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Minnesota Legislature

Office of the Revisor of Statutes

SF 489

4th Engrossment - 86th Legislature (2009 - 2010) Posted on 02/09/2010 02:13am

KEY: stricken = removed, old language.
underscored = added, new language.
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A bill for an act
relating to reverse mortgages; eliminating the requirement that a reverse
mortgage becomes due when committed principal has been fully paid; mandating
counseling by an independent housing agency; regulating lender default;
providing for a right of recission; defining suitability; amending Minnesota
Statutes 2008, section 47.58, subdivisions 1, 3, 8, by adding subdivisions;
proposing coding for new law in Minnesota Statutes, chapters 58; 60K.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2008, section 47.58, subdivision 1, is amended to read:


Subdivision 1.

Definitions.

For the purposes of this section, the terms defined in this
subdivision have the meanings given them.

(a) "Reverse mortgage loan" means a loan:

(1) Made to a borrower wherein the committed principal amount is paid to the
borrower in equal or unequal installments over a period of months or years, interest is
assessed, and authorized closing costs are incurred as specified in the loan agreement;

(2) Which is secured by a mortgage on residential property owned solely by the
borrower; and

(3) Which is due deleted text beginwhen the committed principal amount has been fully paid to the
borrower, or
deleted text end upon sale of the property securing the loan, or upon the death of the last
surviving borrower, or upon the borrower terminating use of the property as principal
residence so as to disqualify the property from the homestead credit given in chapter 290A.

(b) "Lender" means any bank subject to chapter 48, credit union subject to chapter
52, savings bank organized and operated pursuant to chapter 50, savings association
subject to chapter 51A, or any insurance company as defined in section 60A.02,
subdivision 4
. "Lender" also includes any federally chartered bank supervised by the
comptroller of the currency or federally chartered savings association supervised by the
Federal Home Loan Bank Board or federally chartered credit union supervised by the
National Credit Union Administration, to the extent permitted by federal law.

(c) "Borrower" includes any natural person holding an interest in severalty or as joint
tenant or tenant-in-common in the property securing a reverse mortgage loan.

(d) "Outstanding loan balance" means the current net amount of money owed by the
borrower to the lender whether or not that sum is suspended pursuant to the terms of the
reverse mortgage loan agreement or is immediately due and payable. The outstanding
loan balance is calculated by adding the current totals of the items described in clauses (1)
to (5) and subtracting the current totals of the item described in clause (6):

(1) The sum of all payments made by the lender which are necessary to clear the
property securing the loan of any outstanding mortgage encumbrance or mechanics or
material supplier's lien.

(2) The total disbursements made by the lender to date pursuant to the loan
agreement as formulated in accordance with subdivision 3.

(3) All taxes, assessments, insurance premiums and other similar charges paid to
date by the lender pursuant to subdivision 6, which charges were not reimbursed by the
borrower within 60 days.

(4) All actual closing costs which the borrower has deferred, if a deferral provision
is contained in the loan agreement as authorized by subdivision 7.

(5) The total accrued interest to date, as authorized by subdivision 5.

(6) All payments made by the borrower pursuant to subdivision 4.

(e) "Actual closing costs" mean reasonable charges or sums ordinarily paid at the
time of closing for the following, whether or not retained by the lender:

(1) Any insurance premiums on policies covering the mortgaged property including
but not limited to premiums for title insurance, fire and extended coverage insurance, flood
insurance, and private mortgage insurance.

(2) Abstracting, title examination and search, and examination of public records
related to the mortgaged property.

(3) The preparation and recording of any or all documents required by law or custom
for closing a reverse mortgage loan agreement.

(4) Appraisal and survey of real property securing a reverse mortgage loan.

(5) A single service charge, which service charge shall include any consideration,
not otherwise specified in this section as an "actual closing cost," paid by the borrower to
the lender for or in relation to the acquisition, making, refinancing or modification of a
reverse mortgage loan, and shall also include any consideration received by the lender
for making a commitment for a reverse mortgage loan, whether or not an actual loan
follows the commitment. The service charge shall not exceed one percent of the bona fide
committed principal amount of the reverse mortgage loan.

(6) Charges and fees necessary for or related to the transfer of real property securing
a reverse mortgage loan or the closing of a reverse mortgage loan agreement paid by the
borrower and received by any party other than the lender.

Sec. 2.

Minnesota Statutes 2008, section 47.58, subdivision 3, is amended to read:


Subd. 3.

Payment; repayment; amount.

The committed principal amount of a
reverse mortgage loan shall be paid to the borrower over the period of months or years
as specified in the loan agreement. The borrower and lender may, by written agreement,
amend the loan agreement from time to time. Pursuant to the terms of the contract the
borrower shall make repayment to the lenderdeleted text begin:
deleted text end

deleted text begin (a)deleted text end upon deleted text beginpayment to the borrower of the final installment unless, by written
agreement between the borrower and lender whereunder the borrower agrees to
periodically pay the lender interest accruing on the outstanding loan balance, repayment of
the outstanding loan balance is postponed until default in payment of interest or until
deleted text end the
occurrence of any of the events specified in clauses deleted text begin(b)deleted text endnew text begin (1)new text end to deleted text begin(e)deleted text endnew text begin (4)new text end;

deleted text begin (b)deleted text endnew text begin (1)new text end upon sale of the property securing the loan;

deleted text begin (c)deleted text endnew text begin (2)new text end upon the death of the last surviving borrower;

deleted text begin (d)deleted text endnew text begin (3)new text end upon the borrower terminating use of the property as principal residence so as
to disqualify the property from homestead classification under section 273.13; or

deleted text begin (e)deleted text endnew text begin (4)new text end upon renegotiation of the terms of the reverse mortgage loan agreement,
unless the parties agree in writing to postpone repayment.

Except as otherwise provided in this subdivision, the outstanding loan balance as
projected by the lender to the anticipated time of payment to the borrower of the final
installment of committed principal shall not exceed 80 percent of the appraised value of
the property at inception of the loan. If upon reappraisal of the property made at any time
during the term of the loan, the projected outstanding loan balance does not exceed 70
percent of the reappraised value of the property, the schedule of the lender's installment
payments may be extended and the amount of the committed principal amount increased,
provided the revised outstanding loan balance at payment of the lender's final installment
of committed principal does not exceed 80 percent of the reappraised value of the property.

Sec. 3.

Minnesota Statutes 2008, section 47.58, subdivision 8, is amended to read:


Subd. 8.

Counseling; requirement; penalty.

deleted text begin A lender, mortgage banking company,
or other mortgage lender not related to the mortgagor must keep a certificate on file
documenting that the borrower, prior to entering into the reverse mortgage loan, received
counseling as defined in this subdivision from an organization that meets the requirements
of section 462A.209 and is a
deleted text end new text begin Prior to accepting a final and complete application for a
reverse mortgage loan or assessing any fees, a lender must:
new text end

new text begin (1) refer the prospective borrower to an independentnew text end housing counseling agency
approved by the new text beginUnited States new text endDepartment of Housing and Urban Developmentdeleted text begin. The
certificate must
deleted text endnew text begin for reverse mortgage counseling. The lender shall provide the prospective
borrower with a list of at least three independent housing counseling agencies approved
by the United States Department of Housing and Urban Development. The lender shall
positively promote the benefits of reverse mortgage counseling to the potential borrower;
and
new text end

new text begin (2) receive a certification from the applicant or the applicant's authorized
representative that the applicant has received counseling as defined in this subdivision
from an independent counseling agency as described in clause (1). The certification must
new text end
be signed by the deleted text beginmortgagordeleted text endnew text begin applicantnew text end and the counselor new text beginfrom the independent agency new text endand
new text begin must new text endinclude the date of the counseling, new text beginand new text endthe name, address, and telephone number
of both the deleted text beginmortgagor and the organization providing counseling.deleted text endnew text begin counselor from the
independent agency and the applicant. The lender shall maintain the certification in an
accurate, reproducible, and accessible format for the term of the reverse mortgage.
new text end A
failure by the lender to comply with this subdivision results in a $1,000 civil penalty
payable to the deleted text beginmortgagordeleted text endnew text begin borrowernew text end. For the purposes of this subdivision, "counseling"
means new text beginthat during a session, which must be no less than 60 minutes, new text endthe following services
are provided to the borrower:

deleted text begin (1)deleted text endnew text begin (i)new text end a review of the advantages and disadvantages of reverse mortgage programs;

deleted text begin (2) an explanation of how the reverse mortgage affects the borrower's estate and
public benefits;
deleted text end

deleted text begin (3) an explanation of the lending process;
deleted text end

deleted text begin (4) a discussion of the borrower's supplemental income needs; and
deleted text end

deleted text begin (5) an opportunity to ask questions of the counselor.
deleted text end

new text begin (ii) a discussion of the borrower's finances, assets, liabilities, expenses, and income
needs and a review of options other than a reverse mortgage loan that are available to the
borrower, including other housing, social services, health, and financial options;
new text end

new text begin (iii) a review of other home equity conversion or other loan options that are or may
become available to the borrower;
new text end

new text begin (iv) an explanation of the financial implication of entering into a reverse mortgage
loan, including the costs of the loan;
new text end

new text begin (v) an explanation that a reverse mortgage loan may have tax consequences, affect
eligibility for assistance under federal and state programs, and have an impact on the
estate and heirs of the borrower;
new text end

new text begin (vi) an explanation of the lending process; and
new text end

new text begin (vii) an opportunity for the borrower to ask questions of the counselor.
new text end

Sec. 4.

Minnesota Statutes 2008, section 47.58, is amended by adding a subdivision to
read:


new text begin Subd. 9. new text end

new text begin Lender default; forfeiture. new text end

new text begin A lender who fails to make loan advances as
required in the loan documents, and fails to cure an actual default after notice as specified
in the loan documents, shall forfeit any right to repayment of the outstanding loan balance
with respect to a mortgage that is not federally insured. Any mortgage that is not federally
insured securing a reverse mortgage agreement in which a forfeiture has occurred pursuant
to this subdivision may be declared null and void by a court of competent jurisdiction.
new text end

Sec. 5.

Minnesota Statutes 2008, section 47.58, is amended by adding a subdivision to
read:


new text begin Subd. 10. new text end

new text begin Right of rescission. new text end

new text begin (a) The borrower may rescind any reverse mortgage
within ten days of execution by providing written notice to the lender. The effects of a
rescission shall be the same as provided in Code of Federal Regulations, Regulation Z,
title 12, section 226.23. Any mortgage originated in connection with a reverse mortgage
loan is null and void upon rescission. Within ten days of receipt of the written notice of
rescission, the lender shall provide the borrower a written notice of acknowledgment that
the mortgage is null and void and a satisfaction of mortgage.
new text end

new text begin (b) The lender shall provide the borrower with the following notice, which must
be on a separate piece of paper and in at least ten-point type, between 24 to 72 hours
prior to execution of the reverse mortgage:
new text end

new text begin "You are entitled to rescind (cancel) this reverse mortgage transaction for any reason within
ten days from the day you execute the reverse mortgage documents. The rescission must
be in writing and sent by certified mail to the lender at the address stated in this document."
new text end

new text begin (c) Notice of recission is effective when the borrower deposits a certified letter
properly addressed and postage prepaid in the mailbox.
new text end

new text begin (d) A notice of rescission given by the borrower need not take a particular form and
is sufficient if it indicates by any form of written expression the intention of the borrower
not to be bound by the reverse mortgage transaction.
new text end

new text begin (e) No act of the borrower is effective to waive the right to rescind as provided
in this section.
new text end

Sec. 6.

Minnesota Statutes 2008, section 47.58, is amended by adding a subdivision to
read:


new text begin Subd. 11. new text end

new text begin Suitability. new text end

new text begin Prior to referring a prospective borrower for counseling under
subdivision 8, a lender must have reasonable grounds for believing that a reverse mortgage
loan is suitable for the borrower and must make reasonable inquiries to determine
suitability. Suitability for a reverse mortgage loan will be determined by reference to
the totality of the particular borrower's circumstances, including, but not limited to, the
borrower's income, age, assets, the costs and benefits of a reverse mortgage loan, and other
financial options available to the borrower.
new text end

Sec. 7.

new text begin [58.19] REVERSE MORTGAGE LOANS COORDINATION WITH
CHAPTER 47.
new text end

new text begin No person acting as a residential mortgage originator or servicer, including a person
required to be licensed under this chapter, and no person exempt from the licensing
requirements of this chapter under section 58.04, shall make, provide, or arrange for
a reverse mortgage as defined in chapter 47 without complying with that chapter and
verifying that the reverse mortgage is suitable for the borrower.
new text end

Sec. 8.

new text begin [60K.57] CROSS-SELLING LIMITATIONS ON REVERSE MORTGAGE
PROCEEDS.
new text end

new text begin (a) No producer shall sell or encourage the purchase of an annuity, life insurance,
or long-term care insurance product where the producer knows or should know that the
purchase will be made using proceeds from a reverse mortgage.
new text end

new text begin (b) This section shall not apply with respect to the purchase of an annuity, life
insurance, or long-term care insurance product made more than 18 months after the date
the reverse mortgage loan was made.
new text end