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Older Co-Op Owners Are Now Eligible for Reverse Mortgages

In another piece of legislation signed in December 2021, New York now permits co-op tenant- shareholders age 62 and older to take out reverse mortgages on their apartments.  A co-op reverse mortgage (formally, a “reverse cooperative apartment unit loan”) is a loan that is secured by a borrower’s co-op shares.  The proceeds of the loan are advanced to the borrower, but the loan does not have to be repaid until the borrower either dies or vacates the apartment.  Reverse mortgages enable seniors to tap into their home equity for living expenses while allowing them to stay in their residences.  Reverse mortgages have long been available to single-family homeowners and condominium unit owners, although these mortgages are not FHA insured, and the new law extends eligibility to cooperative owners as well.

The new legislation also contains robust consumer protections intended to avoid the specter of predatory lenders swindling elderly borrowers out of their cooperatives based on trumped-up loan defaults.  In light of the new legislation, co-ops should review their underwriting procedures to determine whether they are willing to permit their shareholders to enter into these loans and on what terms.