Provides that a lender may receive not more than 20% of the future appreciation of property secured by a reverse mortgage granted to a person 60 years old or older

1 Co-sponsor

• Dean G. Skelos

BILL NUMBER:S1078A

Title of bill

An act to amend the real property law, in relation to reverse mortgage loans for persons sixty years of age or older

Purpose

This bill will limit shared appreciation in revenue mortgage.

Summary of provisions

This bill would amend the real property law to limit the shared appreci- ation any authorized lender may receive no more than 20 per cent of the appreciation during the term of the mortgage.

Justification

In 1994, the Real property Law was amended to formalize the reverse mortgage law in the state of New York. (Reverse mortgage allows senior citizens to take equity out of their homes while they are living there through equal installments, a line of credit or a lump sum).

Those mortgages are now being satisfied either by the mortgagor paying off the mortgage, selling the property themselves or through their estate.

Due to fluctuating market conditions and one side contacts, the Legisla- ture has learned that certain mortgage lenders have, however, been misusing this valuable financial instrument to exact enormous unmerited profits. For example, when one individual mortgagor received a lump sum payment of $114,000, and the mortgagor had to sell the property just seven years later, the authorized lender issued a payout letter of $451,000. This included $113,000 in compounded interest and $223,000 of shared appreciation at the rate of 50%. with the real estate market experiencing historic fluctuations, this problem is becoming ever more of an issue.

This bill would attempt to remedy this usurious gouging by the author- ized lender by reducing the shared appreciation from 50% to 20%. This would accordingly be a much more equitable distribution of the shared appreciation.

Legislative history

2008: S.642 - Passed Senate 61-0

Fiscal implications

This bill would increase revenue to state and local governments by encouraging the issuance of reverse mortgages with fair returns and the marketability and sale of real property.

Effective date

This bill would take effect One hundred eightieth day after it shall have become a law.