If the reverse mortgage balance is indeed under $100K, the winning bidder may have made a savvy purchase alternatively If the balance is significantly more, the winner could face unexpected costs, potentially diminishing the perceived bargain. Estimating the balance on a reverse mortgage in a foreclosure situation can be tricky, but here’s a general approach to help determine if the winning bid is a good deal: Since reverse mortgages accrue interest and fees over time, the original face value of $337K from 2006 could have grown substantially. Reverse mortgage balances grow as borrowers make no payments, and interest/fees are added to the loan balance over time. However, the interest rate type (fixed vs. variable) and any rate caps affect how much it has grown.
You could roughly estimate the balance by assuming an annual growth rate. Reverse mortgage rates often fall between 3% and 6%. If this mortgage compounded at around 4% annually over 18 years, it could theoretically double from the original amount or even exceed it, depending on fees and compounding.
Consulting a title company experienced with reverse mortgages in foreclosure contexts can reveal a payoff estimate. This is often possible in cases where the HOA has moved forward with foreclosure due to unpaid dues, and sometimes they have a general idea of the mortgage balance.
I suspect the winning bidder has access to what I suggest above and the old adage that knowledge is King applies here.
We have a reverse mortgage expert on staff here and I have reached out to him today to see if he can offer better insight than myself, so check back over the next few days to see his response.
The subject of reverse mortgages is full of so many variables it is hard to give concrete advice on any one tact.
