Oregon Could Set Precedent in Special Reverse Mortgage Case

The Oregon Department of Transportation may have set a policy precedent in solving the case of a condemned house it needed to buy in order to finish a highway project whose owner had a reverse mortgage. 

ODOT needed Patsy Burnsed’s property to complete the Brookwood Parkway/Helvetia Road Interchange Project on U.S. Highway 26, reports Oregon Live, but following the normal condemnation process in this particular instance would have left Burnsed homeless. 

That’s because Burnsed had a reverse mortgage taken out on her home, and her lender would have received the bulk, if not all, of the money ODOT would pay for the house—a situation the agency found out was a first in a condemnation case. 

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ODOT began working toward a solution with Burnsed in the spring of 2012 and agreed to buy a house that would provide her “comparable living conditions” to the home she would be giving up. 

“[Burnsed] and her family didn’t like the choices ODOT offered, so they looked for alternative and found one in Hillsboro that was acceptable,” says the article. “ODOT paid about $200,000 for the house, and Burnsed signed papers Thursday that ensure that she can live in the home as long as necessary. When she no longer needs the home, ODOT will be able to sell it.”

The highway department is now working with a lender to buy Burnsed’s old home and has offered to pay $196,000, according to a spokesperson cited by Oregon Live.

While the cost of buying the old house along with the replacement home is more than the agency would typically spend in a routine condemnation case, the article notes, ODOT will likely recoup at least some of those costs through the eventual sale of Burnsed’s new home. 

The case may set a precedent for how other highway departments handle similar circumstances where a condemned home has a reverse mortgage, but ODOT has not specifically created a policy for reverse mortgages—in part, says the article, because it recognizes each case would likely be different. 

Read the full article

Written by Alyssa Gerace

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  • Two myths about HECMs spread by our industry are refuted in this article. The first is that FHA insures that borrowers can live in the home as long as at least one borrower lives in the home as his/her principal residence. Here again is yet another example that FHA does not insure in anyway, shape, or form the home against the borrower being displaced out of their home in all circumstances such as state condemnation of a home.

    The second myth is that there is no value in the equity when the value of the home is equal to or less than the balance due on the HECM; that is nonsense. When mathematical equity turns zero there is still economic value in the legal equity in the home since there is true measurable objective economic value in being able to stay in the home until a terminating violation of HECM loan covenant occurs and during that period of time have control its ownership and bundle of other various rights no matter what the value of the home or the balance due on the HECM actually are. While the mathematical equity represents the net proceeds available to the buyer in an arm’s length negotiated sale of the home, ask any HECM borrower whose balance due on the HECM exceeds the value of the home and find out if the right to stay in the home and have all the others various rights of homeowner available to them the same after this cross over point has no real value or not. It does!!!

    We live in a make believe world of absolutes. The truth is far, far different. The trouble is few people understand the difference between the legal concept of equity and a simple math problem. Except in the value of equity in a sale, they have little relation to value to the borrower. Without the mercy of the Oregon state government, the former HECM borrower would be homeless which would normally happen to many HECM borrowers in a condemnation sale. FHA insurance only insures against wrong actions of the lender against the borrower and little else.

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