A historic home in Chicago's Austin neighborhood designed by architect Frank Lloyd Wright in 1903 is in need of serious repairs and renovations, but an existing reverse mortgage loan is complicating the process of getting work started, as first reported by Crain's Chicago Business and later reported by The Real Deal (TRD).
Designed by Lloyd Wright for real estate developer Joseph Jacob (JJ) Walther Jr., the home is a designated Chicago Landmark and is listed on the National Register of Historic Places administered by the National Park Service.
But the 120-year-old building has serious problems, including holes in the roof and exterior plaster (including near the foundation) and rotting window frames, according to Crain's, and Barbara Gordon, executive director of the Frank Lloyd Wright Architecture Conservancy, estimates the repairs needed will cost about $500,000.
But restoring the historic landmark is complicated by a unclear ownership structure: A couple bought the house in 1969 but took out a $189,000 reverse mortgage in 1997. That has complicated issues over ownership of the home, and the interest on the loan could accumulate beyond its market value, according to the buyer's children.
Reverse mortgages add interest to the loan balance over time, and because this particular loan was taken out in 1997, it would take over 20 years for the interest to accumulate, significantly increasing the loan balance. This, combined with its relative state of disrepair and market fluctuations that could reduce the value, means that the combination of these factors and interest accrual could cause the loan balance to exceed its potential market value.
Reverse mortgage loans sponsored by the Federal Housing Administration (FHA) have a non-recourse feature that allows them to withdraw funds from the Mutual Mortgage Insurance Fund (MMIF) if the loan balance exceeds the value of the property, but this only occurs at the time of sale and does not eliminate the possibility that the loan balance may, on paper, exceed the value of the home.
Previous reports did not specify whether the home was actually sold at the time of the death of the last borrower, nor did they specify whether the reverse mortgage in question was FHA-sponsored or a proprietary alternative. Repairs cannot be made without the owner's consent, and as a result of this situation, it is unclear at this time who the owner is.
According to public records cited by TRD, the current servicer of the loan is PHH Mortgage, a subsidiary of The Onity Group (formerly Ocwen Financial) and parent company of Liberty Reverse Mortgage. Fannie Mae reportedly assigned the loan to PHH. However, a year prior to that, Bank of New York Mellon Trust reportedly began foreclosure proceedings on the property.
The foreclosure “limb” has complicated efforts by the Light Conservation Association to do any meaningful work toward needed maintenance, due to legal obstacles. The previous owner passed away by 2019, and the home has been vacant since then.
But family members and a community revitalization group consider the home an important part of Chicago's architectural history, and they want to get the necessary maintenance done as soon as possible.
The complex nature of this particular estate is unique. For most heirs of reverse mortgage borrowers, the loan settlement process is relatively straightforward. Also, this particular estate is more high profile than the majority of people with reverse mortgages, potentially creating even greater challenges.
Typically, a reverse mortgage passes to heirs when the remaining borrower dies or moves out of their primary residence and the loan becomes due. A notice of due date is issued to the borrower's property, and after a value is determined by an independent appraiser, the heirs can choose to either pay off the loan balance, sell the home, or file a deed in lieu of foreclosure.
This particular home has previously been the subject of foreclosure proceedings and has since been assigned to another servicer, leaving it in “limb” over ownership.