My very first transaction as a REALTOR involved a reverse mortgage and I've hated them ever since. This is my most recent experience and it has done nothing to change my opinion.
A buyer client asked to see a foreclosure. He is an investor, but claimed he wanted to purchase the home to fix up and live in. I had previously shown the property to another buyer who didn't take more than one step inside before retreating. I prepared him for the condition and he didn't seem too perturbed upon seeing (and smelling) the house. Someone had died inside and had not been discovered right away.
In the "Private Remarks" section of the MLS listing were the words "See virtual tour and URL's icon for more information on 24 CFR 206.125." We knew it was a foreclosure because the Seller Type was listed as Lender/REO. But this 24 CFR 206.125 was a new wrinkle.
Here's what it means: the owner of the property had a reverse mortgage and the note was in default due to the mortgagor's death, failure to pay taxes, or both.
This complicates things more than with a normal, plain vanilla foreclosure. HUD has regulations which control the terms for the acquisition and sale of these types of properties, and the seller has restrictions and obligations for the sale of the property.
I drew up a full price offer, including multiple extra documents required by the bank, submitted them, and waited. We were eventually notified of a multiple offer situation, so the client added another $1,500 to the offer and we waited again. Finally, we were told the bank had accepted the offer.
With a 24 CFR 206.125 property, the seller obtains a HUD appraisal and the sales price must be at least the appraised value or more. There is NO negotiating on price. An inspection period is allowed, but the seller will not make any repairs (unless required by local law) and, again, will not negotiate the price. There is an appeals process, but the buyer must first pay for an inspection and obtain the written inspection report and/or written reports by professional roofers, licensed plumbers, licensed electricians, etc. The process can take many, many months to appeal.
My client wanted an inspection. The seller does not turn on the utilities. The listing agent does not turn on the utilities. The buyer's agent must get the utilities on in their own name, not the name of the buyer. This is not fun.
So, after the utilities were on, the buyer had an inspection done, had roofers out, had a foundation company check the foundation. He didn't like the results. He wanted a price reduction. The seller said no.
Then the client asked me to run a search for all properties that had 1) sold in the past year and a half with the 24 CFR 206.125 notation, 2) that had been on the market for at least 31 days, and 3) where the sales price was less than the list price. Of the 125 properties that sold as reverse mortgage foreclosures in our North Texas MLS, only two sold at less than list price. One had been on the market for 170 days, the other for 240 days. The property my client had under contract was listed for less than 75 days.
In email conversations with the listing agent, she told me that there were still many months left before the HUD appraisal expires, and that the number of days before the property will be reassessd is not the days on market in MLS, but the number of days of marketable title.
My client was given two choices: continue with the purchase of the property or terminate. He terminated.
This is a cautionary tale for those wishing to purchase a foreclosed reverse mortgage property. The next time I see "property subject to 24 CFR 206.125" I'm going to suggest that my client reconsiders and finds another property.
Reverse mortgages are sometimes known as Home Equity Conversion Mortgages (HECM).
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