Commercial product applies to properties to be sold or refinanced during the loan term

Ron Heinze, owner, PMI Funding Corp.

As published in Scotsman Guide's Commercial Edition, August 2006.

Recently, a reverse mortgage on nonresidential and commercial real estate has entered the market.

Residential markets have been writing reverse mortgages for years. With a conventional reverse mortgage, borrowers who are older than 62 and own a home can turn their home's value into cash. They can receive funds from a reverse mortgage in a single lump sum of cash, in regular monthly cash advances or both. Typically, nothing has to be paid back until they die, sell their home or move.

Commercial properties qualify for a reverse mortgage, too. These property types include apartment and office complexes, ranches, farms, land (residential or commercial), mobile home parks and RV parks. Qualifying properties must be free of liens or have a small loan balance that can be paid off. The reverse mortgage typically has a term as long as five years. Borrowers receive funds just as they do for residential reverse mortgages. A difference: The property must be sold or refinanced within the loan term.

Reverse mortgages on commercial real estate can benefit property-owners of any age as long as they have a reasonable explanation for the use of funds. The amount of funds to be paid upfront and each month is determined by the need, property type and value.

Here are some examples:

Owners with medical challenges who own a 36-unit apartment complex: The owners want to sell, but the property is only one-third rented and needs repairs.

With a reverse-mortgage program, $125,000 will be disbursed as repairs are completed, in addition to $3,000 dispersed each month to help owners with medical expenses. When property is repaired and occupied, the seller will list it for sale to pay off the note.

A family trust owning commercially zoned land: The land is listed for sale at $900,000, and a family member experiences health problems. She needs a newer manufactured home and a full-time caretaker.

With a reverse-mortgage program, she can receive $80,000 to help purchase the new home and pay for other expenses. Each month for five years, $2,500 will be disbursed. The property is assured to sell in that time.

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