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California Law: What to Know About Reverse Mortgages

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.

Additional Sources:

To locate a reverse mortgage lender in California visit reverse mortgage.org at reversemortgage.org.

Photo by j l t/CC Flickr

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Tommy Wyher

Tommy Wyher

  • The notion that a reverse mortgage is “selling their home one month at a time to the reverse mortgage company” is still the most common misconception. It should be clarified that the homeowner retains title and ownership of the home through their lifetime, regardless of how much is borrowed. Even after the last borrower’s death, the home still does not go to the lender. At that time the heirs have the option to refinance the lesser of the loan balance or 95% of the home’s value. Otherwise, they can sell the home and receive their inheritance.

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