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Financial Planning / Tax Strategies


Subject:  Re: Valuation of mortgage asset for estate Date:  5/6/2013  7:17 PM
Author:  ptheland Number:  118587 of 127752

Any thoughts?

Yes. I'm glad is your client and not mine. ;-)

Let's see. You've got some offsetting issues here. What you're after is a Fair Market Value, not necessarily the value to the beneficiary or to the decedent. And I'd imagine you're looking for the largest discount you can justify so you can minimize the taxes.

As an arm's-length buyer of a single mortgage, you would probably want a discount to the face value. However, that discount is driven partially by the interest rate on the loan, which is above market rates. Offsetting that is the probability of the loan continuing to maturity - something not as likely if the interest rate is above the going rates. And it is well-secured, again requiring less of a discount, but adding to the possibility of refinancing and an early payoff. You'd also consider the creditworthiness of the borrower.

I might look around to see what buyers of mortgages might pay in the open market. Use that as a starting point, then make some additional adjustments up or down for the various issues with the loan.

I might also try valuing it on a very short term basis - assuming the loan would be paid off in only a couple of months after purchasing it. That is assuming the borrower is credit worthy and could refinance in the general mortgage market if they so desired. So what would someone pay for the mortgage now knowing that it will be paid off in something like 60 - 120 days.

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