I came across an interesting question and I thought the best way to get an answer was to ask RMD readers. Below is the scenario:
Mom and son live in the home. The home was put in the sons name a few years ago, and is now being foreclosed on. The son want to give the home back to his mother, and wants a reverse mortgage to pay off the current mortgage. I am being told, that the deed can not be transferred while the home is in foreclosure. Is there any way to do this before the new purchase guideline come out?
Has anyone ran into a scenario like this? I think you could refinance this instead of waiting for the purchase guidelines from HUD, but I’m not sure.
The scenario gets a little more interesting because of NRMLA’s recent alert based on HUDS guidelines for “Non-recourse” loans, which mentions an arm’s length transaction. See the excerpts below..
With respect to a HECM loan, non-recourse means that although a borrower will always owe the entire loan balance, if the borrower (or estate) does not pay the balance when due, the mortgagee’s remedy is limited to foreclosure and the borrower will not be personally liable for any deficiency resulting from the foreclosure. Though no assets, other than the home, will be used to repay the debt, the home must be sold or foreclosed to satisfy the debt. At any time the borrower (or estate) may sell the property for the lesser of the full debt or the appraised value. If the loan is due and payable, the borrower (or estate) may sell the property for at least the lesser of the full debt or 95% of appraised value. However, the borrower (or estate) may not retain the home without paying the entire loan balance.
If a borrower (or estate) elects to follow the short sale procedures, such sale of the property by the borrower (or the borrower’s estate) must be an arm’s length transaction. HUD defines an arm’s length transaction as being between two unrelated parties and must be characterized by a selling price and other conditions that would prevail in an open market environment. Borrowers, their heirs, mortgagees and appraisers must adhere to ethical standards of conduct in their dealings with all parties involved in a short sale transaction.
Note that NRMLA’s alert does not intended to serve as legal advice or as a formal FHA communication.
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