New York Times: How to Extract Equity Out of a Co-op

Seniors do have the ability to extract home equity out of a co-op, though there could be limits on the manner in which they may go about it, as well as the amount of equity that can be extracted. This is according to a column at the New York Times, featuring the perspective of a real estate journalist in answering a question posed by a concerned senior.

“I own a co-op in Brooklyn that’s worth about $450,000. I would like to take some equity out of the apartment for other uses, but my options seem limited,” the question reads. “Reverse mortgages are not allowed in co-ops. I am a senior and worry that I would not qualify for a home equity line of credit (HELOC) because of my age. And I do not want a mortgage. What are my options?”

Age is not a factor in terms of restrictive elements for those seeking to extract equity out of a co-op through either a mortgage or a HELOC, according to New York Times real estate journalist Ronda Kaysen.

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“But your co-op might have some restrictions on how much you can borrow,” she says. “Like banks, co-ops set rules about how much shareholders can borrow, often tying the loan to the value of the apartment and your debt-to-income ratio. But, most co-ops do allow cash-out refinances or HELOCs.”

A good place to start for an inquiring senior is a conversation with the co-op’s managing agent about what specific rules govern the use of loans on the property, according to Mark A. Hakim, a real estate lawyer with the Manhattan law firm Schwartz Sladkus Reich Greenberg Atlas.

“Most managing agents will assist the shareholder with the process and provide guidance,” said Hakim to the New York Times. Regardless of whether or not an initial conversation with the managing agent is had, though, the co-op board will need to be informed about any new loan or risk defaulting on your proprietary lease, Kaysen says.

Lending organizations do not typically offer reverse mortgages on co-ops, Kaysen writes, because a co-op is not considered “real property” because of the ownership structure being far more in line with owning shares of a corporation.

“Because of those complications and because co-ops are so unique to the New York marketplace, banks don’t allow reverse mortgages,” said Zack Tolmie, a home-lending officer at Citibank to the New York Times.

The issue of reverse mortgages on co-ops was recently deliberated in the state of New York, and a bill that would have allowed them was passed in the state assembly before being ultimately vetoed by Governor Andrew Cuomo in January. Cuomo cited insufficient protections for seniors in the bill as the primary cause of his veto.

Read the story at the New York Times.

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  • Lenders should allow borrowers to take out a loan based on the value of the combination of the value of the shares and the unit to which the stock is attached. Under law, the type of property for lending purposes is personal property.

    As it currently stand, lenders offer different terms for different types of personal property. For example, the rates and terms on pledging receivables are different from the rates and terms offered on personally owned cars and trucks which are different from personal lines of credit. We know that lenders already lend on coops. Yet reverse mortgages for coops are far too risky to expect that any lender will offer them on the same terms and rates as single family residences. Coops are personal property since they are NOT what is owned by the stockholder and the control of the COA is much greater than most HOAs .

    This is a rare statement from me but Governor Cuomo did the right thing by vetoing the passed legislation yet based on the wrong rationale.

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