On September 30, 2014, California Gov. Jerry Brown signed into law Assembly Bill No. 1700, which amends Sections 1923.2 and 1923.5 of the California Civil Code relating to reverse mortgages.
The new law requires lenders that provide reverse mortgages to supply certain disclosures to borrowers during the application process, and imposes a 7-day “cooling off period” after applicants have undergone reverse mortgage loan counseling before the lender can accept an application or assess any fees.
The new law also requires that a new reverse mortgage worksheet guide be provided to applicants prior to counseling by a HUD-approved counselor. A list of approved counselors must be provided to an applicant by the lender. The applicant and the counselor must sign off on the worksheet guide, which is then returned to the lender with a counseling certificate.
Lenders are prohibited from taking a reverse mortgage loan application unless the applicant has received the reverse mortgage worksheet guide. This new requirement will take the place of the prior lender requirement to provide a written checklist.
Lenders are also required to provide the following statement to all reverse mortgage loan applicants in 16-point type or larger:
TO REVERSE MORTGAGE LOAN APPLICANT
A REVERSE MORTGAGE IS A COMPLEX FINANCIAL TRANSACTION. 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 ON YOUR FUTURE NEEDS. BEFORE ENTERING INTO THIS TRANSACTION, YOU ARE REQUIRED TO CONSULT WITH AN INDEPENDENT REVERSE MORTGAGE LOAN COUNSELOR TO DISCUSS WHETHER OR NOT A REVERSE MORTGAGE IS RIGHT FOR YOU. A LIST OF APPROVED COUNSELORS WILL BE PROVIDED TO YOU BY THE LENDER.
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.
The revised amendments with new requirements for all reverse mortgage lenders can be found here.
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