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March 7, 2022

What You Need To Know About The Recent Changes Made In New York State For Co-Ops & Reverse Mortgages | PropertyShark

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What You Need To Know About The Recent Changes Made In New York State For Co-Ops & Reverse Mortgages

Jacqueline Weiss

It seems as though the rules keep changing for Co-Op boards, making it increasingly difficult for borrowers to fully comprehend the ever changing law.  Under former New York State law, reverse mortgages were only available to one to four family residences and condominiums.  A reverse mortgage is different from a regular mortgage as no loan payments become due on the loan until the end of the mortgage term or until there is a sale of the property or the borrower dies. 

co-op

On January 11, 2021, the New York State Assembly for the first time passed a law that made borrowers eligible for reverse mortgages in Cooperative Apartments. Assembly Bill 1508 specifically allowed reverse cooperative apartment unit loans or reverse mortgages available to borrowers (62) sixty- two years of age or older or used the apartment as their primary residence.  This law was important as only condominium and real property owners were formerly allowed to secure a reverse mortgage based on their ability to use their ownership in the real estate as a form of collateral for their loan.

However, the new bill for the first time allowed condominium residents who were not designated as the true legal owners of the property by deed to claim the right of “lifetime possession of the subject premises of the cooperative apartment unit which is the security for the reverse  cooperative apartment unit loan.” See A-1508 (2)(A). The bill that was recently passed by the State Assembly by a 148 to 1 vote and then by the Senate through a 62-1 vote was passed into law by Governor Hochul in January is set to become effective in May of 2022.

What advantages does the new law provide for borrowers?

For the first time, during the pandemic, residents of co-operatives (“co-ops”) , age 62 and older can now become eligible for reverse mortgage loan relief.  The law puts the onus on the mortgage lender to protect the borrowers by requiring the mortgage lender to: 

  1. Obtain a $100,000 surety bond to cover claims in the event that the lender defaults to perform their obligations to the borrower.
  2. Obtain  ($10,000,000) ten million dollars in capital to cover the loan.
  3. Explain the loan terms of the reverse mortgage and how they comply with New York State Law and Housing of Urban Development standards. These standards expressly require the mortgage lender to satisfy a number of requirements including:
    • Disclosing the term and schedule of payments to be made by the borrower;
    • Advising all loan applicants to consult with appropriate authorities about the tax and estate planning consequences of the loan;
    • Describing pre-payment and refinancing features of the loan, where applicable;
    • Notifying the borrower of the interest rate on the loan and the estimated total interest rate due on the “Reverse Cooperative Apartment Unit Loan”;
    • A statement setting forth the events that could cause the borrower to default on the loan.

What are borrowers required to do in order to obtain reverse mortgages for their apartment condominiums?

  1. The borrowers must consult with a certified and approved reverse mortgage housing counselor that the borrower can financially qualify for the loan, and interest terms of the reverse mortgage loan. This means the borrowers must complete a financial assessment with their counselors.
  2. The borrower must fill out a required application for loan relief with a statement explaining its terms prepared by the U.S. Department of Housing and Urban Development explaining in clear English the borrowers’ rights and obligations under the loan.
  3. The borrower’s loan must be approved by the local Co-op Board.
  4. The borrower must not default under the reverse mortgage loan. Default may include:
    • Ceasing to be a primary resident of the Co-op for reasons other than death;
    • Failing to occupy the property for a period of twelve or more consecutive months;
    • Failing to pay monthly maintenance fees, special assessment fees, mortgage insurance payments or other mortgage insurance payments that are not advanced by the lender.

Who Can Qualify As Authorized Lenders Under NYS LAW A-1508?

Lenders can include any bank, trust company, national banking association, savings bank, savings and loan association, federal savings bank, federal savings and loan association, credit union, or federal credit union or any licensed mortgage banker approved for making reverse mortgage loans by the Superintendent of New York  pursuant to Bill A-1508 (C).

How Long Does A Borrower Have To Get Out Of The Loan If They Change Their Mind After Being Approved For A Reverse Condominium Mortgage?

The borrower has a three day right of recission.

Under the new law, the residents reverse mortgage could be paid in one of four different ways including:

Option One:  A Term Payment Option: this option would require the lender to make equal monthly payment options to the borrower for a fixed term of months to be chosen by the borrower.

Option Two:  Tenure Payment Option: this option would require the lender to make equal monthly payments to the borrower until the loan is prepaid in full or becomes due and payable.

Option Three: Line of Credit Option: unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.

What Can Happen To A Borrower If They Fail To Satisfy Their Obligations As A Reverse Cooperative Apartment Unit Borrower?

Every borrower who signs a reverse mortgage as a cooperative apartment resident must sign and review a form that advised them that they could lose their cooperative apartment unit to foreclosure and be subject to legal foreclosure proceedings.  

Where Would The Foreclosure Proceedings Take Place?

The condo resident would be subject to foreclosure proceedings in the county where the condominium was located.  By example, if the reverse mortgage applicant defaulted at a condominium located in Queens, the foreclosure proceeding would take place in the Queens County Supreme Court. On the other hand, it the resident lived in a condominium on Staten Island, the proceeding would take place in the vicinage of the Richmond County Supreme Court.

What Is Necessary To Avoid Foreclosure Proceedings?

In light of the legalese in the new Assembly bill, that is scheduled to become effective in May of this year, it would seem appropriate for every potential borrower for reverse mortgage relief should at least consult with an experienced commercial lawyer and then even consider consulting with a tax or estate lawyer to ensure that they understand the language in the application and default provision forms that they are required to sign in order to obtain their reverse mortgage relief and to ensure that the lender is in full compliance with all fair consumer loan and U.S. Department of Housing and Urban Development requirements.

All lenders and Cooperative Apartment Unit borrowers seeking reverse mortgages would be strongly recommended to consult with legal counsel prior to closing on their transactions.

What Does The Future Look Like For Reverse Mortgages In Co-Ops?

The new law that the Governor signed offers a stroke of bright light to those elderly residents who need stable housing to remain safe during this unprecedented pandemic. In light of the new blight of older residents who now occupy older cooperatives in New York City and the boroughs, this new legislation will allow more of these residents to safely remain in their dwellings in affording these co-operatives owners with the same rights to reverse mortgage relief as were previously available to condominium and family home residents.  The law will again allow lenders of co-operatives to secure private label mortgages in lieu of conventional home equity mortgages that are still not allowed for coop purchases.


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