Reverse Mortgage Question: Can you transfer a deed when the home is in foreclosure?

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. 

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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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  • The posts seem a little old so I don’t know if anyone will read this. My aunt is considering a reverse mortgage but she has a life estate deed on her home (it becomes her sons upon her death). Doesn’t that have to be changed before she could get one because as it stands now the house becomes his upon her death and he wouldn’t have signed for the reverse mortgage.

  • I don’t believe the short sale mentioned in the NRMLA alert has anything to do with your scenario. A short sale, in my belief, has to do with selling the property for an amount insufficient to cover the current balance owed but is acceptable to the Mortgagee and/or HUD for retirement of the debt.

    Your scenario has more to do with recent policy of most Mortgagees to require some seasoning of home ownership. This example is a perfect situation of concerns that some would abuse the program by transferring property to seniors for personal gain and no intent of moving or keeping the senior in the home as their primary residence.

    I have heard of ownership seasoning requirements from six months to twelve months.

    Again, this is my opinion but you may want to confirm with others.

  • Technically speaking, a deed cannot be transferred without the permission of the lien holder/lender. In the situation described the lender wants to get paid. The logical step would be for the son to contact the current lender to seek their cooperation. Even though the current lien holder might agree to a deed transfer or adding the mother to the existing deed,the foreclosure will not go away. You should make sure there is a lender who will do the reverse mortgage for the mother before proceeding, especially if there is a seasoning requirement under the existing or new guides,which in essence would make this process a mute point. When in doubt always consult your lender guidelines, call your nearest HUD office for guidance and follow the guides and policies of your company.

  • Regarding the issue of transfer of ownership while foreclosure is pending. The problem for underwiritng and title is that a public notice of lis pendens has undoubtedly been filed by the foreclosing lender, which effectively prevents a subsequent “purchaser” (Mom) from acquiring a clear title until the foreclosure is resolved. The foreclosing lender’s full cooperation will be required to permit the reverse mortgage transaction, resulting in full payment (or negotiated discounted payment) of the delinquent mortgage, accrued late fees and costs of foreclosure, in exchange for a releaxse of the lis pendens, or dismissal of suit if the property is located in a judicial foreclosure state. The difficulty will be in the authority of the attorney for the foreclosing party to negotiate and his or her willingness to step aside and allow the client to deal directly. Due to the volume of foreclosures, there is tremendous pressure to push them thorugh the system without regard to individual circumstances. Some concerned and enlightened jurisdictions in Florida (where I practice law and originate reverse mortgages) have implemented mandatory mediation procedures in residential foreclosure cases. This is not an impossible senario, but it will be difficult, and you need a knowledgeable title company to help out.

  • The technical answer is that HUD does not have a seasoning requirement in regards to ownership.

    A prudent lender might have their own seasoning requirement for these situations. On the outset, a reverse mortgage looks like a fine solution for these folks. The down side is that it could be a short term fix that could lead to a bigger problem.

    If the mother does a reverse mortgage, the son will no longer be on title. If mom were to pass sooner than expected then the son would have to sell or refinance……and if he was in foreclosure then he won’t credit qualify to refi. The son must then sell the house and the son cries that the “bank took the house.”

    These situations often come back as negative press on reverse mortgages. It is scenarios like these that have to be fully explained to family members and better yet……….companies should have their own disclosure that explains these details. The mother and son should both sign the disclosure.

  • Definitely try to have the borrower to work with the lender. Most lenders propbably do not want anymore forclosures on their books especially if they can get their required payoffs plus any attorneys fees that have accumulated. Reverse mortgages do not require any seasoning. The mother just needs to make sure it her primary residence and that her name is currently on title. So, try to talk to a decision maker at the current lender and tell them the benefits of getting this done. You might want to see if the mother qualifies first and that there is enough equity. Anyway, hope it all works out.

  • This is a classic Catch 22. Currently (that is until the new regulations are in plase) FHA HECM’s can not be used for a purchase transaction. Foreclosure or not, the mortgage prevents conveyance of the deed without satisfaction of the note. (Remember, the mortgage and note are two seperate instruments.)

    So, here are two alternatives to resolve this scenario. Both assume the proceeds from the HECM will be enough to satisfy the lender.

    First, if the lender is willing to wait for the new regulations to become effective, proceed as if this is a short sale.

    Second, have the mother added to the deed. In FL it costs about $10. Then, as owner, she can get a HECM under current regulations provided the son is deeded off the property at closing.

    Before investing too much of your time, make sure there are no other factors that can sour the deal. (Speaking from experience here.)

    If the HECM proceeds cover the current outstanding balance, it should be relativiley simple.

    If they don’t, make absolutely sure the lender is COMMITTED to this transaction.

  • A lot of the posts have correct information, but nobody’s mentioned what may be the simplest way to deal with this problem, assuming Mom’s age and equity are sufficient.

    Definately talk to the lender, but see if they’ll allow the son to execute a deed granting Mom a Life Estate. He does not take himself off title, he just adds her right to occupy the property. HECM underwriters deal with these all the time, so it’s no problem for the HECM lender.

    If the lender agrees, get Mom into counseling NOW and explain the situation to the counselor to get the appointment accelerated.

    If the lender balks, the son doesn’t even have to execute this change before closing; the HECM lender will accept a copy of the deed with Life Estate and list it as a closing or funding condition. That way, the son can show the existing lender that the reverse mortgage will close, that the lender will get their money, and the lender reduces their potential loss by allowing the change in title.

  • be careful – although hud has no seasoning requirement, make sure you exercise prudent lending – why was the deed transferred to son to begin with – was property in f/c before?, was mom strawbuyer or co-signor for son? why now transfer back to mom? who was paying or not paying mortgage payments.

  • A lot of the posts have correct information, but nobody’s mentioned what may be the simplest way to deal with this problem, assuming Mom’s age and equity are sufficient. You should absolutely be able to pull this off as a refinance.

    Talk to the lender ASAP to see if they’ll allow the son to execute a deed granting Mom a Life Estate. That way he does not take himself off title, he just adds her right to occupy the property. That may preserve the existing lenders rights and help gain more cooperation, but it also allows the HECM application and underwriting to begin. As the earlier comment noted, there is no seasoning requirement on HECM loans, so this presents no problems for the HECM lender; they deal with Life Estates all the time.

    If the lender agrees, get Mom into counseling NOW. Explain the situation to the counselor to get the appointment accelerated.

    If the lender balks, the son doesn’t even have to execute this change before closing; he can go ahead even if it’s only a conditional plan – telling the existing lender that if he can show them the money, would they agree to consider permitting the change in the very near future?. The HECM underwriter will accept a copy of the proposed Deed with the Life Estate before it is recorded; they’ll just list the recording the new Deed with Life Estate as a condition to be satisfied at closing. That way, the son can show the existing lender that the reverse mortgage will close and they will get their money without the additional foreclosure costs and time delays. I wouldn’t want to be the lender that refused to accept this payoff and went ahead with foreclosure.

    Make sure the lender does not send the file to a foreclosure law firm while you are executing the reverse mortgage. This means you stay in direct communication and provide them with regular updates and time frame estimates. Otherwise, if it goes to a law firm, the payoff may be refused since you’re dealing with an entity hired to execute the foreclosure instead of the lender who just wants their money.

  • I closed such a transaction in December 2007. The son was on title, the NOD was going into sale in a matter of weeks. Mom was granted the home back into her name via a quit claim. I then proceeded to fund the HECM for the new owner, Mom, and save the house from going into the auction. That auction was actually postponed twice on technicalities, but as the owner, Mom and son are in this house today. Dealing with the asset manager and local lawyers was not fun, but they did allow us to pay them what they were owed. The family came in with a few thousand in cash to make up the difference but we got it done.

  • The posts seem a little old so I don't know if anyone will read this. My aunt is considering a reverse mortgage but she has a life estate deed on her home (it becomes her sons upon her death). Doesn't that have to be changed before she could get one because as it stands now the house becomes his upon her death and he wouldn't have signed for the reverse mortgage.

  • The posts seem a little old so I don’t know if anyone will read this. My aunt is considering a reverse mortgage but she has a life estate deed on her home (it becomes her sons upon her death). Doesn’t that have to be changed before she could get one because as it stands now the house becomes his upon her death and he wouldn’t have signed for the reverse mortgage.

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