Los Angeles

[Adam-la]

This is the first time I've run accross a Life Estate outside of the hypotheticals in the real estate exams and training. 

http://www.redfin.com/CA/Rosemead/8203-Crain-Dr-91770/home/6988328

Basically there is a tenant living in this house that has the right to live rent free but must pay property taxes and insurance for the remainder of their life.   The ownership can transfer but the right to use the property was given to an elderly woman that currently lives there and is not cooperative with the current owners who purchased it in the middle of 2012 from what appears to be a bank REO sale. 

http://en.wikipedia.org/wiki/Life_estate   - Explanation of how a Life Estate works

http://www.ssa.gov/oact/STATS/table4c6.html - Actuarial tables with life expectancy estimates.

Since it is a 'value priced' property, it hits the radar or bargain hunters of course but this is not a property that can be financed with any type of normal mortgage and really becomes an actuarial question of how long the tenant will live or want to stay at the property and if the value of the property will rise at that point. 

Would you buy something like this?

[HarryV]

Did the buyers even know that there was a Life Estate when purchasing through a bank? That would clearly seem to be fraud even if the bank did not reveal. Perhaps they thought they could evict the tenant. Not sure who would buy if you can't live there.

[Ed_in_SoCal]

Any indication of how old the tenant is?

[Adam-la]

Did some in depth research on this one today including digging out the title trail with the title insurance company.   We can't find any record of a life estate on the title report but the person living there may have the actual paper and never filed it with the County.   

There are some interesting land easements from when the property was built but nothing that would prevent an owner from moving in.   

From previous MLS listings it appears the person living there is in their 80's but that information is not reliable. 

The title officer is researching what happens when a property goes through a foreclosure and if it wipes out the Life Estate (that may not exist).   If my client doesn't buy this property, I might.   I collect interesting stories and this could be one for the book I'm writing in my mind about the people in Los Angeles.  

[Adam-la]

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HarryV wrote:

Did the buyers even know that there was a Life Estate when purchasing through a bank? That would clearly seem to be fraud even if the bank did not reveal. Perhaps they thought they could evict the tenant. Not sure who would buy if you can't live there.

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The current buyers bought it via the always wonderful Auction.com/Gohoming.com systems with their industrious call center in India.  Although I was not party to that transaction and don't know what they knew or were told, the MLS listing at the time (summer '12)had this in the Agent Notes:

Agents, An Elderly Person Lives In The Property, Please Do Not Contact Occupant. This Is A Unique Sale. Property To Be Obtained Unseen Due To Life Estate. Please Call Me For More Details

As to the 'who would buy this' question I'm pretty sure the right buyer will come along.   At least two people have bought this in the past 5 years knowing the limitations.  

[Mortmain]

No way Jose! I've seen a few of these. They are quite common in other countries like France. Like a lease purchase, they always seem stacked against buyers. It would have to be a very old inhabitant, a very young buyer with cash to spare, and a pretty good price.

[sheriff]

Wouldn't a foreclosure, in this case 2/09, invalidate the life estate?

[Roibeard]

There was a listing for a life estate home just off La Cienega a month or two ago - relatively nice area and the price was good, but then I researched what exactly a life estate meant and couldn't for the life of me understand why it would make sense to anyone to buy!  Even more so given that the woman living there in this case was in her mid-50s - that's a long time to wait for your house to be free and clear...

[Ed_in_SoCal]

Great info as always, Adam.  You'd have to factor in that you won't be getting rent for X amount of years.  And you don't even get to see the initial condition of the inside of the house before you buy?  This person could be a hoarder or have 10 cats and dogs.  Then another X years of a "who cares I don't own this place and will never need a reference to rent anywhere else" entitlement attitude.

[Curmudgeon]

I've personally seen this work both well and poorly.  It's much more feasible if there is no loan on the property and there is a clear understanding agreed upon as to rights and responsibilities.  In the case where I saw it work well, the real value was in the land, and the property was sold to a long-time neighbor who would consolidate and develop the land after the tenancy was given up.