Now that so many retirees of this generation are paying off their mortgages, the question often comes up, what happens when I pay off my mortgage?  How does that work, and how fast is the property free and clear in the land records?

The Process When I Pay Off My Mortgage

In Washington what we call a mortgage is actually a note and deed of trust, and when the note is paid in full, a reconveyance is recorded by the beneficiary, and your property is free and clear.  (There is such a thing as a mortgage, but it’s not used much in residential real estate anymore.)

Pay Off My Mortgage and Requesting a Reconveyance

When you pay off your mortgage, the trustee (the Trustee named in your deed of trust, usually a title company) will send the beneficiary (the bank) a Request for Full Reconveyance, and when the Reconveyance is signed by a bank officer, it is recorded, and Voila! your real estate is free and clear.

I was asked today by a client, “When I pay off my mortgage, how soon does the reconveyance (or satisfaction for an old mortgage instrument) have to be recorded showing that my property is no longer subject to a loan?”  The answer is 60 days.  The reconveyance may actually be recorded in a matter of a couple of weeks, but there is a Washington statute that addresses this:

If the mortgagee fails to acknowledge satisfaction of the mortgage as provided in RCW 61.16.020 sixty days from the date of such request or demand, the mortgagee shall forfeit and pay to the mortgagor damages and a reasonable attorneys’ fee, to be recovered in any court having competent jurisdiction, and said court, when convinced that said mortgage has been fully satisfied, shall issue an order in writing, directing the auditor to immediately record the order.  This comes from RCW 61.16.030.

Pay Off my Mortgage on a Sale

If you refinance your home or sell your home to a buyer who finances the purchase (or pays in cash), the same process will have a reconveyance recorded on your loan.

Now you know the answer to the question, what happens when I pay off my mortgage?

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• Reverse Mortgages – The Danger

Reverse Mortgages can be great for some retirees, and I’ve written about some of the dangers of reverse mortgages in an earlier article, but a reverse mortgage can also be a great financial planning tool for retirees, and Buck Gieseke explains how in this article.

Reverse mortgages are one of the most misunderstood home financing tools available today.  As a mortgage originator for almost two decades, I was adamantly opposed to writing this type of loan until mid 2006.  That is when I got the facts.

Reverse Mortgages – Myths

What if I outlive the benefit – You can not outlive a reverse mortgage.  If you live to be 120, you still will not have to make a mortgage payment.  Being upside down in value – Because the loan is insured by the FHA, you will never owe more than the sale of the home (even if it depreciates).  Losing title or control of the property – Title remains in the homeowner’s name.  Burden or responsibility is passed on to my heirs –Your reverse mortgage is secured by the equity in your home so your heirs are never personally liable.  Upon my death, my heirs do not inherit my home -Your heirs do inherit your home / property and have the option to sell it or refinance.

90% of the reverse mortgages originated today are FHA / HUD Home Equity Conversion Mortgages (HECM).  These are insured by the FHA and have been growing in popularity over the recent years.   

Reverse Mortgages – Qualification

To qualify for a Reverse Mortgage, you must be at least 62 years of age, have an equity position in your home and undergo free counseling from a HUD approved agency.      Income, employment and credit are not considered for qualification.  There are no medical tests or histories required.  It almost sounds too good to be true – and that is why it took me so long to offer this valuable tool to those that could benefit.  Dollar amount available is determined by borrower age and equity position.  

The cost of an FHA / HUD reverse mortgage (HECM) is similar to that of a refinance.  Interest rates are typically lower than the most competitive rates offered by traditional mortgages.  Also, similar to most refinances, all of the costs are packaged into the loan to eliminate out of pocket expenses.   You are still responsible for paying your property taxes and home owner’s insurance and for making property repairs but will not have a mortgage payment as long as you live in the home.

Upon closing, the proceeds from a Reverse Mortgage will first pay off any existing mortgage (if there is one).  The (remaining) proceeds are tax-free and can be spent at the homeowner’s discretion – and with no impact to other benefits such as Social Security or Medicare.

The funds can be accessed or used in a combination of ways.  Some will take a lump sum, pay off debt (if needed / desired) and keep the remainder as a reserve for living expenses.  Others choose to receive a monthly amount similar to receiving a paycheck – remember this is from home equity so it’s tax free.  Many like the security of knowing they can readily draw on the equity in their home should they need or want to – regardless of reason; It may be to cover increasing healthcare and day-to-day living expenses, to do the traveling that they have always dreamed of doing or helping grandchildren fund their college education.  More and more people are using the proceeds to purchase a vacation or second home.   The Reverse Mortgage allows the borrowers to pay cash for the home, have no mortgage payments and actually have two properties appreciating in value.

Reverse Mortgages – Financial Security

Whatever the reason, a properly planned Reverse Mortgage can, provide security, personal independence and an overall improved quality of life – allowing those who chose a Reverse Mortgage to live life on their terms.

Buck Gieseke
Integrity One Home Mortgage, Inc.
22 Lee Chatfield Avenue
Sequim, WA 98382
(877) 565-2070

Reverse Mortgages can be good financial tools for some retirees.

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• How to Get a Loan – Part 2 Loans on Manufactured Homes
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• Reverse Mortgages – The Danger

Loans on manufactured homes are harder to get approved, and there are several logical reasons.  But this is a complex subject, because there is so much involved on qualifying a manufactured home as a loan asset, and there are strict conditions that underwriters want borrowers to satisfy, and to make matters more complicated, there are also some compensating tradoffs that are possible among the credit rating, the income/debt ratio, and the condition and construction of the manufactured home.

Loans on Manufactured Homes

Loans on manufactured homes are becoming harder to get.  I sat down with mortgage expert Buck Gieseke of Integrity One Home Mortgage and asked him a series of questions, including what it takes to qualify for a loan, what kinds of construction or conditions of a manufactured home would cause underwriters to reject them, and how this all plays out in this real estate market.

Many manufactured homes today are built very well, perhaps as well or better than some site built homes, but that doesn’t make getting loans on manufactured homes any easier.  In fact, they are harder than getting loans on site built homes.  Buck explains why that is true in this audio interview.  

Loans on Manufactured Homes – An Interview with Buck Gieseke

We jump right into this interview where we left on in Part 1.

How to Get a Loan Part 2

It may seem unfair that loans on manufactured homes are harder to get approved, but manufactured homes are treated differently than site built homes by the Department of Housing and Urban Development, by FHA, and by States where manufactured homes typically have a VIN number like a car.  Unfortunately, eliminating title does not solve the dilemma as Buck explains in the interview.

As Buck points out another reason it is hard to get loans on manufactured homes is that many banks have dropped manufactured homes from their approved list of lending assets.  Many banks in the past six years have been dropping manufactured homes, and this real estate recession with so many homes in foreclosure has made it worse.

How to Get a Loan Part 1
How to Get a Loan Part 3

For more on getting loans on manufactured homes, stay tuned for the Part 3.

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• Reverse Mortgages – The Danger

How to get a loan in this market with all the changes in the mortgage business is a topic of conversation for buyers these days.  There are many difficult issues that buyers face, and getting a loan has gotten much harder, even for those with high credit scores.  I was pleased to have an opportunity to interview a mortgage broker who has been in the business for decades and who has an intimate knowledge of the history of lender and underwriter requirements.  Buck Gieseke of Integrity One Home Mortgage explains exactly what the requirements are for a loan and what a buyer must prove to get underwriter approval.

How to Get a Loan Part 1

This is the first in a series of interviews on how to get a loan.  This first segment covers one of the most difficult loans to obtain these days, a loan on a manufactured home.  Most people don’t know what the requirements are to get a loan on a manufactured home.  Of course, a buyer (borrower) must have sufficient income, must not exceed the debt to income ratio, must have a good credit score, and the asset (the manufactured home) must meet underwriter requirements, which is more than just saying it appraises for at least the purchase price.

In this audio of the interview, without boring you with a lot of fundamental loan qualifications that are obvious, we jump right into the discussion of what unique issues effect the qualification of a manufactured home.

How to Get a Loan Audio Interview with Buck Gieseke

How to Get a Loan Part 1

How to Get a Loan Part 2 Coming

How to Get  a Loan Part 2
How to Get a Loan Part 3

 In the next audio interview Buck will talk more about some of the reasons getting a loan on a manufactured home have gotten more difficult, and what buyers ought to know before making an offer on a manufactured home.

Next:  How to Get a Loan Part 2

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• Reverse Mortgages – Should I Get One?
• How to Get a Loan – Part 2 Loans on Manufactured Homes
• Derogatory Credit Marks – How Long Will They Be On My Credit Report?
• Reverse Mortgages – The Danger

Derogatory credit marks can hurt your chances of getting a home loan approved, and in these times when buying a home and getting your loan approved is no small challenge even if you have great credit, I thought it might be helpful to see a detailed breakdown of what the waiting period is for various types of loans with derogatory credit marks.  Click on this image to enlarge it.

Derogatory Credit Marks

Derogatory Credit Marks – Detailed Waiting Periods

Enlarge this image and view the entire list of waiting periods for various types of loan.  If your browser opens it with small print that is hard to read, simply zoom in with your browser by holding the “Ctrl” button and hitting the “+” key several times.

Special thanks is owed to my friends for preparing this detailed list of derogatory credit marks for me:  Eric Gausepohl & Matt Gausepohl at www.SummitLendingServices.com.

If you do have some of these derogatory credit marks on your credit report, don’t give up hope.  Talk to a sharp loan representative who is knowledgeable, experienced, and professional.  Now more than ever, experience in your loan officer is critical to addressing complex issues that could kill your loan.  Underwriters seem to be looking for any reason to turn the loan down, so pre-qualifying is more important than ever.

If I can help you buy your home in Sequim, Washington, and get connected with a loan expert who can help you do some pre-qualification work, email or call me.  I’d be glad to help.  Derogatory credit marks can kill your chances of getting a loan.

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• Reverse Mortgages – The Danger

Reverse mortgages have been promoted in many commercials and by some famous Hollywood stars with whom senior citizens identify.  Credible stars like Robert Wagner and Fred Thompson have touted reverse mortgages as wonderful financial solutions for senior citizens.  These two venerable stars were certainly chosen for the great credibility they have with senior citizens.  In the Fred Thompson advertisement on T.V., he says, “Reverse mortgages are helping seniors overcome financial worries and live the life of their dreams,” and the commercial goes on to state that they “don’t cost anything and you won’t lose anything.”

When anyone talks like this, we should all be put on alert.  When debt is promoted as a way to freedom, be cautious.  Reports of widows being evicted are now raising new concerns and expose reverse mortgages for what they really are–a very dangerous proposition for homeowners at any age.  See Widows Sue Government and Reverse Mortgages Put Homeowners at Risk and Elderly and Reverse Mortgage Risk.

Reverse Mortgages Sound Good

Ads are all over the Internet telling seniors how great reverse mortgages are, and using key phrases like, “quality of life,” or “your home forever,” and downplaying the risk.  The idea is that if you own your home free and clear, you can get a mortgage on your home so you will receive an stream of income, and you will never have to move out of your home even if you can’t pay the loan back.  The bank would only collect after you die.  Sounds good, right?

Reverse Mortgages Dangerous

Guess what?  Widows are being evicted from their homes because of a little clause in the paperwork.  If a surviving spouse’s signature is not on the mortgage, she or he will be evicted if they do not pay the entire loan off immediately upon the death of the first spouse.  Wow!  Where was that small print?  Maybe it was in a Times Roman 6-point font tucked somewhere in the 17 page reverse mortgage documents.

Reverse Mortgages – Avoid Them Like the Plague

Wisdom tells us to avoid debts and not to be a slave to the lender.  (None of these rules apparently apply to the Federal government according to our politicians.)  Reverse mortgages are another way to be in bondage to debt.  There are logical financial and legal reasons why one spouse may not sign a reverse mortgage, but the risk of being in debt like this, and the risk of being evicted from your home when you are in your 80′s is simply not worth it.  Before you sign the dotted line and get behind the idea of reverse mortgages as panaceas for seniors, I strongly recommend you seek sage advice.

Recently I spoke with a mortgage expert about reverse mortgages and this particular danger, and he said he thought this had been changed by law so that it was no longer possible to evict a spouse.  You should talk with a mortgage expert on reverse mortgages.  Buck Gieseke wrote an excellent article about reverse mortgages, and you can read that at Reverse Mortgages – Should I Get One?

UPDATE:  Months later here we are in December of 2011, and a whole new barrage of T.V. commercials are hitting us daily, and guess who the stars are?  Two of my favorite characters–Fred Thompson and Robert Wagner.  Their sponsors have cast them in entirely new scripts and much more professional commercials than the earlier ones, but now Fred Thompson says, “You don’t even need to have an income or a good credit score.”  Doesn’t that sound a bit like the sales hype that got us in the national mortgage disaster in the beginning?  You might as well advertise, “Folks, there is such a thing as a free lunch.  Come one, come all, and get your free lunch and free money, too.”  That is how these commercials promote reverse mortgages, making it all sound so easy and wonderful and free.

One of my concerns about reverse mortgages is that they sell them with the same kind of hype that we know is full of it.  There is no free lunch.  Assuming they are no longer kicking widows out of houses for husbands who did get a reverse mortgage and died (yes, they did that, and told no one in advance it was possible), my question is what kind of nightmare awaits the elderly couple who get a reverse mortgage now?  Remember what Shakespeare said, “Neither a borrower nor a lender be.”  When you borrow money, especially most of the equity in your home, you become a slave to the creditor.  There are implications to becoming a debtor, and none of them are good.

Having said this, I will say a reverse mortgage might possibly be a good move for an elderly couple who is in serious financial trouble, does not have enough money for medical bills, cannot afford the basic necessities of life, and this is their only possible source of funds.  But the commercials are promoting ideas of living a life of luxury, traveling the world, enjoying the things you’ve always wanted to do, and so on.  This really sounds like the kind of fraudulent advertising that was at the core of the mortgage crisis that crashed the real estate market.  I’m just saying . . .  now the same language is clothed in selling reverse mortgages.  If you desperately need the money, fine, but if you can survive without, you might just avoid traps for the unwary, and there are plenty of them in the mortgage business that is so full of greed and fraudulent advertising.  Reverses mortgages – beware.

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