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New York Authorizes Reverse Mortgages Secured by Co-Op Apartments
Practical Law Legal Update w-033-7104 (Approx. 4 pages)
New York Authorizes Reverse Mortgages Secured by Co-Op Apartments
by Practical Law Real Estate
| Law stated as of 10 Dec 2021 • New York |
On December 1, 2021, the New York Governor signed into law New York A01508/S00760, which authorizes lenders to make reverse mortgages secured by ownership interests in co-op apartments. The new law takes effect May 30, 2022 and will be subject to forthcoming regulations from the New York Department of Financial Services.
On December 1, 2021, the New York's Governor Kathy Hochul signed into law New York A01508/S00760, which authorizes lenders to make reverse mortgages secured by ownership interests in cooperative (co-op) apartments. The new law takes effect May 30, 2022 and will be subject to forthcoming regulations from the New York Department of Financial Services.
Background
A reverse mortgage is a loan that allows a homeowner to convert their home equity into cash while retaining ownership of the home. Eligibility requirements for a reverse mortgage in New York include:
- Owning your home.
- Being at least 60 years old.
- Living in the home for more than half of the year.
Payments are not due on a reverse mortgage until the borrower's death or until some other specific trigger event occurs, such as:
- The sale of the home.
- Failure to pay property taxes.
- Failure to pay property insurance.
- Bankruptcy.
In New York, there are both Federal Home Equity Conversion Mortgages (HECM) (which are insured by the Department of Housing and Urban Development (HUD)) and what are known as proprietary reverse mortgages (which do not qualify to be insured by HUD). The primary distinction between HECMs and proprietary reverse mortgages in New York is the cap on loan amounts permitted under an HECM. Additionally, HECMs are restricted to loans secured by real property (24 CFR 206.45(a)). As such, lenders who wish to enter the newly opened market for co-op reverse mortgages must do so using a non-federally insured, proprietary reverse mortgage.
New York A01508/S00760
In addition to the existing requirements for reverse mortgages in New York, New York A01508/S00760 includes the following provisions specific to reverse mortgages secured by ownership interests in co-op apartments:
- Lenders may now make reverse mortgages secured by shares or membership in a co-op apartment, subject to the restrictions in the law and forthcoming regulations (N.Y. Banking Law § 6-o(1)(a)).
- Reverse mortgages secured by co-ops must be approved by the co-op board of directors (N.Y. Banking Law § 6-o(2)(n)).
- Co-op reverse borrowers must be at least 62 years old (NY Banking Law, § 6-o(1)(d); N.Y. Real Prop. Law § 280(e)).
- A co-op reverse mortgage may become due and payable if "an obligation of the borrower under the loan note is not met," a broader definition of a borrower default triggering maturity than the law for reverse mortgages on real property (N.Y. Banking Law § 6-o(2)(l)(ii)(3)).
- A lender that fails to make required payments to a co-op reverse mortgage borrower forfeits all interest or service charges due under the loan, including interest previously accrued, a substantially more onerous penalty than the penalty for a lender default on a real property reverse mortgage (N.Y. Banking Law § 6-o(2)(e)).
- Compliance with each provision of the new law for co-ops is a condition precedent to foreclosure, and failure to comply will be a complete defense to foreclosure (N.Y. Banking Law § 6-o(13). )
Practical Implications
New York A01508/S00760 substantially expands the market for reverse mortgages in New York due to the large portion of the state's elderly population that lives in co-op apartments (as compared to condos). Attorneys who regularly represent New York lenders should track the forthcoming regulations to ensure that their clients' loan documents comply with the statute and the new regulations by the time the law goes into effect.
For more information on reverse mortgages under New York law, see Standard Document, Section 252 Affidavit (Reverse Mortgage) (NY): Drafting Note: Reverse Mortgages Explained and Drafting Note: Reverse Mortgages under the N.Y. Real Property Law.
For more information on co-op apartments and considerations in purchasing and selling them, see Practice Note, Key Considerations in Buying and Selling Residential Real Estate (NY).