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California Law: What to Know About Reverse Mortgages

wsj.com | October 20, 2016

By Tommy Wyher

Most people do not realize what a reverse mortgage is, let alone what the laws in California are on them. But this money-saving information can be invaluable, so it’s important to acquaint yourself with California laws regarding reverse mortgages.

A reverse mortgage is a different kind of home loan that allows you to turn the equity you have in your home into cash. This is great for those people who need a constant amount of cash monthly but do not want to take out a loan. They are in essence selling their home one month at a time to the reverse mortgage company.

The following are some things to know about California laws on reverse mortgages.

Who Is Eligible?

To be eligible to obtain a reverse mortgage the borrower has to be at least 62 years of age. The borrowers have to own their home or have a minimal mortgage balance that can be paid off when they finally move out of their home and close their final balance. Many seniors use this to supplement their social security or pension checks on a monthly basis if their current income isn’t enough.

Referred To Counseling?

Regular mortgages can be difficult to understand with all of the taxes and interest over lifetime of the loan. Those in the older demographic might have trouble understanding all the facets of a reverse mortgage. Under California law it is required that the lender provides a list of counselors that are nonprofit to discuss the risks and details of a reverse mortgage.

The lender actually is not allowed to accept a finished reverse mortgage application without the borrower acknowledging that they have received counseling. This has helped reduce cases of misunderstanding as well as family of the borrower saying that the lender took advantage of them. In January of 2015 California amended this to change the previous checklist provided to be replaced with a worksheet. This worksheet would go over certain scenarios like what happens after dying with a reverse mortgage or what might happen if you suddenly have to move out.

California also requires a seven-day cool off period from the time the reverse mortgage counseling is completed before any cost can be occurred by a borrower such as ordering the appraisal.

What If the Lender Stops Paying?

The reverse mortgage lender in California is, of course, required by law, to keep paying with the current agreement or they can be financially liable. Here is a bevy of information for you if you consider yourself to be victim of reverse mortgage fraud.

How Can the Borrower Be Paid?

The borrower can be paid in any of five different ways.

  • Tenure payment occurs when a certain amount is given to the borrower every month until they move out of the home.
  • Term payment is a set amount of money per month for a predetermined amount of time.
  • A line of credit can be used as well which is much like an expense account until it runs out.
  • The other two types of payment are combinations of both of these with tweaks on various details.

What If I Change My Mind?

People have a change of heart all of the time within the first few days after making a big decision. This is a form of buyer’s remorse but the federal laws actually protect this. This is 3 days and it is your right to call the deal off. The lender should explain this during closing but if they do not it is important to ask them about this. Having the names of the people and places to call along with emails is important. This process can take a day or two if you aren’t prepared so allow you lender to make it easy by requiring these items before closing.

As many can see California law is about protecting and informing the borrower. Reverse mortgages are a relatively new type of loan so lawmakers are working at making the laws fair for all of those involved. The proactive approach that many California politicians have taken on reverse mortgages make California one of the lead pioneers on reverse mortgage law.

 

 

 

 

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CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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