Q&A: Reviewing Reverse Mortgages

Q Does a co-op board have any involvement in an individual building shareholder securing a reverse mortgage?

—Curious Shareholder

A “Yes—a board of directors of a cooperative apartment corporation is involved when a tenant-shareholder secures a reverse mortgage,” says Peter Goodman, a partner at Hartman & Craven LLP, a Manhattan-based law firm specializing in real estate. “A reverse mortgage is similar to a ‘forward’ or conventional mortgage. It is a loan to a tenant-shareholder that is secured by the shares of the cooperative apartment corporation owned by the tenant-shareholder, together with the appurtenant proprietary lease.

“Initially, it must be determined whether the consent of the board of directors is required under the corporation’s proprietary lease and bylaws for the pledge of the shares and the appurtenant lease as security. Even if they do not contain an express consent requirement as a condition of granting the mortgage loan, most lenders will require that the cooperative corporation sign a ‘Recognition Agreement,’ pursuant to which the corporation recognizes the lender’s position and grants the lender certain privileges. Before agreeing to sign the Recognition Agreement, most boards will want to analyze the financial impact of the loan on the tenant-shareholder, regardless of the type of mortgage involved. Thus, a tenant-shareholder will generally be required to deal with the board of directors when obtaining a reverse mortgage.”

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