by Pat Arnow

ucky you. You own a co-op apartment on the Lower East Side that has increased in value like crazy in recent years. You’re rich!

Unlucky you. You live on a small pension in a big, expensive city, and you can’t sell your valuable apartment because that would leave you homeless.

Lucky you. If you are over the age of 62, you can get income from the equity in your apartment through a reverse mortgage. You can receive up to half the value of your apartment, in a tax-free lump sum or spread out in a monthly income. Or you can open up a line of credit and use funds as needed. You’ll be able to stay in your apartment for as long as you wish.

When you and your spouse are deceased, the cost of the reverse mortgage is paid from your estate.

Pat Fay, a Senior Vice President at BNY Mortgage, would like co-op owners on the Lower East Side to consider his company’s reverse mortgages. They are offering free seminars this month to explain how the loans work.

“A borrower can access the equity they have in their apartment,” says Fay. “Use of the money is completely unrestricted.” Most people use the money to pay monthly maintenance charges and for healthcare, says Fay. The funds may also be used to pay off an existing mortgage.

The amount of the loan depends on the value of the apartment and the age of the owners. “A rough rule of thumb, someone who’s 75 years old can borrow half the value of the apartment,” says Fay. At age 62, only about 35 percent of the equity might be loaned.

There are fees and an interest. BNY’s interest is prime rate plus 0.99 percent. There is also a fee of 1 percent of the value of the apartment and other one-time costs (about $2,000). Those fees are high, but they come from the loan, not out-ofpocket, for the cooperator. One reason they are high is that they include insurance, says Fay.

Spouses are protected, too. “If one spouse predeceases, the monthly payment continues on until the other ceases to occupy the property,” says Fay. However, at least one owner must remain in the co-op as the primary residence. The rules allow time away, say for a stay in a nursing home or with children to recover from illness, but only for up to one year.

Even with the loan, it is possible for parents to leave their apartments to their children. When the borrower dies, “Our loan becomes due, and the heirs can either pay the loan off by selling or refinancing.” Since the reverse mortgage won’t be for the entire equity in the apartment, the children should still come out ahead.

The co-op board must approve such loans. Borrowers must also take independent third-party counseling by an agency or nonprofit such as ACORN (the community organization). That can be done by phone. BNY can come to the owner’s coop to arrange the loan, so the cooperator doesn’t have to leave home at all.

Fay is worried about three misconceptions about reverse mortgages:

“People are under the impression that, because it’s a co-op, when you take out a reverse mortgage, the bank takes over the lease. But no, the stock in the lease remains in the name of the owner. They still have the tax deduction and voting rights.” (The company does take possession of the stock lease, which, he says, is standard in any mortgage.)

The second misconception is that if you get a monthly payment, eventually you’ll be getting more than the value of the apartment and the company will take the apartment away. “That’s not true,” says Fay. “There’s no default or call provision or foreclosure. That’s a risk we take as lenders.”

When a loan becomes due, after the owner dies or leaves for more than a year, “in the event we have to sell the apartment, we are only entitled to the principal balance plus accrued interest on the loan,” says Fay. If the apartment is no longer worth that much (or as Fay puts it, “If real estate values went to hell in a hand basket”), the heirs would not have to pay anything to the company. “In no circumstance can a borrower or their heirs ever owe more than the value of the apartment.”

In fact, “In a downward market, the family wins because they’re protected by the non-recourse provision,” says Fay. “In an upward market, the family wins because they get the appreciation of the apartment.”

The third misconception evokes the bad old 1980s. “The insurance companies made very attractive loans to seniors, which appeared very good on the surface.” There were some bad deals for the elderly. “Today, because of classaction lawsuits and tighter regulations, a loan program [like that] would never fly.” He adds, “We have reserves that are mandated by our regulator, the Office of Thrift Supervision.”

BNY will be presenting free seminars about reverse mortgages for coop owners at Abrons Art Center at 466 Grand St. Wednesday, November 28 from 2:00 to 4:00 and again at 6:00 to 8:00. A hot meal will be provided.