BILL NUMBER: SB 660 AMENDED
BILL TEXT
AMENDED IN SENATE MAY 20, 2009
AMENDED IN SENATE APRIL 27, 2009
INTRODUCED BY Senator Wolk
FEBRUARY 27, 2009
An act to add Section 1923.1 to amend
Section 1923.5 of, and to add Section 1923.1 to, the Civil
Code, relating to reverse mortgages.
LEGISLATIVE COUNSEL'S DIGEST
SB 660, as amended, 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 , and prohibits a lender from accepting a final and
complete reverse mortgage application without first receiving from
the applicant, or his or her representative, a certification that the
applicant has received loan counseling .
This bill would provide that a lender, broker, person, or entity
who recommends the purchase of a reverse mortgage in anticipation of
financial gain owes the prospective borrower a duty of honesty, good
faith, and fair dealing and must have reasonable belief that
the borrower understands the risks, benefits, and reasonable
alternatives involved in the purchase of a reverse mortgage
. This bill would revise the disclosure notice provided to
reverse mortgage applicants and would prohibit a lender from
accepting a reverse mortgage loan application unless the lender
provides the prospective borrower, prior to his or her meeting with
the counseling agency, with a specified written checklist that
conspicuously alerts the prospective borrower of subjects that he or
she should discuss with the loan counselor. This bill would require
that the counselor and the p rospective borrower sign the
checklist and return it to the lender. The bill would
prohibit approval of the loan application until the signed checklist
is provided to the lender. The bill would require that a copy of the
checklist be provided to the borrower .
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. Any lender, broker, person, or entity who recommends the
purchase of a reverse mortgage in anticipation of financial gain owes
the prospective borrower a duty of honesty, good faith, and fair
dealing and shall have reasonable belief that the borrower
understands the risks, benefits, and reasonable alternatives involved
in the purchase of a reverse mortgage. These duties are in addition
to any other duties, express or implied, that may exist.
dealing. The duties set forth in this section shall not be
construed to limit or narrow any other duty of a lender, broker,
person, or entity.
SEC. 2. Section 1923.5 of the Civil
Code is amended to read:
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 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.
(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 that conspicuously alerts 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 earlier than anticipated
will impact the total loan cost.
(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, or inability to repay, the loan on
residents who are not borrowers 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
residency, after the borrower's equity is depleted.
(2) The checklist required in paragraph (1) shall be signed by the
agency counselor 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.