Chapter
021
2008 -- S 2598 SUBSTITUTE A
Enacted 06/06/08
A N A C T
RELATING TO
PROPERTY-- REVERSE MORTGAGES
Introduced By: Senators Bates, Walaska, Breene, and Paiva-Weed
Date Introduced: February 26, 2008
It is
enacted by the General Assembly as follows:
SECTION
1. Sections 34-25.1-7 and 34-25.1-8 of the General Laws in Chapter 34-25.1
entitled
"Reverse Mortgages" are hereby amended to read as follows:
34-25.1-7.
Term of loan advancements. –Reverse mortgage loan requirement. --
Reverse
mortgage loan requirements. -- (a)
A reverse mortgage loan shall comply with all of
the
following requirements:
(1)
Reverse mortgages may be written over any period currently in use by
lending
institutions,
with the outstanding balance due and payable upon the first to occur of the
maturity
of the
loan or the mortgagor's default thereunder which cause the entire loan to
become due and
payable. Interest on outstanding advances may either be
charged to the mortgagor throughout the
term
of the loan, or may be A reverse
mortgage loan may provide for a fixed or adjustable interest
rate
or combination thereof, including compound interest. Interest on a reverse
mortgage loan
shall
be accumulated and due upon the first
to occur of the maturity of the loan or the mortgagor's
default
thereunder which cause the entire loan to become due and payable.
(b) A portion of the mortgage proceeds of a reverse mortgage may be used to
purchase
an
immediate or deferred life annuity contract from companies authorized to issue
annuity
contracts
in this state. In such cases, the monthly annuity payments may be used to pay
interest
payments
on the mortgage loan with the remainder forwarded to the mortgagor. Repayment
of
principal
in such cases would occur upon the first to occur of the maturity of the loan,
the
mortgagor's
default thereunder or the closing of the mortgagor's estate.
(2) Prepayment, in whole or in part, shall be permitted without penalty.
Notwithstanding
the
foregoing, where a mortgagee has waived all of the usual fees associated with a
reverse
mortgage
loan, a mortgagee may impose a prepayment penalty in accordance with the
provisions
of
Rhode Island general laws section 34-23-5, and shall provide that: (i) the
prepayment penalty
will
be calculated as a percentage of the available credit commitment as stated in
the reverse
mortgage
loan documents, which penalty shall not exceed the total of the usual fees that
were
initially
absorbed by the mortgagee; and (ii) for a prepayment penalty imposed under the
provisions
of Rhode Island general laws subsection 34-23-5(b), the amount of the
prepayment
penalty
shall not exceed the total of the usual fees that were initially absorbed by
the mortgagee,
reduced
on a prorate basis by the percentage of the months remaining in the prepayment
penalty
term
to the full prepayment penalty term. A mortgagee may not impose a prepayment
penalty
under
this subsection if the prepayment is caused by the occurrence of any event
specified in
Rhode
Island general laws subdivisions 34-25.1-7(5)(ii), (iii), (iv) or (v).
(3)
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.
(4)
A lender that is found by an appropriate court to have failed, beyond any
applicable
notice
or cure periods, to make loan advances as required in the loan documents, shall
forfeit to
the
borrower treble the amount wrongfully withheld plus interest at the legal rate.
(5)
The reverse mortgage loan may become due and payable upon the occurrence of any
one
of the following events:
(i)
The home securing the loan is sold or title to the home is otherwise
transferred.
(ii)
All mortgagors cease occupying the home as a principal residence, except as
provided
in
subdivision (6).
(iii)
For a period of longer than twelve (12) consecutive months, a mortgagor fails
to
occupy
the property because of physical or mental illness and the property is not the
principal
residence
of at least one other mortgagor.
(iv)
Any fixed maturity date agreed to by the lender and the mortgagor occurs.
(v)
An event occurs which is specified in the loan documents and which jeopardizes
the
lender's
security.
(6)
Repayment of the reverse mortgage loan shall be subject to the following
additional
conditions:
(i)
Temporary absences from the home not exceeding one hundred twenty (120)
consecutive
days shall not cause the mortgage to become due and payable.
(ii)
Extended absences from the home exceeding one hundred twenty (120) consecutive
days,
but less than one year, shall not cause the mortgage to become due and payable
if the
mortgagor
has taken prior action which secures and protects the home in a manner
satisfactory to
the
lender, as specified in the loan documents.
(iii)
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.
(iv)
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.
(7)
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:
(i)
Offer an annuity to the mortgagor prior to the closing of the reverse mortgage
or
before
the expiration of the right of the mortgagor to rescind the reverse mortgage
agreement.
(ii)
Refer the mortgagor 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 mortgagor to
rescind the reverse
mortgage
agreement.
(8)
Notwithstanding anything in chapter 34-25.1 to the contrary, the fees, costs
and
payments
that may be charged in connection with the origination and closing of a reverse
mortgage
loan shall not be other than the following and only may be charged provided
they are
properly
disclosed to the mortgagor(s) as required in chapter 34-25.1:
(i)
An application fee, which may be collected prior to closing, shall be
designated as
such
and shall not be a percentage of the principal amount of the loan or amount
financed, and
shall
be reasonably related to the services to be performed;
(ii)
a loan origination fee;
(iii)
The cost of document preparation which is reasonably related to the services
provided;
(iv)
The cost of appraising or surveying the property;
(v)
The cost of a title examination, an abstract of title or title insurance;
(vi)
The cost of a tax search for tax liens existing at the time of closing if such
search is
not
included in the title examination;
(vii)
The payment to discharge any existing liens on the real property securing the
loan;
(viii)
The cost of recording the reverse mortgage loan;
(ix)
The cost of actual attorneys' fees charged to the lender in connection with the
closing
of
such loan;
(x)
The cost of a credit report;
(xi)
The cost of a flood zone search;
(xii)
The cost of an inspection to be paid in connection with the origination of the
loan
but
not subsequent to the loan closing;
(xiii)
The payment for any repairs contracted for at or before the loan closing
irrespective
of
whether such repairs are completed at the time of closing and/or whether the
funds are held in
escrow;
(xiv)
The cost of purchasing mortgage insurance;
(xv)
The payment of real estate taxes and property insurance; and
(xvi)
such other costs as shall be permitted to be charged by the director of the
department
of business regulation.
(c)(9) Any reverse mortgage made in the this state
prior to passage of this act July 14,
2006,
the effective date of P.L. 2006, chapter 625, section 1, shall be deemed in compliance with
chapter
34-25.1 as amended by this act in effect as of July 14, 2006 if
made pursuant to the
provisions
of section 255 of the National Housing Act and the regulations thereunder.
(10)
With the exception of subsections 34-25.1-7(a)(4), 34-25.1-7(a)(6)(iii),
34-25.1-
7(a)(7),
and 34-25.1-7(a)(9), section 34-25.1-7 shall not apply to: (i) any national
bank, federal
savings
bank or financial institution (as defined in section 19-1-1) that is insured by
the Federal
Deposit
Insurance Corporation or to the wholly owned subsidiary of any of the
foregoing; or: (ii)
any
reverse mortgage loan that is subject to and that complies with 12 USC section
1715z-20 and
the
federal regulations promulgated with respect thereto (including without
limitation 24 CFR
Part
206).
34-25.1-8.
Mortgagees authorized to take reverse mortgages. -- (a) Domestic
building-loan
associations, whether organized by special act of the general assembly or
pursuant
to the
provisions of chapter 22 of title 19, foreign building-loan associations
subject to the
provisions
of chapter 24 of title 19, savings and loan associations organized under the
laws of the
United
States of America, credit unions subject to the provisions of chapter 21 of
title 19, loan
and
investment banks subject to the provisions of chapter 20 of title 19 and other
financial
institutions
are expressly authorized to make loan secured by mortgages entitled as provided
in
section
34-25.1-1 and containing the provisions required in sections 34-25.1-1 and
34-25.1-2 to
be
contained in the provisions of the mortgages; provided that such loans comply
in other
respects
with the requirements of law, if any, relating to loans secured by real estate
mortgages
made by
such institutions and with the requirements of this chapter.
(b) Other mortgagees are authorized to make loans on the security of such
mortgages if
such
mortgages comply with the requirements of this chapter.
(c)
All reverse mortgage loan officers must be registered and/or licensed under
Rhode
Island
general laws section 19-14-1 et seq. as mortgage loan originators, unless
otherwise exempt.
(d)
The authority of the director of the department of business regulation or his
or her
designee
to revoke licenses pursuant to chapter 19-14-13 shall apply to any lender that
fails to
comply
with the requirements of this chapter.
SECTION
2. Chapter 34-25.1 of the General Laws entitled "Reverse Mortgages" is
hereby
amended by adding thereto the following sections:
34-25.1-9.
Required counseling. -- (a) All lenders shall deliver to all reverse
mortgage
loan
applicants a statement, if available, prepared by the department of elderly
affairs on the
advisability
and availability of independent counseling and information services. With
respect to
every
reverse mortgage loan, the prospective mortgagor(s) shall complete a reverse
mortgage
counseling
program. An original certificate, dated and signed by both the counselor and
the
mortgagor(s),
certifying that the counseling required by section 34-25.1-9 has taken place,
shall
be
delivered to the mortgagee at least three (3) business days prior to the
closing of the loan. The
lender
shall not process a reverse mortgage loan application, other than ordering an
automated
valuation
model and a preliminary title search, until the counseling required by this
section has
been
completed and the certificate of counseling is delivered to the mortgagee.
(b)
The reverse mortgage counseling program shall include, but is not limited to,
all
matters
enumerated in subsections 34-25.1-9(e)(1) through (6). The department of
elderly affairs
shall
establish and maintain a list of counseling programs that are deemed to satisfy
the
requirements
of section 34-25.1-9 and shall make such list available to all lenders and to
the
public.
A counseling agency approved by the United States Department of Housing and
Urban
Development
to provide reverse mortgage counseling shall be deemed to be approved to
provide
the
counseling required by section 34-25.1-9, provided that: (1) the counseling
agency is not
affiliated
with the reverse mortgage lender; and (2) the counseling agency complies with
the
counseling
requirements of section 34-25.1-9. The director of the department of elderly
affairs
shall
have the right to prescribe the form of counseling certificate that will meet
the requirements
of
subsection 34-25.1-9(a).
(c)
Counseling shall comply with the following requirements: (1) It shall be
conducted in
person;
however, if the prospective mortgagor(s) cannot or choose(s) not to travel to a
housing
counseling
agency and cannot be visited by a counselor in their home, telephone counseling
shall
be permitted
by counseling agencies that are authorized by the department of elderly affairs
to
conduct
telephone counseling. (2) The reverse mortgage loan shall close within one
hundred
eighty
(180) days after the prospective mortgagor(s) sign(s) the counseling
certificate. If the
reverse
mortgage loan does not close within such one hundred eighty (180) day period,
the parties
shall
be required to again comply with the counseling requirements of this section.
(3)
Mortgagees
shall provide prospective mortgagors with the name of at least three (3)
independent,
authorized
counseling agencies in the state. The mortgagee shall not recommend a
counseling
agency
that is an affiliate of the mortgagee.
(d)
In the event that counseling shall not be available free of charge, the
mortgagee shall
be
responsible for the cost of the counseling to the extent that all other sources
or funding the
counseling
by legitimate sources including, without limitation, non-profit organizations
and
grants
have not been obtained. In the event that 12 USC section 1715z-20 or the
federal
regulations
promulgated with respect thereto shall, at the time such counseling fee is due
and
payable
by the mortgagee, expressly prohibit a mortgagee from being responsible for the
cost of
counseling,
then subsection 34-25.1-9(d) shall not apply to a reverse mortgage loan that is
subject
to 12
USC section 1715z-20 and the federal regulations promulgated with respect
thereto.
(e)
Counseling shall include, without limitation, discussion of the following with
the
prospective
mortgagor(s):
(1)
Options other than a reverse mortgage that are available to the mortgagor(s),
including
other housing, social service, health, and financial options;
(2)
Other home equity conversion options that are or may become available to the
mortgagor(s),
such as other reverse mortgages, sale-leaseback financing, deferred payment
loan,
and
property tax deferral;
(3)
The financial implications of entering into a reverse mortgage;
(4)
A disclosure that a reverse mortgage may have tax consequences, affect
eligibility for
assistance
under federal and state programs, and have an impact on the estate and heirs of
the
homeowner(s),
as well as an explanation of how the reverse mortgage may affect the estate and
public
benefits of the mortgagor(s);
(5)
Such other topics as shall be required to be addressed during counseling with
respect
to a reverse
mortgage pursuant to 12 U.S.C. section 1715z-20, and/or any regulations
promulgated
pursuant thereto; and
(6)
Such other topics as shall be required to be addressed by the director of the
department
of elderly affairs.
(f)
Subsections 34-25.1-9(b), (c) and (e) shall not apply to any reverse mortgage
loan that
is
subject to 12 USC section 1715z-20 and the federal regulations promulgated with
respect
thereto;
provided that such loan complies with the counseling requirements set forth in
12 USC
section
1715z-20 and the federal regulations promulgated with respect thereto
(including without
limitation
24 CFR Part 206).
34-25.1-10.
Pre-closing disclosures. -- (a) At least three (3) business days
before
closing
of the loan, all mortgagees, or their authorized representative who is then
duly licensed by
the
Rhode Island department of business regulation as lender or as a loan broker
shall provide in
writing
all of the following information to, each prospective reverse mortgage mortgagor:
(1)
All information as shall be required to be disclosed in connection with a
reverse
mortgage
loan pursuant to the Truth in Lending Act (15 USC section 1601 et seq.),
Regulation Z
(12
CFR Part 226), and 12 USC section 1715z-20 and the federal regulations
promulgated with
respect
thereto (including without limitation 24 CFR Part 206); and
(2)
All other information as shall be required to be disclosed by the director of
the
department
of business regulation.
34-25.1-11.
Annual account statements and other required disclosures. -- (a) At
the
closing
of the reverse mortgage loan, the mortgagee shall provide to the mortgagor(s)
contact
information
for the mortgagee's (or its assignee's or servicing agent's, as the case may
be)
employee(s)
or agent(s) who have been designated specifically to respond to inquires
concerning
reverse
mortgage loans. This information shall be provided by the mortgagee (or its
assignee or
servicing
agent, as the case may be) to mortgagor(s) at least annually, and whenever this
contact
information
concerning the designated employee(s) or agent(s) changes.
(b)
On an annual basis and when the loan becomes due, the mortgagee shall issue to
the
mortgagor,
without charge, a statement of account regarding the activity of the mortgage
for the
preceding
calendar year, or for the period since the last statement of account was
provided. The
statement
shall include all of the following information for the preceding year:
(1)
The outstanding balance of the loan at the beginning of the statement period;
(2)
Disbursements to the mortgagor;
(3)
The total amount of interest added to the outstanding balance of the loan;
(4)
Any property taxes, hazard insurance premiums, mortgage insurance premiums, or
assessments
paid by the mortgagee;
(5)
Payments made to the mortgagee;
(6)
The total mortgage balance owed to date;
(7)
The remaining amount available to the mortgagor in reverse mortgage loans
wherein
proceeds
have been reserved to be disbursed in one or more lump sum amounts; and
(8)
All other information as shall be required to be disclosed by the director of
the
department
of business regulation.
34-25.1-12.
Non-binding on the applicant. -- An applicant for a reverse mortgage
loan
shall
not be bound for at least three (3) business days after all of the following
shall have
occurred:
(1) The applicant's execution and delivery to the mortgagee of a fully completed
application
for the reverse mortgage loan; (2) The applicant's delivery to the mortgagee of
the
requisite
fully completed and executed certificate in proper form evidencing the
applicant's
completion
of the counseling required pursuant to section 37-25.1-9 (as to any reverse
mortgage
loan
that is exempt, pursuant to subsection 34-25.1-9(g), from the requirements of
subsections 34-
25.1-9(b),
(c) and (e), such certificate must meet the requirements of 12 USC section
1715z-20
and
the federal regulations promulgated with respect thereto); and (3) The
applicant's receipt, in
writing,
of all of the information required to be disclosed pursuant to section
37-25.1-10. No
reverse
mortgage loan shall be closed prior to the expiration of this three (3) business
day period,
and
this three (3) business day period shall be in addition to any right of
rescission the mortgagors
may
have following the closing of the loan. In addition, no costs in connection
with the
application
and processing of a proposed reverse mortgage loan shall be imposed upon any
applicant
for a reverse mortgage until the events described in subsections 34-25.1-12 (1)
and (2)
have
occurred. Each mortgagee shall inform each applicant in writing of the applicant's
rights
pursuant
to section 34-25.1-12 simultaneously with providing the application to the
applicant for
completion.
34-25.1-13.
Attorneys-in-fact -- Guardians. -- All mortgagees shall require any
person
who
executes reverse mortgage loan documents as attorney-in-fact for another to
deliver at the
closing
a written, notarized certification as to all of the following: (1) That the
power of attorney
is
then in full force and effect and has not been revoked or otherwise terminated;
and (2) That the
attorney-in-fact
acknowledges his or her fiduciary obligations to the principal pursuant to the
power
of attorney with respect to the reverse mortgage loan.
34-25.1-14.
Regulations. -- The director of the department of business regulation
shall
have
the authority to promulgate such regulations as shall be reasonably necessary
to carry out
sections
34-25.1-10 through 34-25.1-16. The director of the department of business
regulation
shall
also have the authority to promulgate regulations pursuant to section 34-25.1-7
with respect
to
unfair and deceptive trade practices. The director of the department of elderly
affairs shall have
the
authority to promulgate such regulations as shall be reasonably necessary to
carry out section
34-25.1-9.
34-25.1-15.
Effect on Lien Priority – Property held in name or trust. – (a)
It is the
intention
of chapter 34-25.1 that the cash advances made under a reverse mortgage shall
be made
by
the lender to the mortgagor. In the event that legal title to the property
encumbered by a
reverse
mortgage is held in trust:
(1)
The reverse mortgage proceeds may be received by the occupant of the property
provided
that the occupant is a beneficiary of the trust;
(2)
References in subdivision 34-25.1-7(a)(5) to the mortgagor shall be deemed to
refer to
the
occupant of the property provided that the occupant is a beneficiary of the
trust;
(3)
References in subdivision 34-25.1-7(s)(6) to absences from the home shall be
deemed
to refer
to the occupant of the property provided that the occupant is a beneficiary of
the trust.
34-25.1-16.
Liberal construction. -- This chapter shall be construed liberally
in aid of its
purpose
of ensuring that reverse mortgage borrowers fully understand the ramifications
of
entering
into a reverse mortgage transaction.
SECTION
3. This act shall take effect on January 1, 2009.
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LC02030/SUB A/2
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