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George
July 1st 03, 11:59 PM
"Pat Meadows" > wrote in message
...
>
>
>
> Anyone know about reverse mortgages?
>
> DH (age: 48) and I (age: 59) would be interested in the
> following arrangement, or some variation of it:
>
> Mr. X pays off our mortgage ($32,000). We leave him - in
> our will - our home. We sign a contract guaranteeing that we
> can never change our will. It becomes his when we have both
> died.
>

If you do it thru an institution the mechanics are exactly the reverse of a
regular mortgage. You sell your house to the institution, they agree to make
x payments for $x to you. At the end of the period you no longer have a
home. So the obvious gamble is will you live longer than the term and if not
what is your plan? This is all outside your will.

> (I think we're not old enough for anyone to be interested in
> this in our case...but you never know.)
>
> Our home is presently worth about $70,000 to $75,000 and its
> value is almost certain to increase sharply over the next
> few years.
>
> Homes being built in our neighborhood are going for
> $150,000, and our two immediate neighbors are building large
> additions on their homes that will make them worth about
> $150 K in one instance, and $100 K in the other.
>
> Anyone heard of a scheme like this? Are there companies
> that do this?
>
> Thanks.
> Pat

lpogoda
July 2nd 03, 04:06 AM
Pat Meadows wrote in message ...
>
>
>
>Anyone know about reverse mortgages?
>
>DH (age: 48) and I (age: 59) would be interested in the
>following arrangement, or some variation of it:
>
>Mr. X pays off our mortgage ($32,000). We leave him - in
>our will - our home. We sign a contract guaranteeing that we
>can never change our will. It becomes his when we have both
>died.

I sure wouldn't be your "Mr. X". I might be willing to _buy_ your house and
land, with you retaining the right to live there rent-free for life
providing you met certain requirements (maybe some, maybe all, maybe none of
things like taxes, insurance, maintenance, utilities, doing nothing that
damages the property). If you decide to move, you could move, but you
wouldn't "get" anything if you did - you'd have no equity in the place.

Partly in return for letting you live there "for free" and due to the
open-ended nature of the arrangement (I don't know when I'd be able to take
actual physical possession of the property, if ever - for all I can tell
either or both of you might outlive me) I'd certainly expect to pay less
than the full market value that you might get for a more conventional sale.

Such arrangements were fairly common where I grew up - elderly people would
sell their residences but retain a lifetime tenancy. I'd be surprised if
such deals aren't still being struck. My grandparents sold their house
under such a deal. One risk you run is that the buyer may die before you,
and his or her heirs may be disinclined to honor the deal.

But to hand you money in return for a promise that you might not keep? No,
as they say, way. As far as I know, anyone past the age of majority and of
sound mind has the right to make a will, and you can't give away that right
by signing a contract any more than you can give away your right to vote.

>(I think we're not old enough for anyone to be interested in
>this in our case...but you never know.)
>
>Our home is presently worth about $70,000 to $75,000 and its
>value is almost certain to increase sharply over the next
>few years.
>
>Homes being built in our neighborhood are going for
>$150,000, and our two immediate neighbors are building large
>additions on their homes that will make them worth about
>$150 K in one instance, and $100 K in the other.


The price a neighboring piece of property might fetch is irrelevant, other
than as prices in a neighborhood rise to some extent all properties in that
neighborhood tend to go up in "a rising tide lifts all boats" sort of
manner. The price your property might fetch in 10 or 20 years is also
probably not very relevant. Sure it might go up, but if we're in a real
estate bubble as some here have suggested, it could just as easily go down.
If you end up doing something like this, what's going to count is the value
of your property now.

>Anyone heard of a scheme like this? Are there companies
>that do this?


Reverse mortgages are available. Fannie Mae even buys them for the
secondary market. They are, from one point of view, a home equity loan.
The buyer agrees to give you a certain amount every month, and you don't
have to make periodic payments to pay it back. But interest accumulates on
each check you get, and if you sell or move, the whole bill is due. If the
house doesn't fetch enough to cover the total, you're on the hook for the
difference. If you die while still in the house, your estate has to pay it
back. If the estate isn't big enough to cover the bill, I guess you've
"won". As you might imagine, institutions granting reverse mortgages use
some pretty sharp pencils in figuring what they'll pay out and to whom
they'll pay it so they don't end up with a loss.

In your case, you have a property worth about $75,000 with a $32,000
mortgage on it, so you have about $43,000 of equity. According to Medicaid
tables, your husband's remaining life expectancy is just over 28 years, and
yours is a little over 23 and a half years. Assuming you could cash out the
whole amount, and you'd want payments for your joint remaining life
expectancy, the most you could expect to collect each month is something
like $127 (around $30/week), and that's only if the interest rate is zero
percent.

But you should be talking to a bank.

lpogoda
July 2nd 03, 04:06 AM
Pat Meadows wrote in message ...
>
>
>
>Anyone know about reverse mortgages?
>
>DH (age: 48) and I (age: 59) would be interested in the
>following arrangement, or some variation of it:
>
>Mr. X pays off our mortgage ($32,000). We leave him - in
>our will - our home. We sign a contract guaranteeing that we
>can never change our will. It becomes his when we have both
>died.

I sure wouldn't be your "Mr. X". I might be willing to _buy_ your house and
land, with you retaining the right to live there rent-free for life
providing you met certain requirements (maybe some, maybe all, maybe none of
things like taxes, insurance, maintenance, utilities, doing nothing that
damages the property). If you decide to move, you could move, but you
wouldn't "get" anything if you did - you'd have no equity in the place.

Partly in return for letting you live there "for free" and due to the
open-ended nature of the arrangement (I don't know when I'd be able to take
actual physical possession of the property, if ever - for all I can tell
either or both of you might outlive me) I'd certainly expect to pay less
than the full market value that you might get for a more conventional sale.

Such arrangements were fairly common where I grew up - elderly people would
sell their residences but retain a lifetime tenancy. I'd be surprised if
such deals aren't still being struck. My grandparents sold their house
under such a deal. One risk you run is that the buyer may die before you,
and his or her heirs may be disinclined to honor the deal.

But to hand you money in return for a promise that you might not keep? No,
as they say, way. As far as I know, anyone past the age of majority and of
sound mind has the right to make a will, and you can't give away that right
by signing a contract any more than you can give away your right to vote.

>(I think we're not old enough for anyone to be interested in
>this in our case...but you never know.)
>
>Our home is presently worth about $70,000 to $75,000 and its
>value is almost certain to increase sharply over the next
>few years.
>
>Homes being built in our neighborhood are going for
>$150,000, and our two immediate neighbors are building large
>additions on their homes that will make them worth about
>$150 K in one instance, and $100 K in the other.


The price a neighboring piece of property might fetch is irrelevant, other
than as prices in a neighborhood rise to some extent all properties in that
neighborhood tend to go up in "a rising tide lifts all boats" sort of
manner. The price your property might fetch in 10 or 20 years is also
probably not very relevant. Sure it might go up, but if we're in a real
estate bubble as some here have suggested, it could just as easily go down.
If you end up doing something like this, what's going to count is the value
of your property now.

>Anyone heard of a scheme like this? Are there companies
>that do this?


Reverse mortgages are available. Fannie Mae even buys them for the
secondary market. They are, from one point of view, a home equity loan.
The buyer agrees to give you a certain amount every month, and you don't
have to make periodic payments to pay it back. But interest accumulates on
each check you get, and if you sell or move, the whole bill is due. If the
house doesn't fetch enough to cover the total, you're on the hook for the
difference. If you die while still in the house, your estate has to pay it
back. If the estate isn't big enough to cover the bill, I guess you've
"won". As you might imagine, institutions granting reverse mortgages use
some pretty sharp pencils in figuring what they'll pay out and to whom
they'll pay it so they don't end up with a loss.

In your case, you have a property worth about $75,000 with a $32,000
mortgage on it, so you have about $43,000 of equity. According to Medicaid
tables, your husband's remaining life expectancy is just over 28 years, and
yours is a little over 23 and a half years. Assuming you could cash out the
whole amount, and you'd want payments for your joint remaining life
expectancy, the most you could expect to collect each month is something
like $127 (around $30/week), and that's only if the interest rate is zero
percent.

But you should be talking to a bank.

lpogoda
July 3rd 03, 02:33 AM
James Linn wrote in message ...
>
>"Pat Meadows" > wrote in message
...
>> On Tue, 01 Jul 2003 18:39:46 -0500,
>> wrote:
>>
>>
>> >
>> >As you posted later, you're not old enough. At those figures, I'd
expect
>> >most places would want the house in 7-10 years to break even.
>> >
>> >For this to happen, you'd sell your house, Mr. X would be the legal
>owner,
>> >and you'd all sign papers giving you a lease for life for $1. Since
>we're
>> >talking about 30 years or so potentially until Mr. X can get his money
>back,
>> >it would be a very bad risk for him.
>>
>> Yeah. Too bad.
>
>My understanding of the Reverse Mortgages in Canada, is that they pay you
a
>lump sum based on value of home - from 10 to 50% of total value. You then
>don't have to pay it back as long as you live there. If you sell, or die -
>they get their original investment plus interest (similar to mortgage
>interest rates) out of the proceeds. When you think about it its hard to
>imagine that any home would depreciate enough to reach half of value, so
its
>a pretty safe investment for the lender.
>
Easiest thing in the world - the resident simply fails to do any maintenance
and the place slowly but surely falls apart.

lpogoda
July 3rd 03, 02:33 AM
James Linn wrote in message ...
>
>"Pat Meadows" > wrote in message
...
>> On Tue, 01 Jul 2003 18:39:46 -0500,
>> wrote:
>>
>>
>> >
>> >As you posted later, you're not old enough. At those figures, I'd
expect
>> >most places would want the house in 7-10 years to break even.
>> >
>> >For this to happen, you'd sell your house, Mr. X would be the legal
>owner,
>> >and you'd all sign papers giving you a lease for life for $1. Since
>we're
>> >talking about 30 years or so potentially until Mr. X can get his money
>back,
>> >it would be a very bad risk for him.
>>
>> Yeah. Too bad.
>
>My understanding of the Reverse Mortgages in Canada, is that they pay you
a
>lump sum based on value of home - from 10 to 50% of total value. You then
>don't have to pay it back as long as you live there. If you sell, or die -
>they get their original investment plus interest (similar to mortgage
>interest rates) out of the proceeds. When you think about it its hard to
>imagine that any home would depreciate enough to reach half of value, so
its
>a pretty safe investment for the lender.
>
Easiest thing in the world - the resident simply fails to do any maintenance
and the place slowly but surely falls apart.

lpogoda
July 3rd 03, 02:43 AM
wrote in message ...
>"lpogoda" > wrote:
>
>>One risk you run is that the buyer may die before you,
>>and his or her heirs may be disinclined to honor the deal.
>
>That's why you pay money for a competent lawyer to create or review the
>lease agreement. The lease would be transferred with ownership of the
>property. Future owners wouldn't have much of a choice about honoring the
>deal.


Sure. But the heir(s) may not really want to wait an unknown length of time
to receive the inheritance, may not be willing or able to make tax and
insurance payments indefinitely with no current return, may simply adopt a
policy of "benign neglect" toward the property. And the situation is that
some elderly, perhaps infirm, person ends up spending the money from the
orignal sale, money that was supposed to buy their groceries a heat during
their final years, on lawyers and courts instead. Probably they'll
eventually win, but the money's been spent.

I'm not saying it's a huge risk, but it is a risk. As I said, these
arrangements were not rare when and where I grew up, and I saw one case
where just this happened. The former homeowner ended up moving.

>Most leases are that way. If you're renting an apartment or house, and
>ownership of the building changes hands, your lease is still honored until
>it expires.

That's the theory. In theory, there's no difference between theory and
practice. In practice, there often is.

lpogoda
July 3rd 03, 02:43 AM
wrote in message ...
>"lpogoda" > wrote:
>
>>One risk you run is that the buyer may die before you,
>>and his or her heirs may be disinclined to honor the deal.
>
>That's why you pay money for a competent lawyer to create or review the
>lease agreement. The lease would be transferred with ownership of the
>property. Future owners wouldn't have much of a choice about honoring the
>deal.


Sure. But the heir(s) may not really want to wait an unknown length of time
to receive the inheritance, may not be willing or able to make tax and
insurance payments indefinitely with no current return, may simply adopt a
policy of "benign neglect" toward the property. And the situation is that
some elderly, perhaps infirm, person ends up spending the money from the
orignal sale, money that was supposed to buy their groceries a heat during
their final years, on lawyers and courts instead. Probably they'll
eventually win, but the money's been spent.

I'm not saying it's a huge risk, but it is a risk. As I said, these
arrangements were not rare when and where I grew up, and I saw one case
where just this happened. The former homeowner ended up moving.

>Most leases are that way. If you're renting an apartment or house, and
>ownership of the building changes hands, your lease is still honored until
>it expires.

That's the theory. In theory, there's no difference between theory and
practice. In practice, there often is.

Maribeth Mason
July 28th 03, 08:16 PM
On Tue, 01 Jul 2003 12:50:07 -0400, Pat Meadows >
wrote:



>Anyone know about reverse mortgages?
>
>DH (age: 48) and I (age: 59) would be interested in the
>following arrangement, or some variation of it:
>
>Mr. X pays off our mortgage ($32,000). We leave him - in
>our will - our home. We sign a contract guaranteeing that we
>can never change our will. It becomes his when we have both
>died.
>
>(I think we're not old enough for anyone to be interested in
>this in our case...but you never know.)

Trivia: Jeanne Calment, the French woman who used to be the World's
Oldest Person, entered into a similar arrangement when she was 90 (I
think he was going to pay her some small sum every month to live on,
and get her posh apartment when she died). Her Monsieur X figured he
couldn't lose, but she outlived him and his family was still paying
her when she died at 122. I think they ended up giving her way more
than the apartment was worth.

-- maribeth

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