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SB-739 Reverse mortgages: lender notice requirements.(2017-2018)

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Date Published: 03/31/2017 04:00 AM
SB739:v98#DOCUMENT

Amended  IN  Senate  March 30, 2017

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Senate Bill No. 739


Introduced by Senator Galgiani

February 17, 2017


An act to amend Section 1923.2 of, and to add Section 1923.8 to, the Civil Code, relating to reverse mortgages.


LEGISLATIVE COUNSEL'S DIGEST


SB 739, as amended, Galgiani. Reverse mortgages. mortgages: lender notice requirements.
Under existing law, a “reverse mortgage” means a nonrecourse loan secured by real property if the loan provides cash advances to a borrower based on the equity or the value in a borrower’s owner-occupied principal residence, the loan requires no payment of principal or interest until the entire loan becomes due and payable, and the loan is made by a specified licensed or chartered lender. Existing law requires the lender to prominently disclose in the loan agreement any interest rate or other fees to be charged during the period that commences on the date that the reverse mortgage loan becomes due and payable, and that ends when repayment in full is made. Existing federal law authorizes the nonborrowing spouse of a reverse mortgage borrower to exercise an option, sometimes referred to as a mortgagee optional election (MOE), to further defer the due and payable status of the reverse mortgage upon the death of the borrower, upon meeting specified conditions.

This bill would declare the intent of the Legislature to enact legislation that would require a lender offering reverse mortgage loans to provide disclosures to a borrower describing when a reverse mortgage agreement would become void.

This bill would prohibit a lender from making a reverse mortgage loan on a principle residence without informing the borrower, and nonborrowing spouse, as defined, of the opportunity for a nonborrowing spouse to exercise the option described above to permit that spouse to remain in the residence following the death of the borrowing spouse, upon the satisfaction of specified conditions. The bill would, for a reverse mortgage entered into on or after January 1, 2018, prohibit a lender from initiating a foreclosure on a principle residence after the death of the borrowing spouse unless the notice requirements regarding the option were met and the nonborrowing spouse was given the opportunity to exercise the option.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NO   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 1923.2 of the Civil Code is amended to read:

1923.2.
 A reverse mortgage loan shall comply with all of the following requirements:
(a) Prepayment, in whole or in part, shall be permitted without penalty at any time during the term of the reverse mortgage loan. For the purposes of this section, penalty does not include any fees, payments, or other charges that would have otherwise been due upon the reverse mortgage being due and payable.
(b) A reverse mortgage loan may provide for a fixed or adjustable interest rate or combination thereof, including compound interest, and may also provide for interest that is contingent on the value of the property upon execution of the loan or at maturity, or on changes in value between closing and maturity.
(c) A reverse mortgage may include costs and fees that are charged by the lender, or the lender’s designee, originator, or servicer, including costs and fees charged upon execution of the loan, on a periodic basis, or upon maturity.
(d) If a reverse mortgage loan provides for periodic advances to a borrower, these advances shall not be reduced in amount or number based on any adjustment in the interest rate.
(e) A lender who fails to make loan advances as required in the loan documents, and fails to cure an actual default after notice as specified in the loan documents, shall forfeit to the borrower treble the amount wrongfully withheld plus interest at the legal rate.
(f) The reverse mortgage loan may become due and payable upon the occurrence of any one of the following events:
(1) The home securing the loan is sold or title to the home is otherwise transferred.
(2) All borrowers cease occupying the home as a principal residence, except as provided in subdivision (g).
(3) Any fixed maturity date agreed to by the lender and the borrower occurs.
(4) An event occurs which is specified in the loan documents and which jeopardizes the lender’s security.
(g) Repayment of the reverse mortgage loan shall be subject to the following additional conditions:
(1) Temporary absences from the home not exceeding 60 consecutive days shall not cause the mortgage to become due and payable.
(2) Extended absences from the home exceeding 60 consecutive days, but less than one year, shall not cause the mortgage to become due and payable if the borrower has taken prior action which secures and protects the home in a manner satisfactory to the lender, as specified in the loan documents.
(3) The lender’s right to collect reverse mortgage loan proceeds shall be subject to the applicable statute of limitations for written loan contracts. Notwithstanding any other provision of law, the statute of limitations shall commence on the date that the reverse mortgage loan becomes due and payable as provided in the loan agreement.
(4) The lender shall prominently disclose in the loan agreement any interest rate or other fees to be charged during the period that commences on the date that the reverse mortgage loan becomes due and payable, and that ends when repayment in full is made.
(h) The first page of any deed of trust securing a reverse mortgage loan shall contain the following statement in 10-point boldface type: “This deed of trust secures a reverse mortgage loan.”
(i) A lender or any other person that participates in the origination of the mortgage shall not require an applicant for a reverse mortgage to purchase an annuity as a condition of obtaining a reverse mortgage loan.
(1) The lender or any other person that participates in the origination of the mortgage shall not do either of the following:
(A) Participate in, be associated with, or employ any party that participates in or is associated with any other financial or insurance activity, unless the lender maintains procedural safeguards designed to ensure that individuals participating in the origination of the mortgage shall have no involvement with, or incentive to provide the prospective borrower with, any other financial or insurance product.
(B) Refer the borrower to anyone for the purchase of an annuity or other financial or insurance product prior to the closing of the reverse mortgage or before the expiration of the right of the borrower to rescind the reverse mortgage agreement.
(2) This subdivision does not prevent a lender from offering or referring borrowers for title insurance, hazard, flood, or other peril insurance, or other similar products that are customary and normal under a reverse mortgage loan.
(3) A lender or any other person who participates in the origination of a reverse mortgage loan to which this subdivision would apply, and who complies with paragraph (1) of subsection (n), and with subsection (o), of Section 1715z-20 of Title 12 of the United States Code, and any regulations and guidance promulgated under that section, as amended from time to time, in offering the loan, regardless of whether the loan is originated pursuant to the program authorized under Section 1715z-20 of Title 12 of the United States Code, and any regulations and guidance promulgated under that section, shall be deemed to have complied with this subdivision.
(j) Prior to accepting a final and complete application for a reverse mortgage the lender shall provide the borrower with a list of not fewer than 10 counseling agencies that are approved by the United States Department of Housing and Urban Development to engage in reverse mortgage counseling as provided in Subpart B of Part 214 of Title 24 of the Code of Federal Regulation. The counseling agency shall not receive any compensation, either directly or indirectly, from the lender or from any other person or entity involved in originating or servicing the mortgage or the sale of annuities, investments, long-term care insurance, or any other type of financial or insurance product. This subdivision does not prevent a counseling agency from receiving financial assistance that is unrelated to the offering or selling of a reverse mortgage loan and that is provided by the lender as part of charitable or philanthropic activities.
(k) A lender shall not accept a final and complete application for a reverse mortgage loan from a prospective applicant or assess any fees upon a prospective applicant until the lapse of seven days from the date of counseling, as evidenced by the counseling certification, and without first receiving certification from the applicant or the applicant’s authorized representative that the applicant has received counseling from an agency as described in subdivision (j) and that the counseling was conducted in person, unless the certification specifies that the applicant elected to receive the counseling in a manner other than in person. The certification shall be signed by the borrower and the agency counselor, and shall include the date of the counseling and the name, address, and telephone number of both the counselor and the applicant. Electronic facsimile copy of the housing counseling certification satisfies the requirements of this subdivision. The lender shall maintain the certification in an accurate, reproducible, and accessible format for the term of the reverse mortgage.
(l) A lender shall not make a reverse mortgage loan without first complying with, or in the case of brokered loans ensuring compliance with, the requirements of Section 1632, if applicable.
(m) A lender shall not make a reverse mortgage loan without first providing to the borrower and the nonborrowing spouse, if any, information regarding, and the opportunity to choose a mortgagee optional election (MOE), as described in subdivision (a) of Section 1923.8.

SEC. 2.

 Section 1923.8 is added to the Civil Code, to read:

1923.8.
 (a) A lender shall not initiate a foreclosure action on a lien against a principle residence based on a reverse mortgage entered into on or after January 1, 2018, unless the nonborrowing spouse, at the time the reverse mortgage was applied for, was informed of, and given the opportunity to exercise an option, sometimes referred to as a mortgagee optional election (MOE), to further defer the due and payable status of the reverse mortgage upon the death of the borrower.
(b) For purposes of this section, the following terms have the following meanings:
(1) “Nonborrowing spouse” means the spouse or registered domestic partner of a reverse mortgage borrower, who themself is not a borrower under the reverse mortgage, and who was married to, or the registered domestic partner of, the borrower at the time of loan closing and who remained married to, or the registered domestic partner of, the borrower until the borrower’s death.
(2) “Mortgagee optional election (MOE)” means the optional assignment elected by a mortgagee for a reverse mortgage associated with a surviving nonborrowing spouse.
(3) “Principal residence” means the dwelling where the borrower and, if applicable, nonborrowing spouse maintains his or her permanent place of abode, and typically spends the majority of the calendar year. A person may have only one principal residence at any one time.

SECTION 1.

It is the intent of the Legislature to enact legislation that would require a lender offering reverse mortgage loans to provide disclosures to a borrower describing when a reverse mortgage agreement would become void.