The reverse mortgage

The reverse mortgage

The reverse mortgage or "reverse mortgage" is born in the United States and the United Kingdom. The idea on which it is based is the consumption, during retirement, of the savings achieved during the person's working life. Therefore, the approach of this mortgage is the transfer of this phenomenon to the personal real estate, making use of the home itself to obtain income after retirement, but maintaining the property and use of it in life.

USA:

In the US, the so-called “reverse mortgage” arises with a strictly social purpose, being a complement to the pension of the elderly. But the cost is high and it is essential that the property is the habitual residence.

UK:

In the United Kingdom, for decades, the regulator has tried to strengthen private coverage instruments, since public coverage, in most cases, does not manage to alleviate basic needs, being one of the European countries with the highest risk of poverty in the world. from 65 years. Thus, equity release plans have their two main exponents in lifetime mortgages and home reversion plans.

It was in Law 41/2007 of December 7 on the reform of the mortgage market, where the figure of the reverse mortgage was included in its first additional provision.

Characteristics of the reverse mortgage in Spain:

Applicant: a.) Age equal to or greater than 65 years: However, the entities that market the reverse mortgage, usually require an age of around 70 years. Since the reimbursement obligation does not exist until death, age is decisive for the economic viability of the operation. B) Individuals with dependency: A person who is in a situation of severe dependency or great dependency can access this mortgage, according to the provisions of the Law of Dependency (Law 39/2006 of December 14).

Beneficiary: It is understood as such the person or persons that the mortgage applicant designates as recipients of the mortgage loan or credit. The reverse mortgage applicant can designate beneficiaries, provided that they meet the age and dependency requirements required for it.

 When must the requirements be met? It is necessary that the age and dependency requirements of the beneficiaries meet at the time of its constitution.

Is there a limitation to the number of beneficiaries? The current regulation does not refer to any type of limit. In practice, the number is limited to one or, where appropriate, to two beneficiaries having a marital or common-law relationship.

What entities can grant this type of mortgage? Credit institutions and insurance companies can grant credits or loans guaranteed with a reverse mortgage. Entities that grant reverse mortgages must take into account the financial situation of the applicant, as well as the economic risks of their contracting: ·· General regime of client protection: Included in Order EHA / 2899/2011 of transparency and protection of the client of banking services (hereinafter the "Transparency Order"), establishes a series of obligations regarding pre-contractual and contractual information, as well as the assessment of the customer's solvency. ·· Specific reverse mortgage regime: the notary will be obliged to make sure that the independent advisory service has been provided.

Obligation guaranteed with the mortgage: The obligation of the borrower is the restitution of the loan or credit in favor of the lender (capital plus interest), this obligation being guaranteed with the mortgaged property.

The parties to the contract may agree that the capital be delivered:

In a single sum;

or periodically throughout the life of the applicant or during a certain period of time agreed in the contract. In the event that the periodic benefits are received during a period of time determined in the contract, they will be greater than if it is agreed that they will be received until death, but there is a risk that the applicant will survive said period of time by ceasing to receive benefits while debt will continue to earn interest.

In any case, the obligation to repay the loan is not enforceable until death.

Time of compliance with the obligation: The return obligation in the reverse mortgage is a term obligation, arising with the death. However, even though the expiration takes place with the death, a grace period can be agreed in favor of the heirs, the return being required when said period ends. This should, in any case, be reflected in the contract.

Maturity and enforceability of interest: Establishing the time of maturity and enforceability of the obligation is essential to determine the ordinary or default nature of the interest. Upon the death of the mortgage debtor, his heirs or, upon the death of the last of the beneficiaries (if this is stated in the contract), they may cancel the loan, within the stipulated period, paying the mortgagee all the overdue debts, with their interests. , without the creditor being able to demand any compensation for the cancellation.

Appraisal of the property: it is a relevant factor of the reverse mortgage, since it is decisive both for the capital object of the loan, and later for the value that the lender receives in the execution. For a correct appraisal of the property, the creditor must try to combine the interest of the applicant in obtaining the maximum value for the property, with his own security at the time of collection, including, where appropriate, the principal, interest and costs. It must be borne in mind that the general inhibition of the heirs at the time of payment, sometimes makes it necessary to resort to the direct execution of the property, at which time it is valued again by a judicial expert.

Habitual residence: Law 41/2007 limits this type of mortgage on the habitual residence. In the event that the person moves to a nursing home or to the home of a family member because they are in a situation of dependency, it will not be understood that they have lost their habitualness.

The maturity and enforceability of the reverse mortgage: The loan guaranteed with a reverse mortgage expires with the death of the applicant, and once it has expired, it becomes enforceable, unless a specific period of time has been agreed for its enforceability after death.

The form of payment of the debt may be: voluntary by the heirs, through the foreclosure procedure, through the exercise of personal action in executive judgment or by exercising the mortgage action in the ordinary trial.

Due to the relatively recent regulatory development of the reverse mortgage, there is no great casuistry that determines the usual form of payment. However, it is possible that the usual form of payment ends up being the special execution procedure of the mortgaged property provided for in the Civil Procedure Law.

Early maturity: There is the possibility of early maturity, only if (i) the circumstance that favors the maturity is the transfer of the asset and (ii) there is the possibility of sufficiently replacing the guarantee.

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ELENA PEREZ-ILZARBE DOMINGUEZ

ATTORNEY