Restoration of historic Frank Lloyd Wright home complicated by reverse mortgage

An historic home in Chicago’s Austin neighborhood designed by architect Frank Lloyd Wright in 1903 is in serious need of repairs and renovations, but an existing reverse mortgage loan is complicating the process of initiating the work. This is according to original reporting by Crain’s Chicago Business and subsequent coverage from The Real Deal (TRD).

The home, designed by Lloyd Wright for real estate developer Joseph Jacob (JJ) Walser Jr., is a designated Chicago landmark and is present in the U.S. National Register of Historic Places maintained by the National Parks Service.

But the building, now over 120 years old, is plagued with severe issues including holes in its roof and exterior plaster — including near the foundation — and rotted window frames according to Crain’s. Barbara Gordon, executive director of the Frank Lloyd Wright Building Conservancy, estimates the needed repair costs at around $500,000.

But an unclear ownership structure makes repairing the historic structure difficult. A couple purchased the home in 1969, but took out a $189,000 reverse mortgage on the property in 1997. That has complicated the issues around ownership of the home according to the child of those buyers, who said that interest accumulation on the loan has potentially outpaced its market value.

Since a reverse mortgage has interest added to the loan balance over time and this particular loan was taken out in 1997, it has had over two decades to accumulate interest —which would seriously increase the loan balance. Add to this the state of relative disrepair and potential market fluctuations that can depress the value, and it’s possible that these factors combined with the interest accrual have pushed the loan balance beyond the potential market value.

Reverse mortgage loans as sponsored by the Federal Housing Administration (FHA) have a nonrecourse feature that would draw from the Mutual Mortgage Insurance Fund (MMIF) in the event the loan balance exceeds the property’s value, but that only kicks in at a point of sale and does not preclude the possibility that on paper, the loan balance exceeds the home value.

Prior reporting does not specify if the home was indeed sold at the time the final borrower died, nor is it specified if the reverse mortgage in question is FHA-sponsored or a proprietary alternative. Repairs cannot be made without the consent of the owners, and it is currently unclear who the owners are as a result of this situation.

According to public records cited by TRD, the loan’s current servicer is PHH Mortgage, a subsidiary of The Onity Group (formerly Ocwen Financial) and parent company to Liberty Reverse Mortgage. Fannie Mae reportedly assigned the loan to PHH. But one year earlier, the Bank of New York Mellon Trust reportedly initiated a foreclosure on the property.

That “limbo state” of foreclosure has complicated the efforts of the Wright conservancy to provide any meaningful work toward necessary maintenance, due to legal roadblocks. The prior owners both died by 2019 and the home has been unoccupied since then.

But the family and community revitalization groups are hoping to perform the necessary maintenance as soon as possible, seeing the home as an important fixture in Chicago’s architectural history.

The convoluted nature of this particular property is unique. For most heirs of a reverse mortgage borrower, the loan settlement process is relatively straightforward. This particular property also has a higher profile than the vast majority of those with reverse mortgages, potentially amplifying the challenges.

Under normal circumstances, a reverse mortgage passes to an heir when the loan becomes due and payable upon the death of the remaining borrower, or their exit from the home as their primary residence. The estate of the borrower is issued a due and payable notice, and following a determination of value by an independent appraiser, any heir can choose to either repay the loan balance, sell the home or provide a deed in lieu of foreclosure.

Since this particular home had a prior foreclosure action against it and it has since been assigned to a different servicer, the “limbo” around its ownership remains.