Reverse mortgages are to be introduced, enabling those aged 60 and above to borrow against the value of their homes in order to reduce their financial dependence on their families or the state.
Draft assumptions for the necessary legislation were adopted by the Ministry of Finance on 19 April 2010. Similar laws have been introduced in 10 EU member states, USA and Australia.
Under the draft proposals:
- reverse mortgages could only be offered by lenders authorised by the Financial Supervision Authority or an equivalent regulatory authority in another EU country
- borrowers eligible for a reverse mortgage must be at least 60 years old and own property (ie hold the ownership title, a right of perpetual usufruct or a building cooperative member's ownership right)
- lenders may also wish to assess the potential borrower's credit rating
- the loan could be paid in a lump sum payment or instalments over the term of the agreement, with no restriction on the use(s) to which the money could be put
- the amount of the loan would depend on the property's market value, as valued by a certified property appraiser
- borrowers would be entitled to occupy the property until their death, at which point the lender would be entitled to recover the loan from the proceeds of sale of the property but could not satisfy its claim against the borrower's other assets
- sale of the property must occur when the estate is divided up and within a year of the borrower's death, to allow heirs time to repay the loan themselves so that they can retain the property
- borrowers would be able to withdraw from the agreement without giving any reason within the first 10 days after execution and to terminate the agreement on three months' notice
- borrowers would be obliged to maintain the property to ensure no deterioration in its condition, to pay all property-related taxes and charges on time and to take out appropriate insurance against accidental damage
- any borrower defaulting on their obligations under the agreement could be required to rectify their default within a specified period (of at least 30 days) failing which the lender would be entitled to accelerate recovery of the loan under the agreement
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
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The original publication date for this article was 20/05/2010.