How Reverse Mortgages Work for Co-op Shareholders

Taking out a reverse mortgage could be helpful to senior citizens on a fixed income, but it’s important to be aware of some potential downsides, our experts say.

Reverse mortgages will become available to co-op shareholders for the first time—specifically, to shareholders who are 62 or older and use their co-op apartment as their primary residence. (They were recently approved by the New York State legislature and take effect in May.)

Those who qualify should make sure they understand the potential pros and cons of using this product. A reverse mortgage is a type of home loan in which the bank pays the owner a monthly stipend based on the home’s value and the owner continues to live in their apartment.

This can be very helpful to owners on a fixed income, but they should be aware that taking out a reverse mortgage adds onto their existing mortgage and decreases the equity they own in their home.

A reverse cooperative apartment unit loan defaults if the borrower fails to pay all associated fees, including insurance and maintenance fees. Other triggers include failure to pay property taxes, violating cooperative rules, or ceasing to occupy the unit as a primary residence. Lenders may also foreclose if the borrower breaches loan terms.

“Reverse mortgages are unique,” says Andreas E. Christou, an attorney with Woods Lonergan. “They typically involve receiving an up-front payment, a stream of payments, and/or satisfaction of your debts, such as an existing mortgage. And in exchange, the bank will take the property, or in the case of a co-op, the shares, and lease, upon the death of the shareholder, rather than requiring repayment.”

About the Author

James F. Woods is Founder and Managing Partner of Woods Lonergan. He has tried more than 60 jury cases to verdict as first-chair trial counsel, beginning his career as a prosecutor, and resolves complex commercial and real estate disputes valued at $1M to $100M+ for business owners, principals, and middle-market enterprises across the New York metro area. He appears regularly in the New York Commercial Division and in the federal district courts for the Southern and Eastern Districts of New York, and has argued appeals in the Appellate Division and the Second Circuit.

His practice covers complex commercial litigation, real estate and asset litigation, partnership and shareholder disputes, fiduciary breach and corporate fraud, and cooperative and condominium governance. He counsels corporate and cooperative boards throughout New York.

The Legal 500 United States ranks James in its New York Elite rankings for Commercial Disputes, and his peers have recognized him with Martindale-Hubbell's AV Preeminent rating. Woods Lonergan is ranked in Chambers USA: Spotlight New York for Litigation: General Commercial and Real Estate. James serves on the Commercial & Business Litigation Committee and the Business Torts & Unfair Competition Committee of the American Bar Association Section of Litigation, and on the Cooperative & Condominium Law Committee of the New York City Bar Association. His commentary on New York commercial and real estate disputes has been quoted in The New York Times, The Washington Post, Bloomberg Law, Law360, and Forbes.

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