BILL NUMBER: SB 1609 CHAPTERED
BILL TEXT
CHAPTER 202
FILED WITH SECRETARY OF STATE SEPTEMBER 5, 2006
APPROVED BY GOVERNOR SEPTEMBER 5, 2006
PASSED THE SENATE AUGUST 23, 2006
PASSED THE ASSEMBLY AUGUST 17, 2006
AMENDED IN ASSEMBLY AUGUST 7, 2006
AMENDED IN ASSEMBLY JUNE 20, 2006
AMENDED IN ASSEMBLY JUNE 8, 2006
AMENDED IN SENATE APRIL 26, 2006
AMENDED IN SENATE MARCH 28, 2006
INTRODUCED BY Senator Simitian
(Principal coauthor: Assembly Member Wolk)
FEBRUARY 24, 2006
An act to amend Sections 1632, 1923.2, and 1923.5 of the Civil
Code, relating to reverse mortgages.
LEGISLATIVE COUNSEL'S DIGEST
SB 1609, Simitian Reverse mortgages: annuities.
Existing state and federal law regulate the activities of
financial institutions. Existing state 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.
This bill would prohibit a lender from requiring the purchase of
an annuity as a condition of obtaining a reverse mortgage loan. The
bill would prohibit a reverse mortgage lender or a broker arranging a
reverse mortgage loan from offering an annuity to the borrower or
referring the borrower to anyone for the purchase of an annuity prior
to the closing of the loan or before the expiration of the borrower'
s right to rescind. The bill would, among other things, require 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 would prohibit a lender from accepting a full and complete
application for a reverse mortgage loan or assessing any fees without
receiving certification, as specified, that the borrower had
received this counseling. The bill would make changes to the
disclosure notice provided to an applicant for a reverse mortgage and
would require a lender to provide a specified list of independent
loan counselors.
Existing law requires any person engaged in a trade or business
who negotiates primarily in Spanish, Chinese, Tagalog, Vietnamese, or
Korean in the course of entering into specified contracts to deliver
to the other party, prior to the execution of a contract or
agreement, a translation of it in the language in which it was
negotiated.
This bill would include contracts for reverse mortgages within
these provisions. The bill would require a lender to ensure
compliance with these provisions in the case of brokered loans.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1632 of the Civil Code is amended to read:
1632. (a) The Legislature hereby finds and declares all of the
following:
(1) This section was enacted in 1976 to increase consumer
information and protections for the state's sizeable and growing
Spanish-speaking population.
(2) Since 1976, the state's population has become increasingly
diverse and the number of Californians who speak languages other than
English as their primary language at home has increased
dramatically.
(3) According to data from the United States Census of 2000, of
the more than 12 million Californians who speak a language other than
English in the home, approximately 4.3 million speak an Asian
dialect or another language other than Spanish. The top five
languages other than English most widely spoken by Californians in
their homes are Spanish, Chinese, Tagalog, Vietnamese, and Korean.
Together, these languages are spoken by approximately 83 percent of
all Californians who speak a language other than English in their
homes.
(b) Any person engaged in a trade or business who negotiates
primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean, orally
or in writing, in the course of entering into any of the following,
shall deliver to the other party to the contract or agreement and
prior to the execution thereof, a translation of the contract or
agreement in the language in which the contract or agreement was
negotiated, which includes a translation of every term and condition
in that contract or agreement:
(1) A contract or agreement subject to the provisions of Title 2
(commencing with Section 1801) of, and Chapter 2b (commencing with
Section 2981) and Chapter 2d (commencing with Section 2985.7) of
Title 14 of, Part 4 of Division 3.
(2) A loan or extension of credit secured other than by real
property, or unsecured, for use primarily for personal, family or
household purposes.
(3) A lease, sublease, rental contract or agreement, or other term
of tenancy contract or agreement, for a period of longer than one
month, covering a dwelling, an apartment, or mobilehome, or other
dwelling unit normally occupied as a residence.
(4) Notwithstanding paragraph (2), a loan or extension of credit
for use primarily for personal, family or household purposes where
the loan or extension of credit is subject to the provisions of
Article 7 (commencing with Section 10240) of Chapter 3 of Part 1 of
Division 4 of the Business and Professions Code, or Division 7
(commencing with Section 18000), or Division 9 (commencing with
Section 22000) of the Financial Code.
(5) Notwithstanding paragraph (2), a reverse mortgage as described
in Chapter 8 (commencing with Section 1923) of Title 4 of Part 4 of
Division 3.
(6) A contract or agreement, containing a statement of fees or
charges, entered into for the purpose of obtaining legal services,
when the person who is engaged in business is currently licensed to
practice law pursuant to Chapter 4 (commencing with Section 6000) of
Division 3 of the Business and Professions Code.
(c) Notwithstanding subdivision (b), for a loan subject to this
part and to Article 7 (commencing with Section 10240) of Chapter 3 of
Part 1 of Division 4 of the Business and Professions Code, the
delivery of a translation of the statement to the borrower required
by Section 10240 of the Business and Professions Code in any of the
languages specified in subdivision (b) in which the contract or
agreement was negotiated, is in compliance with subdivision (b).
(d) At the time and place where a lease, sublease, or rental
contract or agreement described in subdivision (b) is executed,
notice in any of the languages specified in subdivision (b) in which
the contract or agreement was negotiated shall be provided to the
lessee or tenant.
(e) Provision by a supervised financial organization of a
translation of the disclosures required by Regulation M or Regulation
Z, and, if applicable, Division 7 (commencing with Section 18000) or
Division 9 (commencing with Section 22000) of the Financial Code in
any of the languages specified in subdivision (b) in which the
contract or agreement was negotiated, prior to the execution of the
contract or agreement, shall also be deemed in compliance with the
requirements of subdivision (b) with regard to the original contract
or agreement.
(1) "Regulation M" and "Regulation Z" mean any rule, regulation,
or interpretation promulgated by the Board of Governors of the
Federal Reserve System and any interpretation or approval issued by
an official or employee duly authorized by the board to issue
interpretations or approvals dealing with, respectively, consumer
leasing or consumer lending, pursuant to the Federal Truth in Lending
Act, as amended (15 U.S.C. Sec. 1601 et seq.).
(2) As used in this section, "supervised financial organization"
means a bank, savings association as defined in Section 5102 of the
Financial Code, credit union, or holding company, affiliate, or
subsidiary thereof, or any person subject to Article 7 (commencing
with Section 10240) of Chapter 3 of Part 1 of Division 4 of the
Business and Professions Code, or Division 7 (commencing with Section
18000) or Division 9 (commencing with Section 22000) of the
Financial Code.
(f) At the time and place where a contract or agreement described
in paragraph (1) or (2) of subdivision (b) is executed, a notice in
any of the languages specified in subdivision (b) in which the
contract or agreement was negotiated shall be conspicuously displayed
to the effect that the person described in subdivision (b) is
required to provide a contract or agreement in the language in which
the contract or agreement was negotiated, or a translation of the
disclosures required by law in the language in which the contract or
agreement was negotiated, as the case may be. If a person described
in subdivision (b) does business at more than one location or branch,
the requirements of this section shall apply only with respect to
the location or branch at which the language in which the contract or
agreement was negotiated is used.
(g) The term "contract" or "agreement," as used in this section,
means the document creating the rights and obligations of the parties
and includes any subsequent document making substantial changes in
the rights and obligations of the parties. The term "contract" or
"agreement" does not include any subsequent documents authorized or
contemplated by the original document such as periodic statements,
sales slips or invoices representing purchases made pursuant to a
credit card agreement, a retail installment contract or account or
other revolving sales or loan account, memoranda of purchases in an
add-on sale, or refinancing of a purchase as provided by, or pursuant
to, the original document.
The term "contract" or "agreement" does not include a home
improvement contract as defined in Sections 7151.2 and 7159 of the
Business and Professions Code, nor does it include plans,
specifications, description of work to be done and materials to be
used, or collateral security taken or to be taken for the retail
buyer's obligation contained in a contract for the installation of
goods by a contractor licensed pursuant to Chapter 9 (commencing with
Section 7000) of Division 3 of the Business and Professions Code, if
the home improvement contract or installation contract is otherwise
a part of a contract described in subdivision (b).
Matters ordinarily incorporated by reference in contracts or
agreements as described in paragraph (3) of subdivision (b),
including, but not limited to, rules and regulations governing a
tenancy and inventories of furnishings to be provided by the person
described in subdivision (b), are not included in the term "contract"
or "agreement."
(h) This section does not apply to any person engaged in a trade
or business who negotiates primarily in a language other than
English, as described by subdivision (b), if the party with whom he
or she is negotiating is a buyer of goods or services, or receives a
loan or extension of credit, or enters an agreement obligating
himself or herself as a tenant, lessee, or sublessee, or similarly
obligates himself or herself by contract or lease, and the party
negotiates the terms of the contract, lease, or other obligation
through his or her own interpreter.
As used in this subdivision, "his or her own interpreter" means a
person, not a minor, able to speak fluently and read with full
understanding both the English language and any of the languages
specified in subdivision (b) in which the contract or agreement was
negotiated, and who is not employed by, or whose service is made
available through, the person engaged in the trade or business.
(i) Notwithstanding subdivision (b), a translation may retain the
following elements of the executed English-language contract or
agreement without translation: names and titles of individuals and
other persons, addresses, brand names, trade names, trademarks,
registered service marks, full or abbreviated designations of the
make and model of goods or services, alphanumeric codes, numerals,
dollar amounts expressed in numerals, dates, and individual words or
expressions having no generally accepted non-English translation. It
is permissible, but not required, that this translation be signed.
(j) The terms of the contract or agreement which is executed in
the English language shall determine the rights and obligations of
the parties. However, the translation of the contract or the
disclosures required by subdivision (e) in any of the languages
specified in subdivision (b) in which the contract or agreement was
negotiated shall be admissible in evidence only to show that no
contract was entered into because of a substantial difference in the
material terms and conditions of the contract and the translation.
(k) Upon a failure to comply with the provisions of this section,
the person aggrieved may rescind the contract or agreement in the
manner provided by this chapter. When the contract for a consumer
credit sale or consumer lease which has been sold and assigned to a
financial institution is rescinded pursuant to this subdivision, the
consumer shall make restitution to and have restitution made by the
person with whom he or she made the contract, and shall give notice
of rescission to the assignee. Notwithstanding that the contract was
assigned without recourse, the assignment shall be deemed rescinded
and the assignor shall promptly repurchase the contract from the
assignee.
SEC. 2. 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).
(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 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) Prior to accepting a final and complete application for a
reverse mortgage loan or assessing any fees, a lender shall refer the
prospective borrower to a housing counseling agency 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. The lender shall provide
the borrower with a list of at least five housing counseling
agencies approved by the United States Department of Housing and
Urban Development, including at least two agencies that can provide
counseling by telephone.
(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.
SEC. 3. 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 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.