Blog photo: from between St. Francis Yacht Club and Chrissy Field last September. To me it says everything about our gem of an area.
Blog post: The title is a mouthful, for sure. But two situations came to my attention this week that I think are worthy of consideration.
First, a friend called about his neighbor’s situation. The neighbor, let’s call him Chuck, is a wonderful, fully fit, smart and completely coherent 91 years old. He’s lived in his house for 52 years. His wife passed in the past couple of years of Alzheimers. Our mutual friend is concerned about what he’s been hearing from his next door neighbor. He’s planning on selling his house and our friend wondered if he’d like to talk to me about that.
Here’s the back story. A somewhat long-lost niece called him out of the blue in the past months. They’ve reconnected and now she’s convinced him to move to Oregon to be near her. He made a trip there and just loved what he saw. That sounds fair enough. He’s excited about making a move and since he came to CA from the cold reaches of the upper midwest decades ago he isn’t worried about Oregon weather. Both he and the niece are saying they are kindred souls.
Here’s the deeper back story. Chuck put a reverse mortgage on his house at the top of the market in 2005. He’s been getting a draw on that of over $2000 per month since then. The niece convinced Chuck to take out the rest of the money he has left to draw and buy a house in Oregon and pay all cash. He now has used practically all that was available to him through the reverse mortgage which is about $310,000. And that amount is now more than what the house is worth. Chuck visited the lady who put him into the reverse mortgage and she turned to the market expert Zillow (see last week’s post about my opinions of Zillow), pulling up a value of about $280,000 before costs of sale.
Chuck, our mutual friend, and I met up this week at Chuck’s house. It’s a sweet home in a long established tract in San Leandro. Mostly the goal was to hear about Chuck’s plans and how he saw them all coming together.
Now let’s jump to what I consider some obvious questions that came to mind. Why anybody would encourage somebody aged 91 to buy a house with most of the rest of his cash is beyond me. Just who is this niece? She’s either 65 or 75 years old (it’s changed during our conversations), moved her mom a few years ago from Idaho to be near her, and now has found Chuck. It sounds like she has a boyfriend. And she’s very happy-go-lucky and fun to be with. Chuck lights up when talking about her.
She talked Chuck into giving her his power of attorney to buy a house for him. That house is also a short sale property, 14 years old, with three loans against it. He gave her a check for $2000 via the mail, with no payee filled in, to give as a deposit on the house that she beat two other folks out on and got for $146,000. He said that check has not yet been cashed. He was not sure what kind of power of attorney he gave to her: general or specific (just to acquire the property).
One of the first things we talked about was if he had received any legal or tax advice about the ramifications of pulling out the rest of his equity in his current house, selling it short, and then buying something else with it? Answer: No. Why not? Answer: Everybody (the niece and the loan officer) said it was just fine. They said he could just give it back to the bank and nobody would come after him, which is kind of true since CA is a non-recourse state. But that doesn’t deal with his credit or tax consequences or even if the loan servicer (now appointed by HUD) would even deal with him on a short sale. Short sales are about hardship and papers and documents and more papers and documents.
I asked if he’d mind if I spoke to another person referred to me in the reverse mortgage biz to get further info. Fine, he said. And he was very forthcoming and very aware of the content of various statements and letters he had received about his loan. He allowed his neighbor to make copies and Chuck said I could share them with the lender. So I did.
That was 3 days ago. He called me this morning to see if I’d heard anything. Not yet. But about an hour later I did. After checking with two highly respected underwriters for these loans here’s what she said. No, he could not put another reverse mortgage on the house he was buying once he closed on it. He’d have to wait three years because essentially his credit would be wrecked. There is a chance he may not get his own short sale approved by his lender because of the premeditated withdrawal of funds to purchase another home. And he may be facing tax consequences if his cash withdrawal is then deemed ordinary income. These are perhaps just tip of the iceberg answers but well worth pursuing with legal and tax folks. Ut-oh. Never thought of those things.
I told him that I encourage every one of my buying clients who come from out of the area to try before they buy. Get to know the place. Make sure it meets their expectations. And maybe that’s what he might want to do by trying Oregon for six months (including winter) in a rental house. See if the situation is everything he wants it to be before he ties up his money and his life. Keep the existing house and then he knows he has a plan B in place, if he needs it.
We finished the call today with him on my cell listening to me via my landline leaving a message at the Alameda County Council on Aging (its version), trying to find the source for legal advice that’s on the website. I said I’d be happy to get him there (even though he still drives!) and be a second set of ears if a meeting can be set up. He was most grateful and said he had a lot to consider. At one point he also commented that he’d “rather ask a dumb question than to make a stupid mistake.”
Each expert I spoke with had the same feeling….something wasn’t all good here. Question for you, what would you do if this was a family member or neighbor of yours?
Remember I said at the beginning of the post two situations had come up this week? Here’s the second one. This afternoon at the title company, a local agent said she’d read about a reverse mortgage that was being foreclosed on. Tip of the iceberg? Are the young elders taking care of their older elders or taking them to the cleaners? We need to gently question as best possible our friends and relatives with all those-rich-life-experiences. Let them make decisions but offer acceptable choices that encourage them to explore their options. That’s what I’d like to have done with/for me.
ALAMEDA REAL ESTATE THIS WEEK….
906 Central went pending…a total of 4 offers received.
Want a jumbo loan? Time may be running out Smart Money
ALAMEDA REAL ESTATE AWARDS THIS WEEK...remember this is only my perspective!
Worth of the awards but can’t get the links to work now!
Get me a Facelift! 428 Greenbrier
Get me to Rehab! 1043 Santa Clara
SO THAT’S A WRAP! HAVE A GOOD WEEKEND! CARRY ON!