Bill Text: CA AB329 | 2009-2010 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

---

Bill Title: Reverse mortgages.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Passed) 2009-10-11 - Chaptered by Secretary of State - Chapter 236, Statutes of 2009. [AB329 Detail]

Download: California-2009-AB329-Amended.html

---

BILL NUMBER: AB 329	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  APRIL 13, 2009

INTRODUCED BY   Assembly Member Feuer

                        FEBRUARY 18, 2009

   An act to amend Sections 1923.2 and 1923.5 of, and to add 
Chapter 9 (commencing with Section 1924) to Title 4 of Part 4 of
Division 3 of,   Section 1923.8 to,  the Civil
Code, relating to reverse mortgages.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 329, as amended, Feuer. Reverse mortgages.
   Existing law defines and regulates reverse mortgage loans and
provides a disclosure notice that a lender must provide an applicant,
which informs the applicant that a reverse mortgage is a complex
financial arrangement and advises the applicant of the wisdom of
seeking financial counseling before entering the agreement. 
Existing law prohibits a lender from referring a borrower to anyone
for the purchase of an annuity.  Existing law requires a lender
to refer a prospective borrower to a housing counseling agency for
counseling, as specified, prior to accepting a final and complete
application for a reverse mortgage or assessing any fees.
   This bill would enact the Reverse Mortgage Elder Protection Act of
2009. The bill would prohibit a lender  or any other person who
participates in the origination of the mortgage from participating
in, being associated with, or employing any party that participates
in or is associated with any other financial or insurance activity,
as provided. This bill would also prohibit a lender or any other
person who participates in the origination of the mortgage  from
referring a prospective borrower to  a counseling agency, or
paying any counseling service fees without first informing the
prospective borrower in writing that this may create a conflict of
interest. The bill would require a lender to disclose to the
prospective borrower in writing any other payment arrangements or
business affiliations between the lender and a counseling agency.
  anyone for the purchase of other financial or
insurance products.  The bill would require the lender to
provide the prospective borrower with a list of  all
  not fewer than 10  nonprofit counseling agencies
in the state that have been approved by the United States Department
of Housing and Urban Development for counseling  , as provided
 . The bill would grant borrowers the right to cancel a reverse
mortgage within 30 days for any reason and would require a lender to
provide a notice to this effect.
    The bill would also provide that any person who offers, sells, or
arranges the sale of a reverse mortgage to  an elder, as
defined, owes to that elder a fiduciary duty, including the duty to
act in the best interest of the elder, with the utmost care, honesty
and undivided loyalty, diligence, and good faith toward the elder.
The bill would provide a list of criteria for a court to consider
when determining if the duty has been breached. The bill would
provide that a person who breaches this fiduciary duty is liable to
the borrower for any damages proximately caused by the breach of
fiduciary duty, and would provide a prevailing plaintiff attorney's
fees and court costs.   a prospective borrower owes to
that prospective borrower a duty of honesty, good faith, and fair
dealing. This bill would require any person who offers, sells,
originates, or arranges the sale of a reverse mortgage to provide the
prospective borrower with a written checklist, signed by the
prospective borrower and maintained by the lender, acknowledging the
borrower has considered various factors, as provided. This bill would
also require the lender to submit a written explanation enumerati
  ng the concerns they have as to the suitability of the
reverse mortgage for the prospective borrower, as provided. 
   Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  This act shall be known as the Reverse Mortgage Elder
Protection Act of 2009.
  SEC. 2.  The Legislature finds and declares the following:
   (a) A reverse mortgage is a loan that allows a homeowner to
convert home equity into tax-free cash payments. More than 90 percent
of all reverse mortgages are obtained through the Home Equity
Conversion Mortgage (HECM) program sponsored by the United States
Department of Housing and Urban Development. Many senior citizens use
reverse mortgage payments to supplement retirement income or pay
medical expenses. Although the HECM program has been in existence
since 1989, the program has seen rapid growth only in the past few
years. As the population ages, this growth rate is expected to
accelerate. The growth rate is also expected to increase as sales
agents and lenders turn from the declining subprime and conventional
mortgage market to the rapidly growing market for reverse mortgages.
   (b) According to the American Association of Retired Persons
(AARP) and other senior citizen groups, reverse mortgages are often a
valuable financial tool for senior citizens who are "equity rich but
cash poor." However, senior groups also note that the rapid
expansion of reverse mortgages has been accompanied by aggressive
marketing and reports of abuse, especially when reverse mortgages are
marketed along with annuities, long-term life insurance, or other
financial investment products. Because reverse mortgages erode equity
in what is typically the primary asset of most senior citizens, the
AARP recommends that senior citizens should weigh all alternatives
before considering a reverse mortgage. The AARP strongly advises
against using the proceeds of a reverse mortgage for the purchase of
annuities or other financial investments, since the high cost of
obtaining a reverse mortgage often exceeds any likely returns.
   (c) As a number of recent lawsuits and media reports in California
make clear, the inappropriate marketing of reverse mortgages and
ancillary financial products to senior citizens is growing, often
creating substantial loss in personal estates and home equity.
Existing law currently provides little recourse for senior citizens
who ill-advisedly, and without full understanding, purchased an
otherwise legitimate product. In enacting the Reverse Mortgage Elder
Protection Act of 2009, it is not the intent of the Legislature to
discourage the use of reverse mortgages, which often provide
substantial benefits to senior citizens. Rather, anticipating the
continued rapid growth in the reverse mortgage market, the Reverse
Mortgage Elder Protection Act of 2009 seeks to ensure that senior
citizens will make informed decisions and that persons who offer,
sell, or arrange the sale of reverse mortgages to senior citizens
will act in the best interest of a sometimes vulnerable population.
  SEC. 3.  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  (h) 
 (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.  A reverse mortgage lender or a
broker arranging a reverse mortgage loan shall not: 

   (1) Offer an annuity to the borrower 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) Refer the borrower to anyone for the purchase of an annuity
prior to the closing of the reverse mortgage or before the expiration
of the right of the borrower to rescind the reverse mortgage
agreement.  
   (j) (1) Prior to accepting a final and complete application for a
reverse mortgage loan or assessing any fees, a lender shall provide
the prospective borrower with a list of all nonprofit counseling
agencies in the state that have been approved by the United States
Department of Housing and Urban Development for counseling. The
counseling shall meet the standards and requirements established by
the United States Department of Housing and Urban Development for
reverse mortgage counseling.  
   (2) A lender shall not refer a prospective borrower to a
counseling agency. The lender shall not pay any counseling service
fees without first informing the prospective borrower in writing that
this may create a conflict of interest. A lender shall disclose to
the prospective borrower in writing any other payment arrangements or
business affiliations between the lender and a counseling agency.
 
   (j) The lender or any other person that participates in the
origination of the mortgage shall not do either of the following:
 
   (1) 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.  
   (2) Refer the prospective borrower to anyone for the purchase of
an annuity or other financial or insurance product.  
   (k) 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.  
   (k) 
    (l)  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) 
 (k)  . 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) 
    (m)  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) 
    (n)  The borrower may rescind any reverse mortgage
within 30 days of execution by providing written notice to the
lender. Any payments received in connection with the reverse mortgage
shall be returned within 15 days of rescission.
  SEC. 4.  Section 1923.5 of the Civil Code is amended to read:
   1923.5.  No reverse mortgage loan application shall be taken by a
lender unless the loan applicant has received from the 
lender   lender, prior to receiving counseling, 
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 THAT
PROVIDES A MEANS OF USING THE EQUITY YOU HAVE BUILT UP IN YOUR HOME,
OR THE VALUE OF YOUR HOME, AS A SOURCE OF ADDITIONAL INCOME. 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. YOU MAY ALSO WANT TO DISCUSS YOUR DECISION WITH
FAMILY MEMBERS OR OTHERS ON WHOM YOU RELY FOR FINANCIAL ADVICE.
 YOU  
   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. 
    YOU  ARE ENTITLED TO RESCIND (CANCEL) THIS REVERSE
MORTGAGE TRANSACTION FOR ANY REASON WITHIN 30 DAYS FROM THE DAY YOU
EXECUTE THE REVERSE MORTGAGE DOCUMENTS. THE RESCISSION MUST BE IN
WRITING AND SENT BY CERTIFIED MAIL TO THE LENDER AT THE LENDER'S
PLACE OF BUSINESS. 
  SEC. 5.    Chapter 9 (commencing with Section
1924) is added to Title 4 of Part 4 of Division 3 of the Civil Code,
to read:
      CHAPTER 9.  REVERSE MORTGAGE LENDER DUTIES TO ELDERS


   1924.  (a) In addition to any other obligation under law, any
person who offers, sells, or arranges the sale of a reverse mortgage,
as defined Section 1923, to an elder, owes to that elder a fiduciary
duty, including the duty to act in the best interest of the elder,
with the utmost care, honesty and undivided loyalty, diligence, and
good faith toward the elder, as well as the duty of timely and clear
disclosure of all material information that might reasonably affect
the elder's rights or interests or the elder's ability to receive the
intended benefit of the transaction.
   (b) In determining whether a person has breached the fiduciary
duty described in subdivision (a), the court shall evaluate whether
the person considered, and discussed with the borrower, the
following:
   (1) The age and life expectancy of the prospective borrower and
how this would impact the total annual loan cost.
   (2) 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.

   (3) Whether the borrower intends to use the proceeds of the
reverse mortgage to purchase annuities or other financial products
and the suitability of using reverse mortgage proceeds to purchase
the annuity or other financial products.
   (4) Whether a person or entity other than the lender recommended
the reverse mortgage for the purpose of purchasing an annuity or
other financial product.
   (5) Whether the lender complied with all requirements of existing
state and federal law and industry standards.
   (6) Any other factor that the court determines relevant in light
of the totality of the circumstances.
   (c) In addition to any other civil remedies provided by the law, a
person who breaches the fiduciary duty described in subdivision (a)
shall be liable to the borrower for any damages proximately caused by
the breach of fiduciary duty. A prevailing plaintiff shall also be
entitled to attorney's fees and court costs.
   (d) For purposes of this chapter, "elder" means any person 65
years of age or older. 
   SEC. 5.    Section 1923.8 is added to the  
Civil Code   , to read:  
   1923.8.  (a) In addition to any other obligation under law, any
person who offers, sells, or arranges the sale of a reverse mortgage,
as defined in Section 1923, owes to the prospective borrower a duty
of honesty, good faith, and fair dealing.
   (b) Any person who offers, sells, originates, or arranges the sale
of a reverse mortgage shall provide the prospective borrower with a
written checklist, to be signed by the prospective borrower and
maintained by the lender, acknowledging that the borrower has
considered the following:
   (1) How age, life expectancy, or unexpected medical or other
events that may require the prospective borrower to move out of the
home earlier than anticipate may impact the total annual loan cost.
   (2) 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.

   (3) The financial consequences of using reverse mortgage proceeds
to purchase an annuity or other financial products.
   (4) The effect of repayment of the loan on nonborrowing residents
after all borrowers have died or permanently left the home.
   (5) The borrower's or borrowers' ability to finance routine or
catastrophic home repairs, especially if maintenance is a factor that
may determine when the mortgage becomes payable.
   (6) The impact that the reverse mortgage may have on the
prospective borrowers tax obligations, eligibility for government
assistance programs, and the effect that losing equity in the home
will have on the borrower's or borrower's estate and heirs.
   (c) If the lender has concerns as to the suitability of the
reverse mortgage for the prospective borrower, based on the factors
enumerated in subdivision (b) or any other reason, the lender shall
submit to the borrower a written explanation enumerating the points
of concern. The borrower shall sign, and the lender shall retain, a
copy of the signed written explanation. Nothing in this subdivision
shall imply that a lender has legal duty to deny a reverse mortgage
for lack of suitability, so long as the prospective borrower is
otherwise qualified under relevant state and federal law.