Reverse Mortgages (Memo 2)
Sections of at least four statutes (Chapters 167E, Chapter 59, Chapter 183, Chapter 171 and Chapter 140) govern or apply to reverse mortgages.
Chapter 167E: Section 2: Paragraph 14A
14A. Reverse Mortgage Loans. A reverse mortgage loan, pursuant to the provisions of any program for reverse mortgage loans which has been submitted to and approved by the commissioner, to the owner of real estate improved with a dwelling designed to be occupied by not more than four families; provided, however, that each such owner shall be at least 60 years of age and shall occupy the mortgaged real estate in whole or in part; and provided further, that a person shall be deemed to be the owner of real estate notwithstanding that legal title thereto is held in the name of a trust if said person is the beneficiary of such trust.
For the purposes of this paragraph, a reverse mortgage loan shall not be considered a residential mortgage transaction, as defined in section 1 of chapter 140D or any other transaction specified in subsection (e) of section 10 of said chapter 140D. The notices and rights contained herein shall be in addition to the disclosure and rights provided for in said chapter 140D, including the right of rescission set forth in said section 10 of said chapter 140D.
The proceeds from a reverse mortgage loan shall be disbursed to the borrower, pursuant to the provisions of such program, and together with unpaid interest, if any, shall become due and payable: (i) at the end of a fixed term, if any; (ii) upon the death of the borrower; (iii) upon the conveyance of title to the mortgaged real estate; (iv) upon such borrower ceasing to occupy such real estate as a principal dwelling; or (v) upon default by the borrower in the performance of its obligations under the loan agreement.
The commissioner shall not approve any program for reverse mortgage loans which does not include the following:
- the type of loan, whether open-end or closed and whether a recourse or non-recourse loan;
- an applicant for any such loan shall not be bound for seven days after his acceptance, in writing, of the lender's written commitment to make the loan;
- the bank shall obtain a written statement signed by the borrower acknowledging receipt of disclosure of all contractual contingencies which could force a sale of the mortgaged real estate;
- a provision permitting prepayment of the loan without penalty at any time prior to said loan becoming due and payable;
- the interest rate, which may be fixed or variable, and the method of calculation thereof shall be established at loan origination; quote and, at the option of the borrower, may be contingent on the value of the mortgaged real estate at closing or at maturity or on changes in said value during the period between closing and maturity;
- the method of disbursement of the proceeds of the loan to the borrower; provided, however, that at the request of the borrower, disbursement may be made to a third party pursuant to the terms of the loan agreement;
- a copy of the form of the note and mortgage deed that will be utilized for such loans;
- a detailed description of how the plan will function; and
- such other information as the commissioner may require.
Prior to making any such loan, a bank shall provide a prospective borrower with written materials explaining in plain language, the type of mortgage being offered and its specific terms, including but not limited to:
- a schedule, if applicable, and explanation of payments to the borrower pursuant to the terms of the mortgage agreement and whether or not property taxes and insurance premiums are to be deducted;
- a schedule of outstanding debt over time, if applicable;
- repayment date, if a fixed term loan, and other provisions which cause the loan to become due and payable;
- method of repayment and schedule, if any;
- all contractual contingencies, including lack of home maintenance and other default provisions which may result in a forced sale of the mortgaged property;
- interest rate and annual percentage rate, and for a reverse mortgage loan for a specified term, total interest payable thereon;
- loan fees and charges;
- description of prepayment and, if applicable, refinancing features; and
- inclusion of a statement that any such mortgage has tax and estate planning consequences and may affect levels of, or eligibility for, certain government benefits, grants or pensions, and that applicants are advised to explore such matters with appropriate authorities.
A bank shall not make a reverse mortgage loan as provided in this section until it has received a notice, in writing, that the prospective borrower has completed a reverse mortgage counseling program which has been approved by the executive office of elder affairs and which shall include instruction on reverse mortgage loans. Any such program shall include, but is not limited to, the subject matter of subparagraphs (1) to (9), inclusive, with respect to all reverse mortgage loan programs approved by the commissioner pursuant to this section. For the purpose of providing such counseling, said executive office of elder affairs shall establish and maintain a list of counseling programs approved by it and shall make such list available to all banks and to the public.
A reverse mortgage loan shall constitute a lien against the property securing the loan to the extent of all advances made pursuant to the reverse mortgage and all interest accrued on such advances, and the lien shall have priority over any lien filed or recorded after recordation of a reverse mortgage loan.
The commissioner may promulgate regulations necessary to carry out the provisions of this paragraph.
For the purposes of this paragraph, the term ""non-recourse reverse mortgage loan'' shall mean a reverse mortgage loan which limits the lender's recovery solely to the value of the property at the time the loan becomes due and payable.
The provisions of sections 96 to 114A, inclusive, of chapter 140 shall not apply to a reverse mortgage loan.
Chapter 183: Section 28B Priorities
Under the definition of a reverse mortgage in the statute as "a mortgage loan in which the proceeds are advanced to the mortgagor in installments, either directly or indirectly, and which together with unpaid interest, if any, is to be repaid at the end of a term not to exceed ten years," it would appear that a reverse mortgage could be considered an "open-end mortgage" under G.L.c. 183, §28B, which is defined as "a mortgage of real estate the terms of which provide that it secures a sum lent by the mortgagee to the mortgagor from time to time pursuant to an open end credit plan as defined in G.L.c. 140D, §1," which under that statute is "a plan under which the creditor reasonably contemplates repeated transactions, which prescribes the terms of such transactions, and which provides for a finance charge which may be computed from time to time on the outstanding unpaid balance."
The importance of the connection between reverse mortgages and open-ended mortgages is that the latter enjoys the priority provisions described in G.L.c. 183, §28B:
Any sum which shall be lent by the mortgagee to the mortgagor at any time after the recording of an open-end mortgage that secures such sum shall be equally secured with and have the same priority as would any such sum disbursed as of the time of the recording of such mortgage. * * * Notwithstanding the foregoing, the priority afforded under this section shall apply only to (i) the principal sum so loaned, provided, however, that in the case of an open-end mortgage recorded after the effective date of this section, such priority shall apply only to so much of such principal sum as does not exceed the amount specified in such mortgage as the maximum sum intended to be secured thereby; (ii) interest on the principal amount to which such priority applies; and (iii) all charges and fees other than principal and interest that are secured by such mortgage. In the event that an open-end mortgage is amended to increase the amount intended to be secured thereby, such mortgage shall be deemed to have been recorded, with respect only to the amount of such increase, at the time such amendment is recorded.Reverse mortgages are governed by G.L.c. 167E, §2. The mortgagor must be at least sixty years of age and receives from the lender on a regular basis a predefined advance, something in the nature of annuity payments. Under paragraph 14A of the statute a reverse mortgage is defined as "a mortgage loan in which the proceeds are advanced to the mortgagor in installments, either directly or indirectly, and which together with unpaid interest, if any, is to be repaid at the end of a term not to exceed ten years."
Chapter 59: Section 5 Property; exemptions
Section 5. The following property shall be exempt from taxation and the date of determination as to age, ownership or other qualifying factors required by any clause shall be July first of each year unless another meaning is clearly apparent from the context; provided, however, that any person who receives an exemption under the provisions of clause Seventeenth, Seventeenth C, Seventeenth D, Twenty-second, Twenty-second A, Twenty-second B, Twenty-second C, Twenty-second D, Twenty-second E, Thirty-seventh, Thirty-seventh A, Forty-first, Forty-first B, Forty-first C, Forty-second or Forty-third shall not receive an exemption on the same property under any other provision of this section, except clause Eighteenth or Forty-fifth
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Eighteenth, Any portion of the estates of persons who by reason of age, infirmity and poverty, or financial hardship resulting from a change to active military status, not including initial enlistment are in the judgment of the assessors unable to contribute fully toward the public charges.
Eighteenth A, Real property, to an amount determined as hereinafter provided, of a person who by reason of poverty, or financial hardship resulting from a change to active military status, not including initial enlistment is in the judgment of the assessors unable to contribute fully toward the public charges and which property is owned and occupied by him as his domicile or owns the same jointly with a spouse or jointly or as a tenant in common with a person not a spouse and is occupied by him as his domicile provided, that such person has been domiciled in the commonwealth for the preceding 10 years.
Any such person may, on or before December 15 of each year to which the tax relates or within 3 months after the date on which the bill or notice is first sent, whichever is later, apply to the board of assessors for an exemption of such real property from taxation during such year; provided, however, that in the case of real estate owned by a person jointly or as a tenant in common with a person not his spouse, the exemption shall not exceed that proportion of total valuation which the amount of his interest in such property bears to the whole tax due. The board of assessors may grant such exemption provided that the owner or owners of such real property have entered into a tax deferral and recovery agreement with the board of assessors on behalf of the city or town. The agreement shall provide:-
- that no sale or transfer of such real property may be consummated unless the taxes which would otherwise have been assessed on such portion of the real property as is so exempt have been paid, with interest at the rate of 8 per cent per annum;
- that the total amount of such taxes due, plus interest, thereon, does not exceed 50 per cent of the owner's proportional share of the full and fair cash value of such real property;
- that upon the demise of the owner of such real property, the heirs-at-law, assignees or devisees shall have first priority to said real property by paying in full the total taxes which would otherwise have been due, plus interest; provided, however, that if such heir-at-law, assignee or devisee in a surviving spouse who enters into a tax deferral and recovery agreement under this clause, payment of the taxes and interest due shall not be required during the life of such surviving spouse. Any additional taxes deferred, plus interest, on said real property under a tax deferral and recovery agreement signed by a surviving spouse shall be added to the taxes and interest which would otherwise have been due, and the payment of which has been postponed during the life of such surviving spouse, in determining the 50 per cent requirement of clause (2);
- that if the taxes due, plus interest, are not paid by the heir-at-law, assignee or devisee or if payment is not postponed during the life of a surviving spouse, such taxes and interest shall be recovered from the estate of the owner; and
- that any joint owner or mortgagee holding a mortgage on such property has given written prior approval for such agreement, which written approval shall be made a part of such agreement; and
- that the tax deferral and recovery agreement shall not exceed 3 tax years, that the total amount of the taxes due, plus interest, shall be paid in 5 equal payments over a 5-year period, and that the first payment shall be due 2 years after the last day of the tax deferral.
In the case of each tax deferral and recovery agreement entered into between the board of assessors and the owner or owners of such real property, the board of assessors shall forthwith cause to be recorded in the registry of deeds of the county or district in which the city or town is situated a statement of their action which shall constitute a lien upon the land covered by such agreement for such taxes as have been assessed under this chapter, plus interest as provided hereinafter.
A lien filed pursuant to this section shall be subsequent to any liens securing a reverse mortgage, excepting shared appreciation instruments. The statement shall name the owner or owners and shall include a description of the land adequate for identification. Unless such a statement is recorded the lien shall not be effective with respect to a bona fide purchaser or other transferee without actual knowledge of such lien. The filing fee for such statement shall be paid by the city or town and shall be added to and become a part of the taxes due.
In addition to the remedies provided by this clause, the recorded statement of the assessors provided for in this clause shall have the same force and effect as a valid taking for nonpayment of taxes under the provisions of section 53 of chapter 60, except that: (1) interest shall accrue at the rate provided in this clause until the conveyance of the property or the death of the person whose taxes have been deferred, after which time interest shall accrue at the rate provided in section 62 of said chapter 60; (2) no assignment of the municipality's interest under this clause may be made pursuant to section 52 of said chapter 60; (3) no petition under section 65 of said chapter 60 to foreclose the lien may be filed before the expiration of 6 months from the conveyance of the property or the death of the person whose taxes have been deferred.
Chapter 171, §65, par. 5A. [Applies to Credit Unions. Substantially similar to 167E: Section 2: Paragraph 14A.]
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