A new type of foreclosed property is starting to show up in the inventory of properties in the Twin Cities. These are properties that had “Reverse Mortgages”. They are sometimes referred to as (HECM) Home Equity Conversion Mortgages.  These are mortgages that are available to persons over 62 years of age. For anyone considering one of these mortgages, AARP has an excellent booklet entitled “Reverse Mortgages Loans – Borrowing Against Your Home”. It discusses the upsides and downsides to persons considering these mortgages. The combination of rising debt and falling equity involved in a reverse mortgage, along with the substantial decrease in property values has created this increase in “Reverse Mortgage” foreclosures.  The timing of the increase of these foreclosures has to do with the time they were taken out (Peak Market) and the possibility that the person taking them out has died or had to move to a nursing home and they or their estate could not sell the property without any equity remaining.   One quick note: heirs or multiple heirs might be able to satisfy the HECM debt by paying the lesser of the mortgage balance or 95% of the current appraised value according to an HECM Servicing FAQ published by HUD. This may make for a good opportunity for an heir to purchase the property at 95% of today’s appraised value.

These “Reverse Mortgage REO’s” are interesting properties for buyers to consider when searching for a home to purchase. In many cases they may be in decent condition because someone lived in the home for a long time and may have kept it up a little better and made improvements over the years. You won’t always know if the foreclosure is from a reverse mortgage but look to see if the MLS listing refers to the sale being “subject to 24 CFR 206.125”. This refers to some FHA regulations regarding this type of mortgage.

Contact us for more information on looking for these homes in your quest for a home.