On 26 April 2011, the Ministry of Finance adopted a subsequent
version of the draft assumptions for the Reverse Mortgage Loan Act
(the previous version is dated 19 April 2010). The draft
Reverse Mortgage Loan Act itself is treated on a preferential
basis, and, as can be seen from the Legislative Work Time Schedule
of the Council of Ministers for 2011, the work on it is to be
completed by the end of June, so that the bill can still be adopted
by the present Parliament. It is assumed that the act
under preparation is to enable individuals holding a title to a
real property to obtain additional funds. Although the
draft act, as opposed to its previous version, does not set out the
minimum age requirements for beneficiaries – borrowers,
it is addressed mainly to elderly people, by offering them a
possibility of obtaining funds supplementing, among other things,
their pensions. Reverse mortgage loans are offered in 10
European Union states and are regulated on a national basis only,
since the Community law does not address these issues.
The draft assumes that the catalogue of entities entitled to offer
reverse mortgage loans will be limited to institutions that are
authorised to provide loans under statutory laws, whose activities
are supervised by the Financial Supervision Authority (or the
competent supervision authorities of another member state).
A lending institution may enter into a reverse mortgage loan
agreement with an individual who holds the ownership title to a
real property, a share in the ownership title to a real property, a
perpetual usufruct right to land or a co-operative ownership right
to premises. The lending institution does not assess the
borrower's debt bearing capacity before entering into a
loan agreement, but only his or her creditworthiness, which is his
or her credit history.
The borrower may obtain the loan in installments, for a period
specified in the agreement, or elect to obtain it as a single
payment, and may use the funds obtained for any purpose he or she
finds suitable. Reverse mortgage loans are to be provided
in the Polish currency.
The basis for determining the amount of the reverse mortgage loan
is the market value of the real property, which is assessed by a
certified property appraiser.
The borrower may live in the property until his or her death, after
which the lending institution will satisfy its claim using the
amount obtained from its sale. In this case, the claim
for repayment of a reverse mortgage loan becomes due and payable 12
months after the borrower's death. This solution
is aimed at enabling the heirs, should they want to retain the
title to the property, to repay the loan. Additionally,
the lender in principle cannot satisfy its claims using the
borrower's other assets.
The borrower will be allowed to rescind the agreement within 30
days of entering into it, without stating the reason.
Such a long cooling-off period is justified by the range of
potential addressees of the product (elderly people).
Additionally, an agreement may be terminated subject to observing a
three month notice period. Also, the borrower may at any
time repay the loan ahead of time, without being charged on this
account.
Because of the specific nature of a reverse mortgage loan, during
the term of the agreement, the borrower will be obliged by law to
maintain the property in good repair, to timely pay taxes and
charges relating to the property and to take out and maintain
contingency insurance. If obligations are not satisfied,
the lending institution should call upon the borrower to remedy the
fault within the set time limit of at least thirty days.
A failure to respond to the demand authorises the lender to
terminate the agreement.
Furthermore, the draft assumptions define the circumstances (a
closed catalogue) in which the lending institution may terminate a
reverse mortgage loan agreement. In addition to a failure
to fulfill the above obligations, such circumstances will include a
situation where the beneficiary has disposed of the title to the
property securing the loan without the lending
institution's consent, despite committing himself or
herself to dispose of, or confer rights in respect of the property,
to a limited extent; and also where execution proceedings have been
instituted against the property by another creditor.
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The original publication date for this article was 12/05/2011.