You can always expect the unexpected when it comes to the NY co-op landscape. There are constant changes to the laws, so it’s important for co-op board of directors to be up to date with the evolving environment. A recent significant shift deals with reverse mortgages. Up until recently, reverse mortgages were only available to owners of one to four family homes and condominium apartments. However, the law in New York for reverse mortgages has changed to include owners of shares in a co-op.
What is a Reverse Mortgage?
Before diving into the way that this affects co-op boards, let’s review the specifics of reverse mortgages. Unlike a traditional mortgage, no payments are due for the reverse mortgage until the end of the mortgage term or until the property is sold or until the borrower is deceased.
The property owner is able to use their real estate interest as collateral for the loan. Prior to the recent legal changes, shareholders in co-ops weren’t allowed to take out reverse mortgages because they weren’t considered as true legal owners of the property by deed. Since they didn’t own a real property interest that could be considered as collateral for the loan, they were ineligible. Now that the law has changed, residents can use their shares or membership interest in a co-op for security for reverse mortgages.
How it Works
In addition to some other basic rules, including parameters about maturity events and circumstances for foreclosure defenses, there are key differences between a co-op reverse mortgage and a traditional reverse mortgage:
- Here, the reverse mortgage is secured by either shares or membership in the cooperative unit.
- The minimum age of the tenant who gets the reverse mortgage secured by the co-op apartment is 62, compared to 60 for real property ownership.
- The co-op unit must be the shareholder’s primary residence.
- If a reverse mortgage is secured by a co-op apartment, the resident must get it approved by the co-op’s board of directors.
Co-op Board Approval
Just because the board of directors’ approval is necessary for a resident to secure a co-op reverse mortgage doesn’t mean that the board should necessarily honor the request. While the co-op has priority lien for the monthly maintenance, co-op boards still need to really think about granting permission for a shareholder to obtain a reverse mortgage.
Cautious contemplation is critical, especially if the shareholder can’t afford the monthly maintenance for the apartment without the loan proceeds. For instance, suppose the shareholder does indeed blow the loan proceeds and isn’t able to pay the monthly maintenance. Then the co-op is in a tough scenario of having to foreclose on a senior who has little or no equity in their unit and probably has limited options for their living situation.
Ask an Attorney About Reverse Mortgages
The changes in the law that allow co-op shareholders to obtain reverse mortgages may be considered a cause for celebration. However, it’s important for boards to weigh the possible risks of any request. You can discuss this with a lawyer before going forward. Feel free to contact us at MOWK Law to have your questions addressed by an experienced attorney.