Reverse Cooperative Apartment Unit Loan FAQs
A reverse mortgage is a type of mortgage loan that is generally available to senior homeowners that permits the owner to convert some of their equity into cash while retaining ownership. For more information on reverse mortgages click here.
In New York, there are two types of reverse mortgage loans available to senior borrowers. The first, a Home Equity Conversion Mortgage, often referred to as a HECM, is a reverse mortgage loan that is made in accordance with the requirements of the Home Equity Conversion Mortgage program operated by the Federal Housing Administration. HECMs are the only reverse mortgages insured by the Federal Government. The second, referred to as a proprietary reverse mortgage, is a mortgage loan that is made in accordance with the requirements of New York State Law. A reverse cooperative apartment unit loan is a proprietary reverse mortgage secured by a borrower’s interest or shares in a cooperative housing entity and, as such, is not affiliated with the HECM product or the Federal Government at all. Instead, it is governed by New York State laws and rules, most notably, New York Banking Law Section 6-0*2.
A reverse cooperative apartment unit loan is subject to the prior approval of the cooperative’s board of directors. Many Boards have guidelines and procedures in place for reviewing cooperative apartment unit loans. Most Boards set limits on the amount that can be borrowed, to ensure that every shareholder/member has an actual equity interest in the cooperative. On a case-by-case basis, boards may impose further borrowing limitations, based on its review of the resources of the shareholder and its evaluation of their ability to sustain responsibilities including monthly payment of carrying charges to the cooperative.
A recognition agreement is between the lender and the cooperative association, in which both parties agree to recognize the lender’s legal interests in the borrower’s cooperative documents, and it sets forth mutually agreeable parameters for handling the loan. For example, the cooperative association may agree to inform the lender if the borrower has failed to pay association dues (thus breaking their lease agreement) or if the cooperative project has been the victim of some disaster (impacting the value of the cooperative unit). The lender may agree to limit, upon foreclosure, the sale of the certificates and the assignment of the lease to only those persons approved by the association.
Term Payment Option – Equal monthly payments made by the lender to the borrower for a fixed term of months chosen by the borrower.
Tenure Payment Option – Equal monthly payments made by the lender to the borrower, until the loan is prepaid in full, or a default is triggered by death or otherwise.
Line of Credit Payment Option – Payment made by the lender to the borrower at times and in amounts determined by the borrower, as long as, the amounts do not exceed the maximum amount of loan proceeds.
Single Lump Sum Payment Option – Borrower receives an amount from the lender that does not exceed the maximum amount of the loan proceeds.
A schedule of payments, labeled as estimates, to and from the borrower and the total payments in dollars over the life expectancy of the youngest borrower.
A description of prepayment and refinancing features (if applicable).
The interest rate and, an estimate of the total interest payable on the loan.
A listing of events which would trigger a default under the terms of the loan.
A statement setting forth an estimate of all costs associated with the loan.
Notice of the 3-day cooling off period.
Notice of the right to designate a third party.
An indication as to whether a set aside account is required to pay property charges and, if so, an approximation of the amount to be set aside.
A statement indicating whether and what type(s) of mortgage and/or property insurance will be required and the cost of any premiums, broken down monthly and over the life of the loan.
A counseling acknowledgment and the contact information for reverse mortgage housing counselors with cooperative housing training.
The Lender's Limited Waiver of the Right of Foreclosure is a form which must be provided to and signed by a borrower at closing and shall, clearly and conspicuously, identify every event that would give the lender authority to terminate the loan.
New York State requires a 3-day cooling-off period after the submission of an application for a reverse cooperative apartment unit loan. During this 3-day period of time, a borrower cannot be required to sign a commitment or in any way proceed with the loan. The purpose of this requirement is to provide time to consider whether to secure a reverse mortgage loan. The 3-day cooling-off period cannot be waived.
A consumer has 3 days after closing on a reverse cooperative apartment unit loan to cancel. Lenders are required, at closing, to provide each borrower two copies of the borrower’s right to cancel and instructions on how to exercise that right. A consumer that chooses to cancel may still be responsible for any fees already paid to a third-party service provider.
A reverse cooperative apartment unit loan borrower has the right to elect a third-party as an authorized designee to whom their lender or servicer is obligated to send written notice of any event that could lead to termination of the loan. If a borrower fails to elect an authorized designee, New York law dictates that written notice of any event that could lead to termination of the reverse mortgage should be sent to the local or county office for the aging.
Before taking an application for a reverse cooperative apartment unit loan, the only charges a lender may collect from a borrower are an application fee, an appraisal fee, and a credit report fee. The application fee must be designated as such and may not be a percentage of the principal amount of the reverse mortgage or of the amount financed.
A completed counseling acknowledgment is a requirement of any reverse cooperative apartment unit loan. In order to be considered complete, the counseling acknowledgment must indicate that the terms of the loan have been explained by a counselor and must include the name, address, telephone number and signature of the housing counselor, the applicant and, if applicable, the non-mortgagor spouse, as well as the date of the counseling. Counseling acknowledgments are only good for 6 months from the date of execution.
Sale or transfer of the borrower’s interest in the cooperative apartment unit
Failure to maintain the cooperative apartment unit as the borrower’s primary residence
Failure to occupy the cooperative apartment unit for a period of longer than 12 consecutive months
Death of all borrowers
Breach of an obligation under the reverse mortgage cooperative loan agreement
Failure to pay all fees associated with the cooperative apartment unit such as insurance and maintenance fees.
A lender must provide written notice, within 30 business days of learning of the occurrence of any default trigger, to the borrower and their third-party representative, along with information on the right to cure. The lender must then allow the borrower forty-five calendar days to cure the default before terminating a reverse cooperative apartment unit loan.
Foreclosing on a cooperative apartment is a much different than foreclosing on a home or a condominium. Since a mortgage on a co-op does not involve real property, the foreclosure process is governed by Article 9 of New York’s Uniform Commercial Code.
Under Uniform Commercial Code Article 9 two notices are to be served before a foreclosure auction sale on the certificate of shares can begin. First, the lender must serve you with a pre-foreclosure notice ninety (90) days before the sale. The notice must inform you of steps you can take to avoid foreclosure and provide a list of not-for-profit housing counselors in the county where the apartment is located that can assist you. Second, the lender must serve a notice at least ten (10) days before the actual sale notifying you of the date, time, and location that the sale will take place. The statute also requires the lender to run a lien search on the unit in dispute between twenty (20) and thirty (30) days before the sending of the second notice in addition to any additional notice requirements found in the mortgage.
In addition to the notice requirements, prior to the foreclosure of a reverse cooperative apartment unit loan, the court will hold a mandatory settlement conference. The purpose of the conference is to engage in settlement discussions pertaining to the relative rights and obligations of the parties under the loan documents. The court will be looking to determine whether the parties can reach a mutually agreeable resolution to help the borrower avoid losing his or her cooperative apartment unit.
A list of reverse mortgage housing counselors with cooperative housing training can be found here.