Utah Enacts Reverse Mortgage Act With “Cooling Off” Period

The Utah state legislature recently passed the Utah Reverse Mortgage Act, which was signed into law on March 27 by Governor Gary Herbert. The bill, S.B. 120, includes a definition of reverse mortgage, requires disclosures, limits fees and requires borrowers to go through independent counseling before applying for a reverse mortgage, among other provisions.

S.B. 120, which goes into effect on May 12, 2015, also contains limited exemptions from some disclosure requirements, fees and counseling for FHA-insured Home Equity Conversion Mortgages (HECMs) that comply with the FHA HECM program requirements.

The bill enacts a required seven-day cooling off period between a borrower’s acceptance in writing of the lender’s written commitment for a reverse mortgage and the closing of the loan. During the seven-day period, a lender may not require the prospective borrower to close or proceed with the reverse mortgage.

A reverse mortgage must be made on a borrower’s “principal residence,” which the bill defines as the borrower’s permanent place of residence in which he or she spends the majority of the calendar year. The bill defines an eligible dwelling as a one-to-four family residence in which at least one of the units is occupied by the borrower, a HUD-approved condominium project or a manufactured home built after June 1976.

At the time a lender provides an application to a prospective borrower, the lender must give the borrower a disclosure that explains any adjustable-rate features of the reverse mortgage and a disclosure that lists at least five HUD-approved independent housing counselors.

Another disclosure must be provided to borrowers at least 10 days before the day the loan closes that describes prospective borrowers’ limited liability and their rights, obligations and remedies relating to absences, late payments and payment default by the lender, among other items.

The counseling obligations of the bill require prospective borrowers to meet with a HUD-approved independent housing counselor to discuss the financial implications of a reverse mortgage before signing an application. The counselor must provide the prospective borrower with a written disclosure covering, among other things, the tax implications of a reverse mortgage and how it may affect a borrower’s eligibility for assistance under certain state and federal programs.

The bill requires that before initiating a foreclosure proceeding lenders must provide borrowers with a written notice stating the grounds for default and foreclosure. Borrowers must be provided 30 days after the day they receive the written notice to cure their default.

Conversely, a lender that fails to make a loan advance on a non-federally insured reverse mortgage in accordance with the mortgage agreement must forfeit any right to repayment of the outstanding loan balance. And after the lender forfeits rights to repayment, the loan agreement becomes void. 

(Editor’s note: The following was published by NRMLA’s outside legal counsel, Weiner Brodsky Kider, PC.)