There appears to be a misconception in the market among some that a Reverse Mortgage can be used to solve any and all property and borrower ailments. This is categorically incorrect.
A Reverse Mortgage is designed for a primary residence only and does not extend to second homes or investment property. A Reverse will allow up to ten percent (10) of the appraised value of the property for set asides to cover standard property repairs that may exist. Repairs eligible under this category do not include health, safety, and/or zoning issues. When a property reaches this state or requires a complete property rehab you must turn to a construction loan or otherwise termed “Hard Money” loan for remedy.
As flexible and owner friendly as a Reverse Mortgage can be, they must be set up properly or it will amount to nothing more than false hope and the homeowner will never prevail. In addition, re-regulation and licensing among mortgage providers does not equate to competency and experience. I would like to share a recent example to illustrate this point.
A client was referred to my team seeking assistance with a property that needed repairs. For six months this client was consulted by an out of state licensed mortgage provider that echoed “no problem” we can help you with a Reverse. The client’s primary objective was to fix his elderly mother’s home and resituate her in the house on a permanent basis. Well, all of those efforts failed and it was shocking where this client wound up.
The property was in a complete state of disrepair plagued with health, safety, zoning, and infestation to a point that the county removed the occupant by legal remedy. The gentleman had been left with the impression that he simply needed to shop for a Reverse Mortgage and his worries would be over. But for a person to qualify for a Reverse Mortgage, they must reside in their home.
The problem can only be solved one way and it doesn’t take six months to figure it out. We recommended one of our properly licensed contractors that we have a documented history with to provide a detailed estimate to cure all deficiencies with the property and completely restore it to the point where the elderly homeowner can not only occupy it but also to a level that will be completely acceptable to all county codes and equally important to pass the FHA appraisal. If the repairs are not done properly there will be no Reverse Mortgage. In this case, we also offered to provide a commercial construction loan. The protection for the client with this scenario is that we not only must approve the contractor but we will also monitor the draw schedule and completion of the work. This will mandate that the finished product is acceptable so we will not have any issues meeting the client’s expectations with re-establishing his parent in her home and finalizing the effort with an FHA insured Reverse Mortgage.
This is just one of several off the wall Reverse Mortgage inquiries that passed my desk recently. One of my team’s competitive advantages is that we can also offer commercial construction financing through our affiliate company Hard Money Solutions. With this relationship, we have qualified contractors for big and small jobs and we have the title and closing team to finalize the construction and Reverse loan process.
It’s the mortgage providers job to listen to the client, understand their objective, and then to ultimately solve the problem and make them a happy customer. I don’t understand how a client can show up at my doorstep in this predicament after working with a licensed lender for six months. Who am I to judge? A Reverse Mortgage and a construction loan are completely different vehicles and cannot be used interchangeably.
If you would like to learn more about a Reverse Mortgage that can help a client, friend or a loved one I would like to hear from you.
Blogging from the front line.
George H. Omilan
President-CEO
NMLS# 873983
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