September 22, 2022
Shareholders of the cooperative Those 62 and older can now take advantage of a financing option that has long been available to owners of one-to-four-family homes and condominiums: reverse mortgage. By allowing older shareholders to borrow against their apartments, reverse mortgages enable them to age in place despite fixed income and ever growing the cost of living.
co-op boards eight things to be aware of when a shareholder announces a desire to take out a reverse mortgage, also known as home loan.
1. The right of veto. Reverse mortgages are subject to approval by the board of the cooperative.
2. How money comes. Unlike a conventional co-operative loan, in which monthly payments are made to the lender, a reverse mortgage is paid to the borrower in one of four ways: a lump sum payment; credit line; equal monthly payments for a fixed number of months; or monthly payments until the loan is fully repaid. Loan interest can be fixed or variable.
3. How the loan is repaid. A reverse mortgage occurs when the borrower dies, no longer uses the apartment as their primary residence, does not occupy the residence for more than 12 consecutive months, or sells the apartment. When one of these events occurs, the borrower or the borrower’s heirs must sell or refinance the home in order to repay the loan amount and interest paid. If the residence is sold at a price exceeding the amount necessary to fulfill the obligation, the remaining part of the capital passes to the borrower or heirs. If the market value of the home falls below the amount of the loan, the lender incurs the loss because reverse mortgages non-recourse loanswhich means that the lender cannot use the borrower’s other assets to pay off the outstanding balance.
4. Board protection. The recognition agreement, which must be signed by the loan holder and the board, is a valuable defense. If a shareholder is late in alimony payments, the creditor is required by the recognition agreement to make the payments. If there is a foreclosure and the apartment is sold, the bank will receive the net proceeds after all amounts owed to the cooperative are satisfied.
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5. Financing limits. Most cooperatives have financial limits, and the board’s veto power over reverse mortgages ensures that the cooperative’s limits are not exceeded. “If the cooperative does not want to allow people to finance more than 50% of the cost of their apartment, we will offer the shareholder only 50%,” the message says. Philip PartialeChief Operating Officer and General Counsel at nationwide promotions. “There is a common interest between us and the board that we both have an interest in ensuring that the borrower has enough equity in their home that the loan and interest accrued is not worth more than the property when the loan matures. ”
6. Consistency. Boards of directors must meet their financial requirements. “You can’t discriminate by allowing one shareholder to get a reverse mortgage and forbidding someone else from getting it,” he says. Mark Hankinlaw firm partner Khankin and Mazel.
7. Protection of consumer rights. Some reverse mortgage lenders have historically been predatory, burdening borrowers with high closing costs and other fees. To address this issue, the reverse mortgage application process includes a mandatory meeting with an approved Housing and Urban Development (HUD) consultant. (The committee is currently working to determine what additional training would be required for existing HUD consultants to advise co-op reverse mortgage borrowers.)
8. Corporate benefits. Reverse mortgages can prevent forced saleswhere shareholders with limited financial resources are forced to sell their apartments at a reduced price, which can lead to a decrease in the total cost of apartments. “There is also a real humanitarian benefit for the councils,” says Peter Massalaw firm partner Armstrong Tisdale, “because you see a lot of cases where older people with limited incomes have apartments that cost a lot of money, but they don’t have enough money to continue living in them. A reverse mortgage could allow them to do that—and still have enough money to live their lives.”
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