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Reverse Mortgages for Co-ops

Guzov's Good Advice, Real Estate Legality


In New York, about 75% of residential buildings are cooperatives. From 2000 to 2010, the Department of Aging has recorded that there has been a 12.4% increase of the 60-plus population, which will grow to 35.3% by 2030. Many of these individuals aged 62 and above live in co-ops, but in the past they have been unable to apply for reverse mortgages. The National Association of Housing Cooperatives (NAHC) and the Council of New York Cooperatives and Condominiums (CNYC) have spent the past sixteen years lobbying the Department of Housing and Urban Development (HUD) for the implementation of legislation for reverse mortgages for co-ops. The greatest hurdle is that co-ops are not real property. When you purchase a co-op you are purchasing the shares that are equal to the value of your unit. So naturally, reversing a mortgage for a co-op is inherently trickier than for a condo because there is no property to collateralize. But is it impossible?

Reverse mortgages, also known as Home Equity Conversion Mortgages (HECM), are loans for borrowers 62 years and older. These mortgages permit borrowers to transfer the equity in their property into liquid assets that they can use. Reverse mortgages were implemented with the intention of easing the burden of living expenses and health care for retirees. The benefit for retirees is that they have accessible liquid assets not tied up into their home, and they do not have to repay the lender until they sell their property. Reverse mortgages cannot be lent to everyone who applies. How do you know if a reverse mortgage is right for you? Individuals must undergo specific counseling to assess their mortgage. Requirements for a reverse mortgage:

  • 62 years or older
  • Primary residence
  • Own your property outright
  • Only have a small remainder of your mortgage left
  • Have home owners insurance

Brian Sullivan, supervisory public affairs specialist for the HUD asserts that “[a]s America has grown older, truthfully, we’ve aged as a nation, and senior citizens are seeing this as a viable, sustainable way of providing them some security later in life, and allowing them to age gracefully in place, which is really why the program was born.”

Last May, New York Senator Jeffrey Klein and Assemblyman Jeffrey Dinowitz proposed S.07844 and A.10246 (respectively) to alter existing real property laws to allow borrowers who are 70 years and older to obtain proprietary reverse mortgages. However, these bills have yet to make it into law. Naturally, there are many liabilities and risks associated with taking a reverse mortgage for the lenders, especially in regards to co-ops. However, the Federal Housing Administration (FHA) is structured in a way to “mitigate those liabilities.” The FHA sets a limit as to how much borrowers are allowed to take. What happens if the sale of the property is an insufficient amount to pay off the remaining loan? According to Sullivan, “FHA will pay the lender the amount of the shortfall. FHA collects an insurance premium from all borrowers to provide this coverage.” With the correct regulations and liability protection, the older population should be permitted to obtain reverse mortgages in co-ops instead of being forced to relocate from their homes.

As of today, HUD continues to deny co-op owners from applying for reverse mortgages.  For co-ops, Debra A. Estock (writer for The Cooperator) argues that “the door has opened a crack for ultimately gaining approval for reverse mortgages, but HUD is still shutting cooperative homeowners out of the HECM process.” Given the two bills already put before the New York Senate, change may be on the horizon for co-op shareholders in New York City.

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