Need Advice on Land Purchase

[bob_pfister]

This is a bit of an emotional issue so I need some advice from some of the seasoned members on what to do.  My wife and I are young she is 23 I am 32.  Her Dad passed away several years ago leaving her half of his small ranch.  Her mother passed recently passed away and had set up a reverse mortgage on her half of the place.  The Mortgagor for my mother inlaw's estate is preparing to repossess the property and my wife would like to be able to put her family's land back together again.  We both have good jobs, but live 150 miles from the property and there no similar opportunities for us in that community. I would love to be able to make this work for my wife and I, but we are not sure where to start.  We were married about a month when her Mom died, and have only been married a year at this point. 

The balance due on the note is about 70% of what the property is worth locally and about half of what it was worth prior to the crash.  We know we could lease the pasture and rent the house for extra income, but we would really have to work to make this thing pencil out.  Has anyone else gone through something similar and how did you approach the problem?  My gut instinct is to call the Mortgagor's trustee and try to negotiate a deal, but I don't know if that is the best place to start. 

[Kay/NC]

Bob, this is a bit different, but I have a FB friend, who I knew in high school ( we are all 57 now) who is wanting to buy a home, and has one she cannot sell right now.  She asked her friends for feedback on the idea of renting their current home, and having that income in order to afford the new house. 

With only one exception, and that was a flaky sort of reply,  all of us friends have said the same thing: If you can only afford the property by income produced from a rental agreement, forget it.  Anytime you base a cashflow upon someone else's ability to make a rent payment or honor a lease, you are skating on thin ice. 

I say this, having had at least 25 years of experience in dealing with house tenants.  Most renters are a paycheck or two, at most, away from the street.  Even if you are lucky enough to deal with solid folks, consider that you need to allow for more maintenance on a house that is rented, than one you live in, even if the two houses are identical. 

People just do not take care of something as well if they don't own it themselves.  Also, as a landlord, you do not have the option of delaying some repairs, as you might be able to elect to do in a house you occupy yourself. 

Running rentals at that great a distance will be problematic, in this respect: You will either have a six-hour drive for the round trip every time you have to deal with the property, or you will have to find someone you can trust to keep an eye on things there for you.  It is harder to assess whether a repairman is treating you right or gouging you from that far away. 

We have rentals at half that distance.  I keep them up only because our son lives there in one of them and maintains and manages the rest, and he is a skilled building tradesman.  Even with that help on our side, I would have dumped these houses years ago, except that they sit on Mike's family farm, which we own and worked very hard for together. 

Couple of examples of essential repairs in the past two years: New well ($3000); repairs to one SMALL section of standing seam metal roof ($2200)...and, I just paid the porperty taxes for the second half of the year there: $2400.  Insurance for a set of rented houses and the basic liability run roughly $4000 a year.   Umbrella

Unless you are allowing for reasonable expenses of insurance, taxes and repairs...you haven't looked at but the positives of this proposal.  All of this assumes that the place can be as easily rented as you seem to think.  That may or may not be the case. 

If this is an older house, farther from good jobs ( sounds like so, from what youv'e written) it may not be at all easy to rent, in any event.  If this house relies on an expensive heating fuel, no one may be able to afford to live in it, no matter where it sits.  I am talking to people who see rental houses going empty today, that were occupied continuously up until a year ago, due to the cost of heating them alone. 

If that rental income is crucial to your pencilling out of the purchase, ploease be realistic, not overly optimistic. 

I cannot speak to the renting of the grazing land.  Don't make any assumptions on that, either.  Your MIL was living off a reverse mortgage because the property wasn't able to support her any other way...which is why it is in hock today.  So....?!?!?

I understand the drive to hold family land as well as anyone alive, but I hate to see a young couple with their whole lives ahead of them anchor themselves down with a land purchase they cannot safely afford.  Unless you can pull off the new loan, and all the expenses of owning the place outlined above,  with ZERO income from it, you cannot  safely afford to buy it. 

[Jim Meade / Iowa City]

It's easy to advise someone else on this.  It might be harder if it were me with the problem.  I would recommend you sell it all.  I get the impression you can't make a living on it.  It is not near where you can work.  You would be absentee landlords if you rented it out.

there are undoubtedly strong emotional ties right now for your wife.  I think I'd try to take a different tack.  I'd try to use the legacy of her parents as a way for you two to make your own unique start in life rather than try to extend her parent's legacy.

This is a case where it might be worthwhile to pay a good adviser for some cold hard facts.  Your wife may need some other way to carry on her parents legacy. 

[verbatime]

"Worth half as much as what it was before the crash"  What crash are you talking about.... are you in some sort of time warp... land has not crashed.  Where are you located?

[Kay/NC]

You do raise a good point...a current appraisal is in order, and some legal advice. Making assumptions, and failing to get a good bit of professional advice would be a big mistake. Otherwise, you will just be guessing about worth, and your real options. One other question is what has been done with the land in the year since the MIL's passing. Has it been rented or the house rented in that period?

[Nebrfarmr]

I am curious as to how 70 percent can be owed, when she had only half ownership on the reverse mortgage. I'm no lawyer, but how can they have a lien against something that is someone elses? It would seem to me if your wife had clear title to half, they can't take any of that unless she co signed or something. Perhaps a talk with a lawyer is due. I wouldn't put it past a banker to try to collect more than his due.

[Kay/NC]

I went back and re-read the original post. There is some confusion for me, as it sounds like FIL left his half to daughter, MIL reverse mortgaged ger half is the way it is written. That implies that the parents divided the actual property, and held title to physically separate portions...which would be a very unusual thing to do in a marriage. More likely, the daughter inherited an undivided half interest, and Mom subsequently took out a reverse mortgage to earn income for her support. I can tell you from direct experience that either party to such an undivided can certainly encumber the whole thing to the level of their share of its worth, and perhaps more. I bought an undivided half interest in a small property that adjoins our farm about a year ago, from an estate, with the intention of buying out the owner of the other half. In the process of searching the title before the buy, my attorney found two judgments against that half owner, and he advised me to significantly drop my offer, to offset the legal costs of having to force a sale and buy out anyone else who wanted to bid, which could have included two banks that had lent the woman as much as the whole thing is worth, just for her half. These were not liens on the property itself, but once the judgments were entered, anything the other owner realized was going to end up in the banks ' hands. I brought a partition suit in August, and bought the place on the courthouse steps a few weeks back, paying fifty cents on the dollar. a reverse mortgage did create a direct lien, I am sure, so the situation is somewhat different than mine, but certain similarities may apply. This is why Bob and his bride need legal advice, since the price they pay should 't be more than half what they bid, since half of the sale proceeds should be hers, if she and her mom owned undivided halves each. Or, she should get half of whatever it brings if it sells to another party. if the property was indeed divided, then her half ought not to be involved in the sale at all.... How it was owned and willed is crucial. Bob, see an attorney and get some good legal advice. All of the commentary about renting and working at that distance would still apply.

[Nebrfarmr]

I think I understand what you are getting at, let me run it by to see if I understand.

Let's say there are 200 acres of land.

You are saying there is a crucial difference if each party owned 1/2 of the 200 acres total, compared to each owning 100 acres of the property?

Still, to me it would seem that even it it was 1/2 ownership on the total, and they had title to 1/2 of it, they shouldn't be able to get more than 1/2 of the appraised value of the land.  If more was owed, they should get it out of Mom's estate, not the half of the land the daughter owns.  Then again, I am looking at what seems proper, and I can speak from experience that the law, and in particular banking law, what is common sense and proper, and what is the law is not always the same thing.

[Kay/NC]

If the daughter owns a divided physical half, then her interest and her mother's interest are in physically separate pieces of property. The bank's action on a separate property would not affect the property owned by the daughter. Like I said, not the way people in a marriage usually own one farm, so I woild be surprised if this one was willed that way.... If the daughter inherited an " undivided interest" by her father's will, then there is the one property, and her half is subject to clearing up the encumbrance created by her mom's reverse mortgage. I wouldn't think a bank would have written a mortgage of any type, unless all the owners agreed in writing, but I have ever read into reverse mortgages, so do not know how they work. the daughter should remember if she executed any documents on the property, so her mom could mortgage it. (Unless she was eighteen at the time, I doubt it would be binding on a minor.) If the property is sold, the daughter should receive half of the proceeds of that sale...unless she signed away something in order for her mom to receive the proceeds of the reverse mortgage. This is why I say this couple needs to have their attorney look over the will, the reverse mortgage documents, etc. I would NOT take the bank's word, or its trust attorney's versin of the facts, either. People often do not realize how complicated real property ownership can become, and how fast they can screw it up by inexact wording in a will or deed. Good legal work is worth every cent. On the property I bought, I offered to pay the owner of the other half- interest for her half, and just sit around for ten years from the date of her judgments, at which time they would have expired. It is her debt, not mine, to repay. The banks that had judgments on her had to be notified of my suit to sell, and it was not worth enough to them to pursue it. She piddled around, lied to me and my lawyer, evaded facing the music, and just generally passed up her chance to receive any money from the sale, so the banks she owed $15,000 to will be getting $1000 for her half, and no more. I bid $2000 for it, but only had to remit half, since I already owned half. At least they got something this way. If you ever wonder why TARP was necessary, stupidity like lending this woman that much money is the reason. The daughter in this case ought to have as much right to buy the property as anyone, if the can swing it. If she has an undivided half interest and didn't sign onto the reverse mortgage, then she should receive half when it is sold, or only owe half of what she buys it for if she buys it. Again, they need legal advice....

[mike se il]

Bob,

I've read and re-read what you have posted and others replied.  The first thing you need is a lawyer to look into the situtation to make sure what you understand and what is actually the situation are the same thing.

The first thing you need to know is how is the title held?  You say your wife inherited half.  What does that mean? Did she inherit full title to property, or half interest in the entire property?  I am going to assume the latter for sake of argument. In Illinois it could be joint tenancy, common tenancy, or (I believe) joint tenancy with the other person's interest passing to her on her Mom's death.  Your Mother in Law's state's laws will apply and they might be different.

Regardless of the way it is held, unless there was some "shuck and jive" going on the reverse mortgage had to have your wife sign some papers. I'm betting Mom had a cash flow problem, someone made this too good to be true deal for her, and said "Oh, by the way, your daughter needs to sign this release so this goes through.  It's just a legal thing"

Something else just hit me.  "Her mother passed recently passed away" Who is the executor?  Who is the executor's attorney?  Who has the reverse mortgage?  You are 150 miles away.  Who might have some undisclosed self interest at heart here?  You may want a lawyer not involved with any of these.  No, I'd say you DO want a lawyer not involved with any of these.

Another red flag "The balance due on the note is about 70% of what the property is worth locally and about half of what it was worth prior to the crash."Who is saying what it is worth?  And like someone else said, what crash?  Unless this is in west Texas where it hasn't rained enough to grow sandburs this year I haven't seen any land crash.  Some guy from north Alabama traveled to SE Illinois last month to buy 725 acres of ground (10 acres tillable) that is in a government program and can't be used for anything but hunting and gave $500,000 dollars for it.  Ever. Permanently. This isn't Champaign county black dirt, this is river bottom flood ground that the only possible way to make anything from it is sell hunting leases.

I suspect you are getting bad information.

Get a lawyer, get him to put this reverse mortgage outfit on legal hold and get some facts.  Because here is my take based on what little you have said:  A guy and his wife own a small (oh, and what is "small"? 10 acres or 10,000?) ranch.  He dies leaving a widow and daughter.  Daughter goes to college, marries some guy, and creates a life 150 miles from the ranch.  Mom is operating the ranch or renting it out and has money troubles. Someone (we don't know if it was Henry Winkler or a local banker) sells Mom on a reverse mortgage.  Mom dies, RM owner is trying to convince the daughter 150 miles away who has been away for years that the place is worth less than is owed and out of the goodness of their heart will let her out for under it for not much money, might even pay her a little for her interest.

Am I getting close?  I might be way out of line but I keep getting this image in my mind.  Your wife needs to get a lawyer.