2009 California Civil Code - Section 1923-1923.10 :: :: Chapter 8. :: Reverse Mortgages (2024)

CIVIL CODE
SECTION 1923-1923.10

1923. For purposes of this chapter, "reverse mortgage" means anonrecourse loan secured by real property that meets all of thefollowing criteria: (a) The loan provides cash advances to a borrower based on theequity or the value in a borrower's owner-occupied principalresidence. (b) The loan requires no payment of principal or interest untilthe entire loan becomes due and payable. (c) The loan is made by a lender licensed or chartered pursuant tothe laws of this state or the United States.1923.2. A reverse mortgage loan shall comply with all of thefollowing requirements: (a) Prepayment, in whole or in part, shall be permitted withoutpenalty at any time during the term of the reverse mortgage loan. Forthe purposes of this section, penalty does not include any fees,payments, or other charges that would have otherwise been due uponthe reverse mortgage being due and payable. (b) A reverse mortgage loan may provide for a fixed or adjustableinterest rate or combination thereof, including compound interest,and may also provide for interest that is contingent on the value ofthe property upon execution of the loan or at maturity, or on changesin value between closing and maturity. (c) A reverse mortgage may include costs and fees that are chargedby the lender, or the lender's designee, originator, or servicer,including costs and fees charged upon execution of the loan, on aperiodic basis, or upon maturity. (d) If a reverse mortgage loan provides for periodic advances to aborrower, these advances shall not be reduced in amount or numberbased on any adjustment in the interest rate. (e) A lender who fails to make loan advances as required in theloan documents, and fails to cure an actual default after notice asspecified in the loan documents, shall forfeit to the borrower treblethe amount wrongfully withheld plus interest at the legal rate. (f) The reverse mortgage loan may become due and payable upon theoccurrence of any one of the following events: (1) The home securing the loan is sold or title to the home isotherwise transferred. (2) All borrowers cease occupying the home as a principalresidence, except as provided in subdivision (g). (3) Any fixed maturity date agreed to by the lender and theborrower occurs. (4) An event occurs which is specified in the loan documents andwhich jeopardizes the lender's security. (g) Repayment of the reverse mortgage loan shall be subject to thefollowing additional conditions: (1) Temporary absences from the home not exceeding 60 consecutivedays 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 dueand payable if the borrower has taken prior action which secures andprotects the home in a manner satisfactory to the lender, asspecified in the loan documents. (3) The lender's right to collect reverse mortgage loan proceedsshall be subject to the applicable statute of limitations for writtenloan contracts. Notwithstanding any other provision of law, thestatute of limitations shall commence on the date that the reversemortgage loan becomes due and payable as provided in the loanagreement. (4) The lender shall prominently disclose in the loan agreementany interest rate or other fees to be charged during the period thatcommences on the date that the reverse mortgage loan becomes due andpayable, and that ends when repayment in full is made. (h) The first page of any deed of trust securing a reversemortgage loan shall contain the following statement in 10-pointboldface type: "This deed of trust secures a reverse mortgage loan." (i) A lender or any other person that participates in theorigination of the mortgage shall not require an applicant for areverse mortgage to purchase an annuity as a condition of obtaining areverse mortgage loan. (1) The lender or any other person that participates in theorigination of the mortgage shall not do either of the following: (A) Participate in, be associated with, or employ any party thatparticipates in or is associated with any other financial orinsurance activity, unless the lender maintains procedural safeguardsdesigned to ensure that individuals participating in the originationof the mortgage shall have no involvement with, or incentive toprovide the prospective borrower with, any other financial orinsurance product. (B) Refer the borrower to anyone for the purchase of an annuity orother financial or insurance product prior to the closing of thereverse mortgage or before the expiration of the right of theborrower to rescind the reverse mortgage agreement. (2) This subdivision does not prevent a lender from offering orreferring borrowers for title insurance, hazard, flood, or otherperil insurance, or other similar products that are customary andnormal under a reverse mortgage loan. (3) A lender or any other person who participates in theorigination of a reverse mortgage loan to which this subdivisionwould apply, and who complies with paragraph (1) of subsection (n),and with subsection (o), of Section 1715z-20 of Title 12 of theUnited States Code, and any regulations and guidance promulgatedunder that section, as amended from time to time, in offering theloan, regardless of whether the loan is originated pursuant to theprogram authorized under Section 1715z-20 of Title 12 of the UnitedStates Code, and any regulations and guidance promulgated under thatsection, shall be deemed to have complied with this subdivision. (j) Prior to accepting a final and complete application for areverse mortgage the lender shall provide the borrower with a list ofnot fewer than 10 counseling agencies that are approved by theUnited States Department of Housing and Urban Development to engagein reverse mortgage counseling as provided in Subpart B of Part 214of Title 24 of the Code of Federal Regulation. The counseling agencyshall not receive any compensation, either directly or indirectly,from the lender or from any other person or entity involved inoriginating or servicing the mortgage or the sale of annuities,investments, long-term care insurance, or any other type of financialor insurance product. This subdivision does not prevent a counselingagency from receiving financial assistance that is unrelated to theoffering or selling of a reverse mortgage loan and that is providedby the lender as part of charitable or philanthropic activities. (k) A lender shall not accept a final and complete application fora reverse mortgage loan from a prospective applicant or assess anyfees upon a prospective applicant without first receiving acertification from the applicant or the applicant's authorizedrepresentative that the applicant has received counseling from anagency as described in subdivision (j). The certification shall besigned by the borrower and the agency counselor, and shall includethe date of the counseling and the name, address, and telephonenumber of both the counselor and the borrower. Electronic facsimilecopy of the housing counseling certification satisfies therequirements of this subdivision. The lender shall maintain thecertification in an accurate, reproducible, and accessible format forthe term of the reverse mortgage. (l) A lender shall not make a reverse mortgage loan without firstcomplying with, or in the case of brokered loans ensuring compliancewith, the requirements of Section 1632, if applicable.1923.3. A reverse mortgage shall constitute a lien against thesubject property to the extent of all advances made pursuant to thereverse mortgage and all interest accrued on these advances, and thatlien shall have priority over any lien filed or recorded afterrecordation of a reverse mortgage loan.1923.4. For the purposes of this chapter, a property shall bedeemed to be owner-occupied, notwithstanding that the legal title tothe property is held in the name of a trust, provided that theoccupant of the property is a beneficiary of that trust.1923.5. (a) No reverse mortgage loan application shall be taken bya lender unless the loan applicant, prior to receiving counseling,has received from the lender the following plain language statementin conspicuous 16-point type or larger, advising the prospectiveborrower about counseling prior to obtaining the reverse mortgageloan: IMPORTANT NOTICE TO REVERSE MORTGAGE LOAN APPLICANT A REVERSE MORTGAGE IS A COMPLEX FINANCIAL TRANSACTION. IF YOUDECIDE TO OBTAIN A REVERSE MORTGAGE LOAN, YOU WILL SIGN BINDING LEGALDOCUMENTS THAT WILL HAVE IMPORTANT LEGAL AND FINANCIAL IMPLICATIONSFOR YOU AND YOUR ESTATE. IT IS THEREFORE IMPORTANT TO UNDERSTAND THETERMS OF THE REVERSE MORTGAGE AND ITS EFFECT. BEFORE ENTERING INTOTHIS TRANSACTION, YOU ARE REQUIRED TO CONSULT WITH AN INDEPENDENTLOAN COUNSELOR. A LIST OF APPROVED COUNSELORS WILL BE PROVIDED TO YOUBY THE LENDER. SENIOR CITIZEN ADVOCACY GROUPS ADVISE AGAINST USING THE PROCEEDSOF A REVERSE MORTGAGE TO PURCHASE AN ANNUITY OR RELATED FINANCIALPRODUCTS. IF YOU ARE CONSIDERING USING YOUR PROCEEDS FOR THISPURPOSE, YOU SHOULD DISCUSS THE FINANCIAL IMPLICATIONS OF DOING SOWITH YOUR COUNSELOR AND FAMILY MEMBERS. (b) (1) In addition to the plain statement notice described insubdivision (a), no reverse mortgage loan application shall be takenby a lender unless the lender provides the prospective borrower,prior to his or her meeting with a counseling agency on reversemortgages, with a written checklist, or in the event that theprospective borrower seeks counseling prior to requesting a reversemortgage loan application from the reverse mortgage lender, thecounseling agency shall provide the prospective borrower with awritten checklist. The written checklist shall conspicuously alertthe prospective borrower, in 12-point type or larger, that he or sheshould discuss with the agency counselor the following issues: (A) How unexpected medical or other events that cause theprospective borrower to move out of the home, either permanently orfor more than one year, earlier than anticipated will impact thetotal annual loan cost of the mortgage. (B) The extent to which the prospective borrower's financial needswould be better met by options other than a reverse mortgage,including, but not limited to, less costly home equity lines ofcredit, property tax deferral programs, or governmental aid programs. (C) Whether the prospective borrower intends to use the proceedsof the reverse mortgage to purchase an annuity or other insuranceproducts and the consequences of doing so. (D) The effect of repayment of the loan on nonborrowing residentsof the home after all borrowers have died or permanently left thehome. (E) The prospective borrower's ability to finance routine orcatastrophic home repairs, especially if maintenance is a factor thatmay determine when the mortgage becomes payable. (F) The impact that the reverse mortgage may have on theprospective borrower's tax obligations, eligibility for governmentassistance programs, and the effect that losing equity in the homewill have on the borrower's estate and heirs. (G) The ability of the borrower to finance alternative livingaccommodations, such as assisted living or long-term care nursinghome registry, after the borrower's equity is depleted. (2) The checklist required in paragraph (1) shall be signed by theagency counselor, if the counseling is done in person, and by theprospective borrower and returned to the lender along with thecertification of counseling required under subdivision (k) of Section1923.2, and the loan application shall not be approved until thesigned checklist is provided to the lender. A copy of the checklistshall be provided to the borrower.1923.6. The lender shall be presumed to have satisfied anydisclosure duty imposed by this chapter if the lender provides adisclosure statement in the same form as provided in this chapter.1923.7. No arrangement, transfer, or lien subject to this chaptershall be invalidated solely because of the failure of a lender tocomply with any provision of this chapter. However, nothing in thissection shall preclude the application of any other existing civilremedies provided by law.1923.9. (a) To the extent that implementation of this section doesnot conflict with federal law resulting in the loss of federalfunding, reverse mortgage loan payments made to a borrower shall betreated as proceeds from a loan and not as income for the purpose ofdetermining eligibility and benefits under means-tested programs ofaid to individuals. (b) Undisbursed reverse mortgage funds shall be treated as equityin the borrower's home and not as proceeds from a loan, resources, orassets for the purpose of determining eligibility and benefits undermeans-tested programs of aid to individuals. (c) This section applies to any law or program relating topayments, allowances, benefits, or services provided on ameans-tested basis, by this state, including, but not limited to,optional state supplements to the federal supplemental securityincome program, low-income energy assistance, property tax relief,general assistance, and medical assistance only to the extent thissection does not conflict with Title 19 of the federal SocialSecurity Act. (d) For the purposes of this section, "means-tested programs andaid to individuals" includes, but is not limited to, programs setforth in Chapter 2 (commencing with Section 11200) of Part 3 ofDivision 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 mortgageloans executed on or after January 1, 1998.