SECTIONS 1923-1923.10 - California Statutes

CIVIL CODE

SECTION 1923-1923.10

1923. For purposes of this chapter, "reverse mortgage" means a
nonrecourse loan secured by real property that meets all of the
following criteria:
(a) The loan provides cash advances to a borrower based on the
equity or the value in a borrower's owner-occupied principal
residence.
(b) The loan requires no payment of principal or interest until
the entire loan becomes due and payable.
(c) The loan is made by a lender licensed or chartered pursuant to
the laws of this state or the United States.

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 without first receiving a
certification from the applicant or the applicant's authorized
representative that the applicant has received counseling from an
agency as described in subdivision (j). 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 borrower. 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.

1923.3. A reverse mortgage shall constitute a lien against the
subject property to the extent of all advances made pursuant to the
reverse mortgage and all interest accrued on these advances, and that
lien shall have priority over any lien filed or recorded after
recordation of a reverse mortgage loan.

1923.4. For the purposes of this chapter, a property shall be
deemed to be owner-occupied, notwithstanding that the legal title to
the property is held in the name of a trust, provided that the
occupant of the property is a beneficiary of that trust.

1923.5. (a) No reverse mortgage loan application shall be taken by
a lender unless the loan applicant, prior to receiving counseling,
has received from the lender the following plain language statement
in conspicuous 16-point type or larger, advising the prospective
borrower about counseling prior to obtaining the reverse mortgage
loan:
IMPORTANT NOTICE
TO REVERSE MORTGAGE LOAN APPLICANT
A REVERSE MORTGAGE IS A COMPLEX FINANCIAL TRANSACTION. IF YOU
DECIDE TO OBTAIN A REVERSE MORTGAGE LOAN, YOU WILL SIGN BINDING LEGAL
DOCUMENTS THAT WILL HAVE IMPORTANT LEGAL AND FINANCIAL IMPLICATIONS
FOR YOU AND YOUR ESTATE. IT IS THEREFORE IMPORTANT TO UNDERSTAND THE
TERMS OF THE REVERSE MORTGAGE AND ITS EFFECT. BEFORE ENTERING INTO
THIS TRANSACTION, YOU ARE REQUIRED TO CONSULT WITH AN INDEPENDENT
LOAN COUNSELOR. A LIST OF APPROVED COUNSELORS WILL BE PROVIDED TO YOU
BY THE LENDER.
SENIOR CITIZEN ADVOCACY GROUPS ADVISE AGAINST USING THE PROCEEDS
OF A REVERSE MORTGAGE TO PURCHASE AN ANNUITY OR RELATED FINANCIAL
PRODUCTS. IF YOU ARE CONSIDERING USING YOUR PROCEEDS FOR THIS
PURPOSE, YOU SHOULD DISCUSS THE FINANCIAL IMPLICATIONS OF DOING SO
WITH YOUR COUNSELOR AND FAMILY MEMBERS.

(b) (1) In addition to the plain statement notice described in
subdivision (a), no reverse mortgage loan application shall be taken
by a lender unless the lender provides the prospective borrower,
prior to his or her meeting with a counseling agency on reverse
mortgages, with a written checklist, or in the event that the
prospective borrower seeks counseling prior to requesting a reverse
mortgage loan application from the reverse mortgage lender, the
counseling agency shall provide the prospective borrower with a
written checklist. The written checklist shall conspicuously alert
the prospective borrower, in 12-point type or larger, that he or she
should discuss with the agency counselor the following issues:
(A) How unexpected medical or other events that cause the
prospective borrower to move out of the home, either permanently or
for more than one year, earlier than anticipated will impact the
total annual loan cost of the mortgage.
(B) The extent to which the prospective borrower's financial needs
would be better met by options other than a reverse mortgage,
including, but not limited to, less costly home equity lines of
credit, property tax deferral programs, or governmental aid programs.
(C) Whether the prospective borrower intends to use the proceeds
of the reverse mortgage to purchase an annuity or other insurance
products and the consequences of doing so.
(D) The effect of repayment of the loan on nonborrowing residents
of the home after all borrowers have died or permanently left the
home.
(E) The prospective borrower's ability to finance routine or
catastrophic home repairs, especially if maintenance is a factor that
may determine when the mortgage becomes payable.
(F) The impact that the reverse mortgage may have on the
prospective borrower's tax obligations, eligibility for government
assistance programs, and the effect that losing equity in the home
will have on the borrower's estate and heirs.
(G) The ability of the borrower to finance alternative living
accommodations, such as assisted living or long-term care nursing
home registry, after the borrower's equity is depleted.
(2) The checklist required in paragraph (1) shall be signed by the
agency counselor, if the counseling is done in person, and by the
prospective borrower and returned to the lender along with the
certification of counseling required under subdivision (k) of Section
1923.2, and the loan application shall not be approved until the
signed checklist is provided to the lender. A copy of the checklist
shall be provided to the borrower.

1923.6. The lender shall be presumed to have satisfied any
disclosure duty imposed by this chapter if the lender provides a
disclosure statement in the same form as provided in this chapter.

1923.7. No arrangement, transfer, or lien subject to this chapter
shall be invalidated solely because of the failure of a lender to
comply with any provision of this chapter. However, nothing in this
section shall preclude the application of any other existing civil
remedies provided by law.

1923.9. (a) To the extent that implementation of this section does
not conflict with federal law resulting in the loss of federal
funding, reverse mortgage loan payments made to a borrower shall be
treated as proceeds from a loan and not as income for the purpose of
determining eligibility and benefits under means-tested programs of
aid to individuals.
(b) Undisbursed reverse mortgage funds shall be treated as equity
in the borrower's home and not as proceeds from a loan, resources, or
assets for the purpose of determining eligibility and benefits under
means-tested programs of aid to individuals.
(c) This section applies to any law or program relating to
payments, allowances, benefits, or services provided on a
means-tested basis, by this state, including, but not limited to,
optional state supplements to the federal supplemental security
income program, low-income energy assistance, property tax relief,
general assistance, and medical assistance only to the extent this
section does not conflict with Title 19 of the federal Social
Security Act.
(d) For the purposes of this section, "means-tested programs and
aid to individuals" includes, but is not limited to, programs set
forth in Chapter 2 (commencing with Section 11200) of Part 3 of
Division 9, and Part 5 (commencing with Section 17000) of Division 9,
of the Welfare and Institutions Code.

1923.10. This chapter shall only apply to those reverse mortgage
loans executed on or after January 1, 1998.