BILL NUMBER: SB 660 INTRODUCED
BILL TEXT
INTRODUCED BY Senator Wolk
FEBRUARY 27, 2009
An act to add Section 1923.1 to the Civil Code, relating to
reverse mortgages.
LEGISLATIVE COUNSEL'S DIGEST
SB 660, as introduced, Wolk. 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 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 provide that a lender, broker, person, or entity
who recommends the purchase of a reverse mortgage owes the
prospective borrower a duty of honesty, good faith, and fair dealing.
The bill would require that a lender, broker, person, or entity that
recommends the purchase of a reverse mortgage have reasonable
grounds for believing that the reverse mortgage is suitable for the
prospective borrower and to make reasonable inquiries to determine
suitability. The bill would require that the suitability of a
recommended purchase of a reverse mortgage be determined, with
reference to the totality of the particular borrower's circumstances,
goals, and needs and establishes specified criteria for the purpose
of making this evaluation. The bill would provide that recommendation
of the purchase of a reverse mortgage that is found to be unsuitable
constitutes a breach of the duty of honesty, good faith, and fair
dealing. The bill would permit any person injured as a result to
bring a civil action for damages. The bill would require a lender,
broker, person, or entity that recommends the purchase of a reverse
mortgage to develop and maintain a system to achieve compliance with
its provisions, as specified.
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. Section 1923.1 is added to the Civil Code, to read:
1923.1. (a) Any lender, broker, person, or entity who recommends
the purchase of a reverse mortgage owes the prospective borrower a
duty of honesty, good faith, and fair dealing. These duties are in
addition to any other duties, express or implied, that may exist.
(b) Any lender, broker, person, or entity that recommends the
purchase of a reverse mortgage shall have reasonable grounds for
believing that the reverse mortgage is suitable for the prospective
borrower and shall make reasonable inquiries to determine
suitability. The suitability of a recommended purchase of a reverse
mortgage shall be determined, with reference to the totality of the
particular borrower's circumstances, goals, and needs, including, but
not limited to, the following:
(1) Whether the homeowner intends to reside in the property on a
long-term basis.
(2) Alternatives to the reverse mortgage that would serve a
substantially similar purpose. These alternatives may include, but
are not limited to, low-cost housing rehabilitation grants and public
loans, tax postponement, or government aid programs.
(3) Whether the homeowner is planning to use the proceeds of the
reverse mortgage loan to purchase a product, including, but not
limited to, annuities or investments, that is not appropriate for the
homeowner.
(4) If the borrower intends to use funds obtained from a reverse
mortgage to purchase investments, a determination of whether the cost
of obtaining the reverse mortgage outweighs the anticipated earning
from the investment.
(5) If the homeowner will use the proceeds of the reverse mortgage
loan to purchase a long-term care insurance product, an evaluation
if that product is appropriate for the homeowner.
(6) The borrower's apparent physical health and probability for
living independently into the foreseeable future.
(7) The borrower's marital status and the impact of the reverse
mortgage on the future economic security of a spouse or dependent.
(8) The borrower's ability to pay for long-term care services,
whether institutional or community-based, once the borrower exhausts
his or her equity in the home.
(9) How a reverse mortgage will affect the borrower's eligibility
for receiving government benefits, including, but not limited to,
Medi-Cal benefits.
(10) The borrower's intent to pass the residence to an heir and
the impact of any reverse mortgage on his or her ability to
accomplish this.
(11) Whether a resident of the property who is not the homeowner
would be displaced at the maturity of the loan, against the homeowner'
s wishes, because he or she will not be able to pay off the reverse
mortgage loan.
(12) With regard to name removals:
(A) Was another homeowner removed from title prior to or during
underwriting?
(B) Was the removed homeowner under the age of 62?
(C) Was the removed homeowner significantly younger than the
remaining homeowner?
(D) Is there any reason to believe that the removed homeowner will
outlive the remaining homeowner?
(E) Was the removed homeowner fully appraised of the legal
ramifications of being removed from title, including, but not limited
to, the consequences upon the death of the remaining homeowner or
upon a divorce settlement.
(13) Whether the homeowner is fully aware of all loan costs and
the method by which costs will be paid.
(c) Any lender, broker, person, or entity that recommends the
purchase of a reverse mortgage shall develop and maintain a system to
achieve compliance with this section, including, but not limited to,
maintaining written procedures and conducting periodic reviews of
its records that are reasonably designed to detect and prevent
violations of this section.
(d) The recommendation of the purchase of a reverse mortgage in
violation of subdivision (b) constitutes a breach of the duty of
honesty, good faith, and fair dealing, and any person injured as a
result of the breach may bring a civil action for damages.