The full story on reverse mortgages | Letters | June

Published 10:30 am Thursday, June 9, 2011

Jan Zufelt’s May article, “Reverse mortgaging,” extols the fact that an estate is not liable for the difference if the home sells for less than the balance of the reverse mortgage. Elsewhere I’ve read that the estate would never owe more than the appraised value. Would the estate be liable then for the difference between “selling” price and “appraised” value if selling price were lesser of the two?  I submit it would.

What mortgage companies (and perhaps HUD) conveniently forget to disclose when extolling the protection of reverse morgages vis-a-vis the estate is the state and county sales taxes (1.9 percent for Kitsap), and the real estate commission due from the sale (5-7 percent). Assuming 6 percent RE commission, that’s 7.9 percent of the selling price then owed by the estate in Kitsap County.

Let’s assume one exhausts the mortgage upon death or sale, and the property sells at the mortgage balance – also the appraised value – for simplicity. The owners/heirs would still have to come up with 7.9 percent of the selling price since there was no equity to cover selling costs. On a $200,000 sale for example,  that’s $15,800 out of pocket or from other assets of the estate, if any. That is unless the real estate and state/county forgo their cuts (surely I jest).

If I’m correct in this, it should be taken into consideration by those contemplating the plunge into more debt. And mortgagers (and HUD) should disclose the selling cost liabilities associated with termination of reverse mortgages.

Jack Lay,

Kingston