The text was based on the assumptions pertaining to […]
Źródło: Gazeta Bankowa Data: 04.10.2010 Autor: Paweł Kowalski
The text was based on the assumptions pertaining to the act on the reverse mortgage loan (draft of 19 April 2010 available on the website of the Ministry of Finance www.mf.gov.pl) Economists and financial analysts harbour no illusions – the fact that our sodety is getting older and older is bound to exert a significant influence on the level of our retirement benefits. The number of inhabitants of Poland is systematically decreasing whereas the average life expectancy of Polish citizens is increasing. It is estimated that in 2035 the number of people in the post-productive age will amount to as much as 26.7%. One of the ideas of the Ministry of Finance to solve the financial problems of future (and current) pensioners is the reverse mortgage loan (reverse mortgage). The extensive document presenting the assumptions of the act on reverse mortgages was presented in the second half of April this year. In the opinion of the authors of the draft, the reverse mortgage will give seniors a chance to obtain additional funds for life and decrease their dependence on their families and the state. This solution has already proved successful in other countries, both in the EU and the United States. It is worth noting that at present there are no clear and unambiguous legał regulations enabling banks and other financial institutions to sell products constructed identically to reverse mortgage loans. However, companies from outside the financial sector (not subject to financial supervision) have sprung up, which offer solutions partially resembling the reverse mortgage loan, namely civil-lawbased transactions of sales of real estate with the entitlement to life annuities. Such transactions do not always properly collateralise the interest of the seller (with the manner of appraising the real property, for instance, raising doubts). Pursuant to the reverse mortgage loan agreement, the bank, or other crediting institution, shall be obliged to pay a specific amount of cash for the benefit of the borrower, where the proper repayment of the loan is collateralised by the mortgage established by the borrower. The cash may be paid as one sum, multiple (periodic) payments, or in a different form compliant with the agreement. It is worth noting that constructional assumptions of the reverse mortgage loan envisage that the loan can be allocated for any purpose. The person concluding the reverse mortgage loan agreement preserves the perpetual and unlimited right to use the real property constituting the collateral of the loan, yet he or she shall fulfil obligations erwisaged in the loan agreement (among others, maintenance of the real property in a non-deteriorated condition and timely payment of all fees related to the use and maintenance of the same). Under current conditions, the legał definitions of the credit agreement (Article 69 subparagraph 1 of the Banking Law) and loan agreement (Article 720 § 1 of the Civil Code) put an emphasis on the reversible character of these benefits. In the case of the reverse mortgage loan the situation is even morę unusual and different from the above-mentioned regulations because of the fact that the funds paid out by the financing institution will not, as a nile, be subject to retum during the lifetime of the borrower and the loan will become due and payable after the death of the person who was granted the loan. Therefore, the assumptions to the draft of the bili envisage that the reverse mortgage loan will not require that the creditworthiness of the borrower be first assessed within the meaning of the current regulations of banking law sińce it is not the borrower who will repay the loan, with payment taking place after their death. However, the assumptions to the project simultaneously envisage that the crediting institution – to protect its interests – shall have the right to verify the balance of liabilities of the person applying for such a loan. With such constructional assumptions of the draft one is compelled to entertain the notion that banking procedures pertaining to verification of the balance of assets and liabilities of a potential borrower will not diverge much from the current practice because it is difficult to imagine that before concluding the reverse mortgage loan agreement the bank would not evaluate – in one way or another – the risk of the transaction with respect to the balance of liabilities of the potential borrower, thus evaluating, in actual fact, creditworthiness of the person applying for a loan. Pursuant to the draft presented by the Ministry of Finance, the right to apply for such a loan shall be vested in natural persons over 60 who have the ownership title to a real property, a fractional part of the real property, perpetual usufruct of land developed by a building or buiIdings, or having cooperative ownership title to a flat. If the real property on which the mortgage is to be established is spousal joint property, both spouses will have to be parties to a reverse mortgage loan agreement on condition that at the moment of concluding the agreement both parties are 60 years of age or over. This being the case, the loan agreement will expire only when the both spouses have died. As indicated above, the loan granted by the bank will be collateralised by a mortgage established on the real property, a fractional part of the real property, the right of perpetual usufruct or the cooperative ownership title to a flat. It is worth noting that according to assumptions to the act, it will be possible to collateralise the liability under a reverse mortgage loan with the mortgage entered in first place in the land and mortgage register, which means that the bank will refuse to grant the loan if there are other mortgages established on the real property, to the exception of the situation where the previous mortgage collateralises the repayment of the loan contracted for the purpose of purchasing, building or extending the real property – which is when the borrower will be obliged to allocate a part of the funds from the reverse mortgage loan for the repayment of loan obligations collateralised with a previously established mortgage. The authors of the draft suggested that the reverse mortgage loan with capitalised interest become due and payable not earlier than after the death of the borrower, within 6 months of the day of inheritance division, however, not later than within 12 months of the day of opening the inheritance, i.e. the day of death of the borrower. The aim of this provision is to make it possible for heirs to repay the loan and keep the real property (or the right on which the mortgage was established). Where heirs fail to repay the amount due to the bank under the loan, the bank will have the right to claim the transfer of the ownership title to the real property or the right on which the mortgage was previously established. Having acquired the real property, the bank will be able to sell it in a .market transaction’, having first had the real property appraised by a property appraisal expert. Where the amount acquired in the sale is higher than the amount due under the loan, together with interest and costs, the bank shall be obliged to give the surplus to heirs. The institution of the reverse mortgage loan may become, at least from the point of its construction, an alternative means for elderly people owning real properties to acquire additional money. However, it is worth noting that first, initial and approximate analyses show that in Polish reality this institution may turn out to be too expensive, and hence unattractive, for potential borrowers. This notwithstanding, when we look at reverse mortgages from a legislative point of view and take into account, in particular, the degree of advancement of works on the draft of the bili, currently it is definitely too early to take any univocal position with respect to the possible practical significance of reverse mortgages or the legał consequences resulting for the borrower from a reverse mortgage loan agreement concluded with a financial institution. Basically, all deliberations mentioned above may be concluded by the obvious, if banał, statement that to properly collateralise both the interests of crediting institutions and borrowers and their heirs, it will be necessary to correlate institutions with norms provided for by other acts, particularly the banking law or land and mortgage registers act. GLOSSARY: Draft – projekt ustawy Unambiguous -jednoznaczny Resemble – przypominać Appraise – wycenić, oszacować Perpetual – wieczysty Erwisaged – przewidziane In a non-deteriorated condition – w stanie niepogorszonym Balance of liabilities – stan zobowiązań Pertaining to – dotyczące Diverge-odbiegać Spousal joint property – wspólnota majątkowa (małżonków) Cooperative – spółdzielczy Spouses – małżonkowie Collateralise – zabezpieczyć Inheritance – spadek Heirs – spadkobiercy Entitlement to life annuities – prawo dożywocia Surplus – nadwyżka This notwithstanding – tym nie mniej jednak Land and mortgage register – księga wieczysta Property appraisal expert – rzeczoznawca
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