthly installments or a lump sum to the home owner. The homeowner may live in the home for as long as they want or until the homeowner is deceased. At that point the property will become an asset of the bank and sold off at market value. If the homeowner sells the property prior to the term set forth in the reverse mortgage note than the loan must be paid back at closing of the sale.
There are a few things to consider before committing to a reverse mortgage.
1. You must be 62 years of age or older. However, the older you are the less attractive a reverse mortgage looks. Let’s say you are in your 80’s, it may make more sense to take an equity loan on the property to meet your expenses as opposed to a reverse mortgage. With an equity loan you may be able to supplement your needs and only pay interest on the money that you use from that line of credit. Another option is to refinance the property and pull the equity out. All though the interest rate may be lower with refinance terms the interest will be bases on the entire amount rather than the amount used. When the Real Estate market turns upward you may be able to sell the home at a profit, pay off the equity line or refinance and walk away with a substantial amount of profit in your pocket. The key here is that you must have equity in the property to take advantage of either a reverse mortgage or an equity line.
2. I don’t believe the banks are trying to rip anyone off as some would have you believe. However, they are in the business to make money. They have stockholders to appease. Look at the numbers, how much will they be paying you and for how long (assuming you take the loan in payments). Are you getting a good return for what may be your most valued asset? These banks are making an investment. They want a high return on their investment. They do not represent you. You need to take a hard look at your personal situation and yourself. Do you need this money or can you live without it. Are you in the best health you can be? Do you see yourself living to the ripe old age 85 or more? If your 62 years of age or more, smoke, drink and are overweight, the reverse mortgage is not a loan product you should be looking at. Remember if you move out of the property for any reason, such as you are incapacitated, go into assisted living or death, the property becomes an asset of the bank. They gain an asset at a fraction of the value and your heirs receive nothing (than again who wants to leave anything to those pesky heirs). Thus the banks get a return on investment and the stock holder thank you for adding to their bottom line.
3. The reverse mortgage has high fees and interest rates associated with it. The banks these days are holding far too many toxic assets (foreclosures) and want to protect the investors (what few they have left). If the structure of the loan is attractive to the bank than you can bet that it is not as attractive to the property owner. You should expect a fair deal, not a great deal. Due diligence is key here and always a good course of action.

Good luck and God Bless

The intent of this blog is not to give legal advice. You should always consult an attorney for legal advice.

“To Be Or Not To Be” A Landlord or a Lender

“To Be Or Not To Be” A Landlord or a Lender

Becoming a landlord can be difficult and often challenging for the inexperienced. The troubles that can unfold may be costly for today’s landlords. Many homeowners are becoming landlords due to the current market conditions. For some, there seems to be no way out. Homeowners are unable to sell their homes for a price that allows them to break even. Many are being sold at a loss. Bottom line is the inventory far exceeds the demand. We all know that the root cause stems from the lax of lending restrictions imposed by our congress. So what do we do about the problem? We can sit around and complain about the situation or start looking for solutions. One answer my be the “Contract for Deed”.

What is a contract for deed? A Contract for Deed is sometimes also know as a Land Contract, Agreement for Deed, Contract Sale or Real Estate Installment Agreement. This type of document allows the seller to retain the title to the property and agree to transfer the title to the buyer once all the payments under the agreement are made and all other obligations are met. In essence, the Seller finances the purchase and holds the title or deed as security. When the buyer completes the required payments, the seller must deliver valid legal title by way of a deed. During the period of the contract, the buyer makes installment payments on the purchase price and is entitled to possession and equitable title to the property. The seller holds legal title and continues to be liable for payment of any underlying mortgage.

This type of agreement is useful in situations where the buyer is unable to obtain financing from a primary lender.

Generally, the closing costs associated with this type of transaction are usually lower than transactions involving mortgages, banks or other institutional type lenders. A Contract for Deed also allows the seller to gain interest income from the outstanding balance.

Advantages to the “Contract for Deed” are that the buyer pays the property taxes, insures the property and maintains the property. However, the seller has the responsibility to see that the buyer is current on the payments, taxes and insurance. The sellers responsibilities are much the same as a mortgage lenders would be.

If you feel that you would rather be a Landlord than a Lender, then prepare yourself. Generally tenants do not treat property the same as owners. Is your rental property “Tenant Proof?” What type of flooring does the property have? Investing in tile floors throughout can be costly upfront, yet pay off in the long run. Adding insulation to the attic space can increase the life of your air conditioning unit and keep your long term cost down. Providing A/C filters for the term of the lease will insure that they are changed. Hire a landscaping company to maintain the property and add the cost into the rent. Minimize the amount of landscaping to keep this cost down. Don’t be afraid that adding this to the cost of the rent will scare away potential tenants. The opposite is true, tenants want the landlord to take care of the property.

Know who you are renting to. There are many websites the will provide a credit report, criminal background and rental history of your potential tenant for a small fee. When evaluating a prospective tenant credit is important. However, this should not be the only measure by which you select a tenant. Take into consideration what is going on in the real estate market. Many of your prospective tenants are former homeowners who have lost their higher incomes therefore their homes to foreclosure. Their payments started out low, but as the interest and taxes went up they were unable to keep up. These people can be good Tenants. You need to look at the numbers. Were they paying more in mortgage payments and taxes than you are charging in rent? Do they earn enough to pay the rent and their other obligations as well? Don’t throughout the baby with the bathwater. There are nearly 1,000 rentals available in Port St. Lucie. A good tenant can be hard to find, review each applicant carefully.

Best Wishes and God bless

This is NOT intended for the purpose of providing legal advice. You should consult an attorney for legal advice.

Helping Families Save Their Home Act of 2009 S.896

This act has an unexpected bright light . It may actually help out tenants who have found themselves renting a home that went into foreclosure. Under this new law that went into effect on May 20th this year Tenants have to be given 90 days notice before they can be evicted. Also Tenants will be able to stay in the property until the lease expires. However, there are two exceptions to this new law; 1.) The home has been sold and the new owner will occupy the home. and or 2.) There is no lease in effect or State law supersedes in which the lease may be terminated. In any case this is a good thing. As prospective Tenants learn of this new law it may help releave the anxitiy they are feeling when signing a new lease.

This is NOT intended for the purpose of providing legal advice. You should consult an attorney for legal advice.