Reverse Loans for Senior Co-ops

Section 1. The banking law is amended by adding a new section 6-n to read as follows:

§ 6-n. Reverse cooperative apartment unit loans for persons sixty-two years of age or older. 1. For purposes of this section, the following terms shall have the following meanings:

(a) Reverse cooperative apartment unit loan. A loan which is secured by shares or membership in a cooperative apartment that is or intended to be the primary residence of the borrower or borrowers the proceeds of which are advanced to the borrower or borrowers during the term of the loan in equal installments, or in advances through a line of credit or otherwise, in a lump sum, or through a combination thereof. Interest and fees will accrue during the life of the loan and will be added to the principal balance of the loan, but will not become due and payable until the borrower(s) dies, permanently vacates the apartment or defaults on the terms of the loan, and will continue to accrue until the loan is paid in full.

(b) Loan payout options:

(i) Term payment option. Under the term payment option, equal monthly payments are made by the lender to the borrower for a fixed term of months chosen by the borrower.

(ii) Tenure payment option. Under the tenure payment option, equal monthly payments are made by the lender to the borrower, until the loan is prepaid in full or becomes due and payable.

EXPLANATION--Matter in italics (underscored) is new; matter in brackets

[ ] is old law to be omitted.

LBD01344-10-9

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(iii) Line of credit payment option. Under the line of credit payment option, payments are 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.

(iv) Single lump sum payment option. Under the single lump sum payment option, the borrower receives an amount from the lender that does not exceed the maximum amount of loan proceeds. Set asides required for disbursements such as loan closing costs or for monthly maintenance fees, will be deducted from the amount of proceeds available to the borrower.

(c) Authorized lender. Any bank, trust company, national banking association, savings bank, savings and loan association, federal savings bank, federal savings and loan association, credit union, or federal credit union or any licensed mortgage banker approved for the making of reverse mortgage loans by the superintendent or any entity exempted from licensing pursuant to section five hundred ninety of this chapter and approved for the making of reverse mortgage loans by the superintendent.

(d) Borrower. A tenant in severalty who is sixty-two years of age or older, or if the cooperative apartment unit is held by tenants by the entirety or by joint tenancy, the youngest of which is sixty-two years age or older.

(e) Superintendent. The superintendent of financial services of this state.

(f) Department. The department of financial services of this state.

(g) Third-party contact. The lender must ask the borrower if they want to designate a third-party contact, such as a family member, trusted friend, advisor or other party whom the borrower would like to be contacted. It shall be the borrower's discretion to choose if the thirdparty contact is to be contacted if (i) the borrower has not returned the occupancy form, and/or (ii) the loan is in default for any reason and the lender plans to proceed on collecting on the loan, i.e., initiating eviction or foreclosure and/or (iii) the borrower cannot be reached.

2. A cooperative apartment unit loan pursuant to this section shall be subject to the following:

(a) the borrower shall be granted lifetime possession of the subject premises of the cooperative apartment unit which is the security for the reverse cooperative apartment unit loan, as long as such apartment unit remains the borrowers' primary residence and the borrower is not in default under the reverse cooperative apartment unit loan. The borrower or borrowers must certify annually on each anniversary of the loan, that they reside in the unit and that it is their primary residence;

(b) the lender shall ask the borrower if they designate a third party contact, collect such information from the borrower and update such information annually on each anniversary of the loan;

(c) subject to such rules or regulations as the superintendent may adopt, a reverse cooperative apartment unit loan shall be made at either a fixed or variable rate of interest;

(d) subject to such rules or regulations as the superintendent may adopt, the authorized lender may require a borrower to establish a set aside account for the purposes of paying property taxes, maintenance or cooperative fees, insurance premiums of the property securing the reverse cooperative apartment unit loan, or for the payment of any other fees and expenses;

(e) a lender who fails to make loan advances as required in the loan documents, and fails to cure an actual default after notice as specified

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in the loan documents, shall forfeit any right to collect interest or service charges under the contract. The lender's right to recovery at loan maturity shall be limited to the outstanding balance as of the date of lender's default, minus all interest. However, a lender shall not be required to make loan advances under a loan if the borrower is in default under the loan;

(f) the outstanding balance may be prepaid in full by the borrower without penalty at any time during the reverse cooperative apartment unit loan term;

(g) an authorized lender is prohibited from using or attaching any property or asset of the borrower or heirs of the borrower except the apartment unit securing the reverse cooperative apartment unit loan in settlement of a reverse loan obligation--the loan is a non-recourse loan;

(h) an authorized lender shall deliver to the applicant upon application, a statement prepared by the department providing the contact information for New York approved, or U.S. Department of Housing and Urban Development approved, reverse mortgage housing counselors with cooperative housing training approved by the department whom the cooperative apartment owner can call for independent counseling and information services. Further, no reverse loan commitment shall be issued by the authorized lender until the applicant presents, in writing, a form that certifies the terms of the reverse cooperative apartment unit loan have been explained to them by a New York or U.S. Department of Housing and Urban Development approved reverse mortgage housing counselor with cooperative housing training approved by the department. The form of such statement and affidavit and cooperative housing counseling services shall be approved by the superintendent;

(i) an authorized lender shall deliver to an applicant such disclosures as may be required by the superintendent which shall describe the relevant portions of the reverse loan being offered, and shall include but not be limited to the following items:

(i) a schedule of payments to and from the borrower and the total payments in dollars over the life expectancy of the youngest borrower of the reverse cooperative apartment unit loan for the borrower;

(ii) a statement prominently displayed advising applicants to consult with appropriate authorities regarding tax and estate planning consequences of a reverse cooperative apartment unit loan;

(iii) where applicable a description of prepayment and refinancing features;

(iv) to the extent determinable at or prior to the inception of the reverse cooperative apartment unit loan, the interest rate and, an estimate of the total interest payable on the reverse cooperative apartment unit loan;

(v) a statement concerning the compliance of the lender with the criteria established by the superintendent that an authorized lender must meet before it may make reverse cooperative apartment unit loans pursuant to this section;

(vi) a statement setting forth those events which would cause the loan to become due and payable (or cause the borrower to default) the reverse cooperative apartment unit loan;

(vii) the loan is subject to a three day right of rescission by the borrower; and

(viii) a financial statement setting forth an estimate of all costs associated with the loan;

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(j) an authorized lender shall deliver to each borrower at the time of closing of a reverse cooperative unit loan two copies of the borrower's right to cancel and instructions for how to cancel the loan to be prescribed by the superintendent;

(k) a reverse cooperative apartment unit loan pursuant to this section shall expressly and conspicuously bear a legend identifying it as such in at least fourteen-point font;

(l) a reverse cooperative apartment unit loan shall clearly set forth the terms for when the loan becomes due and payable, including:

(i) regardless of loan payout option chosen by the borrower, the loan note shall state that the outstanding loan balance will not be due and payable in full until the last borrower dies, or if a borrower conveys all of his or her title in the property and no other borrower retains title to the property; and

(ii) the loan note shall state that the outstanding loan balance shall be due and payable in full if any of the following occur:

(1) the property ceases to be the primary residence of a borrower for reasons other than death and the property is not the primary residence of at least one other borrower;

(2) for a period of longer than twelve consecutive months, a borrower fails to occupy the property because of physical or mental illness and the property is not the primary residence of at least one other borrower; or

(3) an obligation of the borrower under the loan note is not met;

(m) in the event that an authorized lender or holder of the reverse cooperative apartment unit loan determines the loan is in default and intends to initiate proceedings pursuant to the note, the lender shall notify the borrower's third-party contact. In the event that the borrower has not designated a third-party contact to receive such notice of foreclosure, then the authorized lender or the holder of said reverse cooperative apartment unit loan shall notify the local or county office for the aging of its intent to commence foreclosure proceedings. Such entity shall take appropriate action to protect the interests of the borrower;

(n) a reverse cooperative apartment unit loan secured by a unit in a cooperative housing corporation shall also be subject to the prior approval by the cooperative's board of directors; and

(o) no reverse cooperative apartment unit loan shall be subject to mandatory binding arbitration.

3. A reverse cooperative apartment unit loan pursuant to this section may:

(a) provide that an authorized lender may, consistent with federal laws and regulations, include a due-on-sale clause in its reverse cooperative apartment unit loan agreement and at its option exercise and enforce such clause in accordance with its terms; and

(b) provide that the borrower's closing costs, including but not limited to loan or commitment fees if any, insurance premiums, repairs, legal fees, the costs of third party counseling, the costs of paying off any existing mortgages or liens, and other appropriate costs be included in the principal of the reverse cooperative apartment unit loan and disbursed out of the loan proceeds at closing.

4. The superintendent shall adopt such rules or regulations as he or she considers appropriate to govern a reverse cooperative apartment unit loan made pursuant to this section. No reverse cooperative apartment unit loan shall be made unless it conforms to the requirements of this section and such rules and regulations as the superintendent may adopt.

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5. No authorized lender or any other party or entity shall in any manner, in the marketing or offering of reverse cooperative apartment unit loans, engage in any unfair or deceptive practices in connection with the marketing or offering of reverse cooperative apartment unit loans, and, additionally, shall not:

(a) use the words "public service announcement" in any commercial, mailing, advertisement or writing relating thereto;

(b) use the words "government insured" or other similar language representing that reverse cooperative apartment unit loans are insured, supported and sponsored by any governmental entity in any commercial, mailing, advertisement or writing relating thereto; or

(c) represent that any such loan is other than a commercial product.