Life Estates and Mortgage Lenders

[Shaylee]

What is the name of your state (only U.S. law)? NY

Hello, I am hopeful someone could give me some advice on this situation. My parents are elderly and we built a home for them and my family (husband and 2 children). They have an in-law suite/apartment attached to the main house. Prior to setting up our mortgage, we talked about life estates with our lawyer. In the event that my parents end up in a nursing home, we wanted to protect the home from medicaid (if it came to that). My mother does have some health considerations and though managed well now, may become issues down the road. Our lawyer advised setting this up after closing, reason being banks don't like life estates and will likely not approve our mortgage. My parents co-signed for the loan and all four our names are on the deed. We went back to the lawyer in December, who talked with my parents, my husband, and I about all the details of a life estate. Months go by (I was told it would only be a matter of weeks). When I finally got a hold of our lawyer, he said they had been overburdened with closings and would have the life estate in 10 days to sign. Another couple of months go by. Finally I reach the lawyer and he reports that he is advising against the life estate. He states that my particular lender has been very stringent with loans (pulling loans out from people the day before closing, and other issues) over closings in the past several months in particular. He worries they will find out about the life estate and call the loan. He admitted it had never happened before, but in the current climate, this is why he hasn't moved forward. His recommendation was to ask the banks permission (paying their legal department $200), and if they say no (which is a possibility, given their current disposition) look for a lender who would be okay with a life estate and refinance. Then he told us that no big bank would probably take it, and we would have to look into smaller banks.

My first qualm in that he should have told us this months ago, and had strung us along for quite some time. The second is I don't know if his concern is valid or not. We called a contact all the bank who unofficially told us he had heard them deny loans to people with life estates but not call on already established loans. Would a bank really kick out 2 elderly parents and a family of four for getting a life estate? My lawyer also said our situation is unique and we have a a chance in the fact that we are all living the house and are on the deed, which is different from a typical situation. I guess the choice is, go the safe route and run the risk of being denied, or move forward without the banks knowledge. I am concerned about then having to find a bank who would take the loan (if we refinanced after being denied) since that seems to be another issue. We are trying to push this along as quickly as possible because so much time had already been wasted, and medicaid has a 5 year look back should it come to that.

 

[FlyingRon]

Understand that this transfer you are contemplating can make them INELIGIBLE for medicaid. There's a ten year lookback on such transfers. If your lawyer understands such issues, listen to him before you make any rash decisions.

Further, this transfer is not going to be protected by Garn-St. Germain. Your bank may indeed invoke a due on sale clause if your parents give up their ownership interest.

The bank isn't going to kick them out, but they could invoke a due on sale clause which could result in foreclosure if you can't immediately pay off or refinance. For practical matters, banks these days are reticent to do this as long as someone is paying the loan in a timely basis.

Of course, the banks are unlikely to take the risk if you lie to them. In order to do this YOU AND YOUR HUSBAND ALONE must qualify for the loan. Then they are less concerned about the life estate.

 

[Shaylee]

Understand that this transfer you are contemplating can make them INELIGIBLE for medicaid. There's a ten year lookback on such transfers. If your lawyer understands such issues, listen to him before you make any rash decisions.

Further, this transfer is not going to be protected by Garn-St. Germain. Your bank may indeed invoke a due on sale clause if your parents give up their ownership interest.

The bank isn't going to kick them out, but they could invoke a due on sale clause which could result in foreclosure if you can't immediately pay off or refinance. For practical matters, banks these days are reticent to do this as long as someone is paying the loan in a timely basis.

Of course, the banks are unlikely to take the risk if you lie to them. In order to do this YOU AND YOUR HUSBAND ALONE must qualify for the loan. Then they are less concerned about the life estate.

Our lawyer said it was a 5 year look back. Before all this, he was very supportive of the life estate idea, and said people usually come to him when it's too late and there's nothing he can do, so we were in great shape. Then all this happened. My husband and I cannot do the loan on our own without them as co-signers due to the size of the loan. Even though with down payments over half the house has been paid for, it's a rather large property (with the attached apartment) so the mortgage is higher then they were willing to give us going in on our own. Our credit ratings are great ranging in the 790-800 for both of us. All payments thus far have been on time, not sure if any of that helps!

 

[LdiJ]

Understand that this transfer you are contemplating can make them INELIGIBLE for medicaid. There's a ten year lookback on such transfers. If your lawyer understands such issues, listen to him before you make any rash decisions.

Further, this transfer is not going to be protected by Garn-St. Germain. Your bank may indeed invoke a due on sale clause if your parents give up their ownership interest.

The bank isn't going to kick them out, but they could invoke a due on sale clause which could result in foreclosure if you can't immediately pay off or refinance. For practical matters, banks these days are reticent to do this as long as someone is paying the loan in a timely basis.

Of course, the banks are unlikely to take the risk if you lie to them. In order to do this YOU AND YOUR HUSBAND ALONE must qualify for the loan. Then they are less concerned about the life estate.

When did it change from 5 years to 10? Can you give a cite or a link for that? That's really important information for my clients and I really need to verify that.

 

[FlyingRon]

When did it change from 5 years to 10? Can you give a cite or a link for that? That's really important information for my clients and I really need to verify that.

It's 5. Brain fart.

 

[LdiJ]

Our lawyer said it was a 5 year look back. Before all this, he was very supportive of the life estate idea, and said people usually come to him when it's too late and there's nothing he can do, so we were in great shape. Then all this happened. My husband and I cannot do the loan on our own without them as co-signers due to the size of the loan. Even though with down payments over half the house has been paid for, it's a rather large property (with the attached apartment) so the mortgage is higher then they were willing to give us going in on our own. Our credit ratings are great ranging in the 790-800 for both of us. All payments thus far have been on time, not sure if any of that helps!

I honestly do not think that the mortgage lender CAN call the loan when the transfer is between parents and adult children.

 

[justalayman]

It's 5. Brain fart.

Ok so now why doesn't Garn St germain exempt the transfer from a due on sale clause? Or more proper; why is it a concern?


In reality, the remaining owners are still owners so the property is not being transferred to an exempt (under Garn St germain) entity because it remains in the hands of an original debtor. There is no transfer to an entity where a due on sale clause would even could be invoked.

in fact, all parties involved have signed the necessary documents giving the lender their superior status so nothing that would affect the mortgage loan is actuslly changing.

 

[FlyingRon]

I honestly do not think that the mortgage lender CAN call the loan when the transfer is between parents and adult children.

You bet your bippy they can. They can't call it if you merely ADD the child to the deed, but if you outright transfer it, it is not covered by the conditions in the Garn-St. Germain act.

 

[LdiJ]

You bet your bippy they can. They can't call it if you merely ADD the child to the deed, but if you outright transfer it, it is not covered by the conditions in the Garn-St. Germain act.

In this case it would be a transfer to someone who is actually on the mortgage and deed already.

 

[FlyingRon]

In this case it would be a transfer to someone who is actually on the mortgage and deed already.

Makes no difference. Theoretically Garn-St. Germain won't bar it.

As I pointed out, it's unlikely that the bank will do anything these days as long as the mortgage gets paid. The due-on-sale thing was a throwback to last century with rapidly soaring interest rates. People were doing "silent assumptions" of lower interest loans. The usual way the banks found out then was that the names on the homeowner's insurance policy (which the lender gets a copy of) changed.

 

[FarmerJ]

LOL at flyingrons bippy , sock it to me hahahahha

 

[Shaylee]

Makes no difference. Theoretically Garn-St. Germain won't bar it.

As I pointed out, it's unlikely that the bank will do anything these days as long as the mortgage gets paid. The due-on-sale thing was a throwback to last century with rapidly soaring interest rates. People were doing "silent assumptions" of lower interest loans. The usual way the banks found out then was that the names on the homeowner's insurance policy (which the lender gets a copy of) changed.

Thanks for the advice and info. I suspect my parents will want to take the safe route and formally ask the bank's permission. It helps to be a little more knowledgeable on the subject though, you shared some things I wasn't aware of.

 

[LdiJ]

Thanks for the advice and info. I suspect my parents will want to take the safe route and formally ask the bank's permission. It helps to be a little more knowledgeable on the subject though, you shared some things I wasn't aware of.

Mortgage companies in generally really do not care as long as the loan payments are made, and made on time.

However, did you buy the house a joint tenants with right of survivorship or did you buy the house a joints tenants in common?

 

[Zigner]

Mortgage companies in generally really do not care as long as the loan payments are made, and made on time.

However, did you buy the house a joint tenants with right of survivorship or did you buy the house a joints tenants in common?

There is no such thing as "joint tenants in common".

In NY, property may be held as "Tenants in Common", in a "Tenancy by the Entirety", or as "Joint Tenants with Rights of Survivorship".

 

[LdiJ]

There is no such thing as "joint tenants in common".

In NY, property may be held as "Tenants in Common", in a "Tenancy by the Entirety", or as "Joint Tenants with Rights of Survivorship".

Ok...thank you for the correct wording. The bottom line is I would like to know what their deed says about the type of ownership.