Foreclosing on House with a Reverse Mortgage

House has a reverse mortgage. Not paying HOA dues. Thinking about foreclosing on the delinquency. If you have experience with this, would like to know if there is anything special we should be aware of or concerned about. Thanks everyone.

Assume that the HO has no equity in the house.
Assume also that, under a Reverse Mortgage, we could be waiting forever to recover on a lien.
Does that change your recommendation Melissa?

Nope... I have done a foreclosure. The person had a second mortgage on the home of which they were having their tenant pay off in a rent to own scheme. The owner owned the 1st mortgage and title. The 2nd mortgage they were having their tenant pay with no intention of giving them title. The renter was able to sue the owner after we foreclose and recover all their extra money they had paid extra toward the purchase of the home. I testified in court representing the HOA. The renter won.

Our foreclosure situation for the HOA ended up with a check that just covered our legal costs for the foreclosure and the back dues the owner owed us. Which was just $2,500. The house we got someone to purchase it at the foreclosure sale who decided not to keep it. The house eventually went into a Tax foreclosure. It sat abandoned for over a year and suffered a broken pipe causing several thousands of dollars of damage. The house was finally bought and fixed up by someone. We still had to mow the yard as that is part of the HOA agreement to take care of landscaping.

We had a lien on this property for almost 3 years prior to my doing the foreclosure process. The previous president had been threatened by the owner and also told she was going to burn down our clubhouse if we pursued her. She eventually went through 4 lawyers stiffing everyone of them fighting our foreclosure. Which did take 6 months to complete.

The bank got paid first and foremost anyways. The house 1st mortgage was paid off. The 2nd one was not. So the money of $2500 at the auction covered the legal expenses of the foreclosure and back dues. However, the new owner was to pick up the leftover amount of the 2nd mortgage. Which was around $70K. The house was in such bad condition it was only worth around $50 - $60K. If we had purchased the home as the HOA, we would have had to pay out the $2500, picked up the mortgage, paid for the repairs, pay taxes, insurance, and HOA dues.... Just so we could sell or be landlords.

Leaving a lien on house for years costs nothing additional and accumulates over time. They can't sell the home till they pay it off. So the HOA is owed that money at the home's closing if it does NOT go into foreclosure. If it's up to me, I'd leave a lien on indefinetly before I would do another foreclosure. It was just the circumstances were right in ours due to a need for money for a pool safety project.

So nothing wrong with leaving a lien on for years. If bank is involved in foreclosing, never ever proceed with your own foreclosure. Just wipe it off as a bad debt and move on. Not putting one on, shows bad business decisions on collecting debts. It sits a bad example for the board not taking action on such issues. Good luck!!!

Thanks Melissa, Sheila, and Banks. Comments appreciated. Read the article. People say that it's just like a first mortgage - But I am still hoping to hear from someone who has had direct experience with a reverse mortgage.

The HO informed us that she will not be paying any more assessments. So we know that sending her notices and statement will accomplish nothing - she will just ignore them. If she has no equity in the house, she doesn't care about our lien - it doesn't affect her - and she doesn't care about her credit rating. If she has a reverse mortgage, she isn't making mortgage payments and the mortgage company isn't going to foreclose. So the only one who is going to do anything is the HOA.

If we put a lien on the property, there is no obligation for us to notify the mortgage holder. And even if we wanted to, we have no idea who actually owns the reverse mortgage today since banks freely sell mortgages to other banks without formally recording the changes. (That's a whole other issue - but chasing down the mortgage owner can be a real pain these days).

In the long run it may be cheaper to force a sale. Annual dues are around $3k - and the most we may be able to recover is a super-lien of only $1.5k whether it's tomorrow or 5 years from now. If it costs $2.5k to foreclose, we are wondering if we would be better off spending the money and forcing a sale so that we can start collecting money and stop subsidizing that house.

Would like to avoid spending the $2.5k and am interested in any other solution that starts flowing money into the HOA sooner rather than later.

Thanks Tim.

Sure we will send appropriate notice - but to no real effect other than to prove that we sent it.

Reverse mortgage was a way to stop the mortgage company from foreclosing in the first place. Not likely to be any other assets - like bank accounts, etc. - that haven't already been moved into someone else's name.

Family members are the ones who convinced her to stop paying assessments. No help there.

Also, she can move in with family. So losing the house is likely to be less significant to her than us going after her personal property - which we are very reluctant to do.

BTW, the reverse mortgage requires her to pay the HOA fees. When she stopped paying HOA fees, that was a default on the reverse mortgage - but the mortgage holder is not likely to act on that default.

The question that I would like someone to take a shot at is this: Given everything I have said, what do you think is the fastest way to start generating income to the HOA from this house?

Melissa

I hope you're practicing law with a license.

Please don't focus on the word "income" and look at the financial impact of what is happening. If the house doesn't pay, then the rest of us have to pay more than we should. And we are playing catch-up on our reserves, so we don't have the kind of leeway you might have in your situation. "Non-profit" has nothing to do with it - People who pay their dues are being penalized by people who have chosen to be free-riders.

Here's some math.

Scenario 1: We wait 5 years. At $3k per year, we don't collect $15k. At the end of five year, nothing has happened. So we wait some more. The most we can ever expect to recover is a $1.5k super-lien because the sale price will most certainly be less than the mortgage company has the house on the books for.

Scenario 2: We foreclose. The foreclosure costs us $2.5k and takes us 2 years to complete. We start collecting fees after 2 years. 3 years of fees at $3k per year brings in $9k. We get the $1.5k superlien. Total revenues over the same 5 years is $9k + $1.5k = $10.5k. Foreclosure expense is $2.5k. So after 5 years, we are better off by $8k ($10.5k revenues minus $2.5k cost). Plus we are not sitting around 5 years from now asking the same questions and facing another 5 years of waiting.

Scenario 3: That's the one I would like recommendations on. Or at least some feedback from someone who has dealt with a reverse mortgage.

Note to Tim: With no equity in the house, and a written statement that no more fees will be paid into the HOA, not likely that HO would have any defense to a foreclosure.

There is equity in the home. Otherwise the reverse mortgage wouldn't have been approved.

A Reverse mortgage is a line of credit. It's possible that the line of credit hasn't been exhausted.

This post struck a chord. It seems to me one of the "conditions" of a reverse mortgage is that that all "obligations" of the property (taxes, etc.) be kept up to date by the mortgage holder. I can only assume this means HOA dues.

Could be the reverse mortgage holder might could do an associations work for them if one falls behind in their dues.

I know little about reverse mortgages but I thought that the lender makes monthly payments to the homeowner. That is, the homeowner does not receive a lump sum. If that is the case, you might look into filing a lawsuit seeking monetary damages for the amount of assessments owed then attaching the funds that would be paid to the homeowner. In a civil suit the homeowner cannot refuse to identify the lender if asked, so knowing who holds the mortgage would be easy to find out. The lender may pay up or he may foreclose.

Having the lender foreclose for breach of contract is not the worst that could happen. As things stand now, the homeowner could go another 20 or 30 years without paying a nickel in assessments. The sooner you put the old biddy on the street (and by whatever means) the sooner you have a chance to collect regular assessments from a new owner. Even if you lose the foreclosure battle by getting nothing you win the war by getting a deadbeat out of your association.

Keep in mind that the reverse mortgage would not have occurred unless the owner had substantial equity in her home. In many areas property values have risen in the last few years after the 2008 mortgage meltdown. If the reverse mortgage was made in the recent past, there is a high probability that the home's value exceeds the amount of the mortgage lien and that the value is increasing now. Foreclosure is a crap shoot, for sure, but in this case you have a better than average shot at getting what is owed.

No. That was just the impression I got from reading about reverse mortgages over the years. I have had a lot of trouble finding out just exactly how they work in spite of all the advertising. My understanding was that the purpose of a reverse mortgage was to give the homeowner a steady stream of income.

One of the shortcomings of a reverse mortgage is that the homeowner is essentially selling his home at today's prices even though he may live there another 20 or 30 years. The cash he gets today may seem like a windfall but in 2035 it may not be worth too much.

Tim,

Thanks for clarifying that point.

Given the history of this irresponsible homeowner my first guess would be that she took the money in a lump sum. If she did, it won't last her very long.

If I was calling the shots on this situation my advice would be to foreclose as quickly as you can and boot this idiot out asap because otherwise she will be a non-paying burden on the rest of the members for the rest of her life.

Is a reverse mortgage considered a "first mortgage?"

I would assume the only, thus the first. I cannot see a lender not being the only.

Extremely helpful Nancy. Confirms that we are probably right in our beliefs that she has no equity in the house and the sale proceeds would probably be less than the mortgage balance. In her case, we guess that the lump sum money is either spent or tucked away somewhere where we don't want to waste HOA money trying to find - Certainly not somewhere where it would show up in a simple assets search.

You have also confirmed that the HO has no motivation to do anything about it. She would have to initiate the request for a short sale - and why should she bother - Especially since any debt forgiveness (which a short sale creates) could have income tax implications for her. Again, why should she bother checking into something she doesn't care about anyway.

What I haven't mentioned so far, because I didn't want to cloud the issue, is that we think she has been living with relatives for over a year. The house is empty. This is also a violation of the reverse mortgage which specifically requires continued residence in the house.

Also, the house is starting to show signs of wear that happens with vacant houses. The house is scheduled for painting this year - We do a thorough inspection and the HO is notified what repairs need to be done before our painter can paint. (HOA is responsible for painting only). We know now that our notice will be ignored. And this will affect what we do about painting that row of townhouses.

I think as a first step, we will have our lawyer try to make contact with the bank that holds the mortgage, and let them know of the defaults - non-payment and non-residence.

Discussion has been great. Thanks everyone.

Kelly,

What can happen is the Association can rent the property until the bank does foreclose. Some banks may take a year of more to foreclose after this type of situation.

Granted, it's not the best option, but it's an option.

Here's a thought....couldn't the mortgage company have a vested interest in seeing HOA dues are paid on behalf of the person their supporting through their service? If you can find them, contact them as the company stands to be a double loser in lending money against a distressed property and the chance of a messy lien/foreclosure situation.

I simply don't know if Reverse Mortgage companies place the title in their name or place a lien in the 1st position on the deed.

Board met last night. Decided to turn the issue over to attorney. His instructions are to inform the bank holding the mortgage that she is technically in default because the mortgage requires (1) residence, (2) payment of HOA fees, and (3) other property related costs that she may or may not be paying.

We are hoping that the bank won't want to sit on a vacant property.

That sounds like a great strategy