I am trying to buy a house and am being told that it HAS to be sold at appraised value due to owner going on Medicaid. Is this true?

Sandy Hill - How wonderful and with a bow on it too! Medicaid should not have any problems as the family can show the documentation as to the appropriateness of the sale. Hope you are able to fix & flip within your time constraints for best profit!

Update: I paid for part of appraisal that real estate broker working for the owner hired. We settled on the appraisal price which was almost 1/2 of original asking price and still under what the town had it assessed at - after their third lowering of their assessment. Thank you for the advice.

So SandyHill - does Aging Care win Miss Congeniality award for insight?

I have a new suggestion for you somewhat different from my inspection & appraisal path. The house, is it a real POS? like run down enough that it has code violations or blight notices done by the city? if so, there should be a paper trail down at the courthouse or city's Safety & Permits type of office on the property. I'd bet you can go online and print these out or maybe go in person to city/county and get the violations. The you take some photos on the house to show issues (take a couple of levels to set on windows sills or steps to show settlement foundation problems). If there is mold anywhere be sure to shoot photos of that. Ditto if asbestos flooring. Shoot images of Trees that need removal and within fall line of other properties or lines.

I'm assuming this in not your first rodeo on property investing. So you have vendors to get estimates from and they will be glad to do this for you. Get them to do rough estimates for you on the house. Mold remediation alone will be a lot of $$$. Ditto on asbesto$$ removal. Tree removal by transmission lines can be really expen$ive too....Package the whole thing up with your bid on the property along with your contact info and give to the DPOA to present to medicaid caseworker. Put in that yours is an ALL CASH bid is good for 60 days with a release from Medicaid. There should be a specific form done for this btw.

Also check to see if it's gone up for tax sale or other liens on it. If so, get the amount due and interest on it and the redemption date for tax sale & include this as well.

If DPOA & family will not pay house costs, it will go up for tax sale redemption eventually. Medicaid cannot make family pay on their parents home. Property becomes caught up in tax sale ownership with city / county. Medicaid isn't designed to buy or maintain property so they loose out totally imo.

Your just giving the DPOA something to provide to the caseworker and his superior valid documentation to allow the sale below FMV & get past regulation roadblocks.

For my moms Medicaid application there were glitches with her life insurance and her car. Caseworker has like 10/15 minutes to review stuff so anything that is not easily dealt with is a problem. So whatever you can do to help the solve the problem (with documentation) makes everybody happy. For insurance I got an LA broker who held TX insurance license to do an on letterhead statement with license # that it was aTerm policy. Problem solved. For old old policies they are like 20-30 legal pages long and inital medicaid caseworker can't read each line or evaluate the policy (they are basically clerks with a check off list to verify) so its an issue. For the car, it was sold to worthless nephew for under FMV at almost the edge of end of year 4. So I got moms accident report & old repair checks to show work done and got the mechanic (real licensed biz) to give a resale estimate. Got its transfer value to be within the 2k asset limit. Problem solved. Medicaid just needs something reasonable and valid to document or justify. Comprende?

Freqflyer - I googled a short version of my original question and this is one of the top sites that came up.

SandyHill, I am just curious how you found this website to ask said question about a Medicaid lien property. It just seem so out of the norm, but a good question.

SandyHill - the parents home Medicaid asset situation & SOC (share of cost) often come as a total surprise. Here's some info that may be of help. Gonna be long:

Homestead & 1 vehicle are usually exempt assets for Medicaid. Although that seems terrific, once on Medicaid all monthly income less personal needs allowance ($ 35-105 mo), must be a their SOC (share of cost) paid to NH. Due to SOC, elder realistically has no $. Family will need to pay ALL house costs (taxes, insurance, whatever) from day 1 of Medicaid till either home is sold OR till they die & through estate recovery/MERP & possibly probate if they want to inherit house or keep till its sold. Medicaid is required to get any assets to either be a spend-down (if they are alive) or to reimburse medicaid for costs paid if feasible and cost-effective via MERP from their estate (after they die). Families seem to place house for sale within 6 mo of NH admission as that’s the tipping point for $ & patience, with all proceeds from the house going for spend-down. Some states allow for a diversion of some of their SOC for 6 mos IF house is listed with a Realtor btw.

Spend-Down & Estate Recovery has been a part of Medicaid since 1990’s. What was done varied wildly. Some states did zero. In 2005, Bush signed Deficit Reduction Act. DRA required states to now have a codified asset/recovery program & uniform transfer penalty format for Medicaid. Within Medicaid application (& renewals) now there is some sort of “Acknowledgment of Participation Agreement” so by applying for and accepting Medicaid, you agree to MERP, spend-down, etc. Spend-down & MERP are understandable as LTC are budget busters for states and Medicaid is an "at-need" entitlement ("need" medically & financially). Few elders can pay 100K a yr NH. Most elderly live on modest SS income. If they live long enough & need care, they will flat run out of $ & apply for Medicaid. One issue with Medicaid – based on posts on this site – is that families & applicant do NOT fully realize what this means for assets/income. Most kids do not document costs over years paid on parents property &/OR have an agreement to repay; so are at a total disadvantage to either be reimbursed for outlay; or file for exemptions with MERP or to file in probate as their own claim. Most families are not going to have the patience, reason or wallet to pay months or till forever on house.
You maybe repair the broken window but you don’t get new windows. Often neither elder or family have $ or interest to even do repairs.

Add to this that elderly homeowners -since taxes are lower & fixed- do NOT challenge valuation increase by tax assessor over time so "value" is totally inaccurate.

If Medicaid gets very fixed in requiring tax assessor / FMV for a sale...Family will just walk on dealing w/their parents property and it’s then city or county's blight & problem.

Personally I think home sales & MERP will not produce the $$ expected. MERP planning was done in early 2000‘s when real estate was all a go-go. Signed into DRA in 2005. Back then, houses would quickly sell for huge sums of $$$ and supposedly would sell even more so in 2006, 2007…… Medicaid/MERP could be paid/repaid w/$$$ left over for family as mom’s house -even crappy- was a little goldmine. Totally different real estate mkt. now.

Often family & Medicaid recipients make the mistake of assuming admission person @ NH or Medicaid caseworker is the final & absolute authority on all matters pertaining to Medicaid. Ditto for contractors who do MERP. That is, family or heirs accept at face value whatever they are told by "staff" regarding rules or whether a claim or lein will be filed. It is whatever state authority who gets the federal Medicaid money who is the final in all this and there is an appeals process that can be done in addition to whatever is allowed by state laws. It is important to remember that Medicaid, MERP or NH staff does not necessarily represent the interests of the applicant, their family or heirs. It represents the position of the state. For this reason, their position may be in direct opposition to the interests of the applicant or their family.

If DPOA present valid legal appraisal to justify sale, Medicaid needs to accept it. Can appeal if need be. If deceased, you do this within probate. The problem is going to be is it worth time, $ & effort for family to do OR just walk away from parents home. Medicaid can't force family to deal with the house or do probate. House can become the govt's problem. We all likely have abandoned house in our area. I'd bet some have owner on Medicaid so no $$ & the condition, past due taxes, etc. are such that they aren't worth dealing with. Likely to happen more & more too. Not pretty.

Not intended for a flip, yes investment but long term in the town in which I live. House is in pretty advanced decline and needs overhaul before it would even be insurable. Thanks for the input all. I will post update when I have news.

Hmm....I'm going out on a limb but I'd bet that SandyHill is an investor of sorts. So SandyHill is not either going to deal with Realtors as there's that pesky 6% commission with AND he's doing a cash sale so no mortgage co or conventional banking needs and their pesky title insurance requirements. If so, he has the $$ all totally liquid but his profit margin needs to be so he gets the house as cheap as possible to flip it within 10 weeks or so. It's not going to be his homestead but a short term investment or long term rental.

Sandy, if the appraisal could come in at the figure you need and you can wait the 90 days to do this deal to clear the medicaid stuff, I'd make the sale contingent on the owner selling it to you via warranty deed and family pays for all legal to get it sold that way. Absolutely NO quit claim deed type of sale but they have to do via a warranty deed. If there's a glitch, it's on them to get it worked out before act of sale. good luck. Btw if you do this could you please post an update of how it went. We all learn from each other, thanks!

Freqflyer - oh my it does sound like quite the deal. Hopefully all is done, sold & transferred soon as that would be such a perfect Fathers day gift for your dad!

If a house is selling "as is" then any type of home inspection would be for "information only". I would put a clause in the contract that if something major is found in the home inspection that the Buyer could back out of the contract.

Definitely hire your own home inspector. Your bank will also do an appraisal. Then you have to worry about liens the seller may not be aware of. Be sure you get title insurance paid for by the seller.

Sandy, may I ask if you are using an experienced Realtor who is familiar with "as is" homes? A Realtor will run comps to show what has already sold and what is currently on the market in the neighborhood.

Example, I have my parent's house listed "as is", it is reflected in the price. I had my parents house professionally appraised and the value was very close to what I thought the house was worth. But the house is worth less then County assessed value. As others above have mentioned, there is a difference between "assessed" value, and "appraised" value.

Some buyers for "as is" properties will automatically start to subtract the cost of updating the house, that's human nature..... it depends on how much work needs to be done. My parents had done very little in updating over the past 35 years, and the basement isn't finished, thus the house is priced $60k to $100k below the other two on the market. All in all, the house could be the deal of the century.

Igloo makes a good point on the municipal assessments. The house next door to mine is assessed at more than mine, BUT (and this is a big BUT) - it's been abandoned for 5 or perhaps 6 years (I've lost count), ivy is overrunning one side of the house (I call it the witch's house from the Hansel & Gretel story), it's been w/o electricity, heat and cooling for the several years it's been abandoned (and this is in Michigan), the sill is falling off one of the basement windows and a few years ago was large enough for mice to get in, and hasn't had any attention since a flood occurred back in 2014. Imagine what the basement must be like! Yet the city assessor thinks it's worth more than mine. Go figure.

I'd bet the town did not do an appraisal, but instead it's an assessment based on land and improvement values in the overall area but tailored to the house based on sq footage. Id suggest that you go online to tax assessor to see the breakdown on land and improvements (the house). How off is the figure?

Now for the NH residents on medicaid or applying for medicaid family, they have been told by your states medicaid program that house needs to be sold at FMV with all proceeds going to become assets for the NH residents and used in a spend down after which they can become eligible for Medicaid. This is what Angelkw aptly described.

However the tax assessors figure can be totally off. Family or a prospective buyer (if you really really REALLY want it) can go & get the property to have a conservative appraisal done.

What seems to work well within this is to first get the property inspected. Needs to be a certified & licensed for your city/state residential inspector. The cost seem to have a based line figure ($250-350) and then additional over a set sq footage of the property. If there are significant structural issues, perhaps also get a residential structural engineers report done also - these are a bit harder to do as most structural engineers do commercial and small low value residential isn't with their time for their fee (1k or so). Then those reports are given to an residental appraiser to do an appraisal on the home. They too are licensed and their report will have a seal on it....it's usually considered a legal document too. Again based line fee $ 300/$500 then increases for property or parcel size.

Property can be sold at appraisers value -even if lower than tax assessor value - and should be ok by Medicaid.

Often these are done for probate to get a accurate value on property to determine assets of the estate at time of death. Once judge signs off on it within the Assest of Estate document in probate sequencing, it's the new legal value on property too as its entered in court. If the deceased property owner had been on Medicaid, the heirs will have an attempt at MERP -estate recovery on the assets of the estate which is the house will be the only real asset (cause they are impoverished to even get onto medicaid.) So Medicaid estate recovery has to accept the appraised value as the recoverable value. It could be significantly lower than tax assessor value and with other probate costs or claims could make an attempt by the state for MERP / recovery to be not cost-effective.

For the family dealing with their parents home & Medicaid is sticky as they probably have been fronting costs on their parents care & thier parents home. They probably aren't in humor anymore to pay for or have the time for dealing with inpectors, appraisers, engineers. They just want the house sold. Unless they have some sort of agreement with the parent, they are likely out on all $ spent. So not too inclined to spend more. But you can if it would be worthwhile to do so and have the wallet & patience to make it happen.

You know the scenario you described is probably going to be more & more common as Medicaid is turning state recovery over to outside contractors who are much more collection driven than a state employee will be. There needs to be more flexibility in decision making by medicaid, otherwise family - once they realize what estate recovery could be - will just walk on dealing with their parents old home and more than likely a home with decades of delayed maintenance. Most applying for NH Medicaid aren't moving out of a cute new beachside cottage or condo in an upscale building. Rather Old house, old neighborhood.

If you really want this house, perhaps you could hire your own appraiser to determine how accurate the municipal appraisal really is. But if you decide not to buy it, that's money lost.

The owner is already in nursing home. The town did the appraisal and just lowered it slightly

I think Jeanne makes a good suggestion. Appraisals vary by who does the appraising. It may not even be that close to market value, especially if there are many items in need of repair.

For you, I'd say look elsewhere. That isn't the only home on the market.

But I also feel empathy for the guy who needs the sell the house. If it needs a lot of renovation it simply isn't going to sell at that appraised price. Then what for him?

Who did the appraisal? I wonder if there is an appeal process in place (for him, not you) to get other opinions of what the property is actually likely to sell for on the open market? If you are dealing with his realtor you might ask about that.

This isn't a price negotiating stand they are taking. It really is a restriction on them.

Please understand that is a VERY simplified example...was just trying to illustrate the penalty period. If he enters a nursing home any time in the next 5 years, the 10 months of missing money will affect him.

Angel

Doesn't matter if he isn't already on Medicaid. Medicaid has a 5 year lookback, so any transactions over the previous 5 years from the application date are covered by this lookback. Obviously he is preparing for this by not being willing to cause problems with his Medicaid application.

See, here is the main problem. Could he sell you his house for less than market? Sure he could...but he would be slapped with a penalty period on his Medicaid claim...so for example...
(all numbers are for example purposes - using round numbers for clarity)

Assume there are no cash savings or other assets
Market appraised value $200,000
Monthly cost for nursing home : $5000
House sold for $150,000
Next month he enters a nursing home
Medicaid Application filled out upon nursing home entry
Medicaid will penalize him for $200,000/$5,000 or for 40 months.
Since he only has $150,000 he will only be able to afford 30 months out of pocket...how will he pay for the extra ten months? He won't be able to and will be removed from the nursing home...and his family will somehow have to figure out how to pay.

This is the math his family is struggling with. They cannot afford the 10 months out of pocket...so the house must go for market value.

Angel

One more - what if he is not actually on Medicaid yet?

Definitely move along. They will not be able to get around this restriction for fair market value, nor will they have the ability or funds to make the repairs that are needed. Even if an appraiser came to the house and lowered the tax appraisal amount, it would take a lot of time, and paperwork to buy this house for what it's really worth, rather than what the market in the area would expect for the location and size.

Angel

Open market, no relationship. Needs extensive work, which is why we are offering an appropriate amount in order to bring house to appropriate levels. I don't think they are on Medicaid yet, just preparing to go on it.

Yes, this is true. If the owner is going on Medicaid, that' means they are about to receive taxpayer money to pay for their care. Becasue of this, he/she cannot give away any assets as gifts, including selling items like homes and cars at less than market value. If the person has assets, Medicaid requires them to be used for their care, not given to heirs and expecting taxpayers to pay for their care.

Is this a relative of yours and you are expecting a break in the price because of your relational status? You won't get a price break in this case...as their care needs to be paid for, and their cumulative assets need to be used first, before taxpayers foot the bill. If it's not, and you are just trying to buy a home on the open market, I would first assess how much work the home needs...because you will be stuck with the work in this case. It would probably be better to buy from someone else.

Angel