Bill 702.

Summary.

The bill establishes a reverse mortgage as a special form of credit secured by property owned by the beneficiary. It defines the beneficiary, habitual residence, maximum financeable value and creditor institution. Eligible applicants would be natural persons aged sixty (60) or older who have legal capacity to contract and own property registered with the Public Registry, suitable as mortgage security and insured against risks specified by regulation. The property must be their principal residence, subject to the bill’s exceptions. Interest would accrue only on amounts actually disbursed, and recovery would be limited to the mortgaged property.

The loan amount would take account of the property’s market value and condition, the beneficiaries’ age, actuarial life expectancy, the interest rate, the maximum financeable value and other technical criteria. The parties could agree on a lump sum, periodic payments, a credit line or another disbursement method. The creditor could accelerate the debt if the property is transferred without authorization and without a satisfactory replacement security, if acts substantially impair the security’s value, or if there is a serious breach. For a serious breach, it must first give written notice allowing no less than thirty (30) calendar days to cure it. If the creditor misses disbursements for two (2) consecutive periods or three (3) periods within eighteen (18) months, the beneficiary could seek termination and the agreed compensation, without immediately paying the entire outstanding balance.

The beneficiary would retain ownership, possession, use and the right to live in the property while meeting statutory and contractual obligations. Permanent admission to a care facility would not amount to abandonment under the stated conditions. Before signing, the creditor would have to provide free written information on disbursements, the financing limit, interest, charges, estimated scenarios, acceleration, effects on the property, heirs, rights and duties. An independent professional would have to prepare a market appraisal, with regulations providing for a second valuation. Clauses waiving statutory rights in advance, imposing unauthorized liability on heirs or permitting undisclosed charges, among others, would be void. The beneficiary or heirs could repay all or part of the debt at any time without a penalty.

The debt would become payable only upon the beneficiary’s death, or the last beneficiary’s death; permanent abandonment of the principal residence for more than twelve (12) months, subject to stated exceptions; an uncured serious breach concerning maintenance, taxes or insurance; or total loss of the property without sufficient insurance. After death, heirs would have twelve (12) months from the opening of succession to repay and retain the property, refinance the balance, or sell the property and keep any surplus. Mortgage enforcement would be restricted during that period. Their liability would be confined to the mortgaged property: the creditor could not collect a shortfall from their personal assets or other estate property. If they choose none of those options, the creditor could enforce the mortgage under civil procedure rules, applying the proceeds in the bill’s stated order and delivering any surplus to the estate.

Reverse mortgage deeds would receive exemptions from Public Registry registration fees and Stamp Tax. The creditor could not require personal insurance, a co-borrower, guarantor or additional security, although it could require insurance protecting the property. Loans could be assigned, sold, securitized or placed in trusts without changing beneficiaries’ or heirs’ rights. The Superintendency of Banks of Panama (Superintendencia de Bancos de Panamá) would supervise covered transactions under Decree Law 9 of February 26, 1998. The Superintendency of Insurance and Reinsurance of Panama (Superintendencia de Seguros y Reaseguros de Panamá) would exercise its powers when insurers participate, under Law 12 of April 3, 2012. The bill would add Article 72-A to that decree law on prudential treatment of the portfolio and paragraph 28 to Article 973 of the Tax Code of the Republic of Panama (Código Fiscal de la República de Panamá) on the stamp tax exemption. The Executive Branch (Órgano Ejecutivo) would issue regulations within no more than six (6) months of promulgation. The proposal could affect banks, insurers, older property owners, heirs, and the real estate and financial sectors.