REVERSE MORTGAGES AND CO-OPS

A new law permitting reverse cooperative apartment unit loans for persons seventy years of age or older was signed by the Governor on December 1, 2021 to be effective in 180 days therein:

"BILL NUMBER: S760

SPONSOR: BIAGGI
 
TITLE OF BILL:

An act to amend the banking law, the uniform commercial code and the
civil practice law and rules, in relation to reverse cooperative apart-
ment unit loans

 
PURPOSE:

This bill would give owners of co-op apartments who are over the age of
62 the ability to obtain reverse mortgages on their cooperative apart-
ment unit loans.

 
SUMMARY OF PROVISIONS:

Section 1 amends the banking law by adding a new section, 6-n providing
definitions for reverse cooperative apartment unit loan, loan payout
options, authorized lender, borrower, superintendent, department, and
third-party contact.

Subsection 2 of section 1 states what the cooperative apartment unit
loan would be subject to.

Subsection 3 of section 1 explains what a reverse cooperative apartment
unit loan may do.

Subsection 4 of section 1 states that the superintendent shall adopt the
rules and regulations as it considers appropriate to govern reverse
cooperative apartment unit loan if it conforms to the requirements of
the section, and explains the requirements to authorize a reverse coop-
erative apartment unit loan.

Subsection 5 of section 1 prohibits authorized lenders from any unfair
or deceptive practices when marketing or offering reverse cooperative
unit loans, including using language "public service announcement," or
"government insured," or any similar language; nor can they represent
the loan as anything other than a commercial product.

Subsection 6 of section 1 requires authorized lenders to include supple-
mental consumer protection materials deemed appropriate by the super-
intendent alongside any solicitation for reverse cooperative unit loan
products mailed to a physical address within the state.  Lenders are
also required to provide applicants or potential applicants with the
telephone number and website (HUD).

Subsection 7 of section 1 requires authorized lenders and their agents
provide monthly account statements with specified requirements in addi-
tion to notice of information requirements regarding clients home equity
line of credit.

Subsection 8 of section 1 states that upon a lender's determination that
a reverse cooperative apartment unit loan is in default and before a
lender can take up action to foreclose, they must call or visit the
borrower, the lender must provide clear information about the intent of
the call or visit and then wait 30 days after successful contact with
the borrower. Once these steps are taken, the lender may act on the
foreclosure process.
Subsection 9 of section 1 sets the priority of the lien.

Subsection 10 of section 1 states that any other mortgage, deed of
trust, encumbrance or lien filed prior to the effective date of this
section shall not be limited.

Subsection 11 of section 1 if the reverse cooperative unit loan is sold
or transferred to a person other than the original borrower, the reverse
loan shall be terminated.

Subsection 12 of section 1 sets a person's ability to bring an action.

Subsection 13 of section 1 sets conditions for a complete defense.

Section 2 adds a new paragraph 1-a to subsection (f) of section 9-611 of
the uniform commercial code which states that upon default of a reverse
cooperative apartment unit loan, a notice shall be given to the borrower
at least 45 days in advance of an agent disposing of its collateral.

Section 3 adds a new rule 3410 to civil practice law and rules pertain-
ing to face-to-face meetings for foreclosure of reverse cooperative
apartment unit loans.

Section 4 states that the superintendent of financial services shall
convene a working group comprised of industry and consumer represen-
tatives to study the availability of reverse mortgage counselors.

Section 5 sets forth the effective date.

 
JUSTIFICATION:

As of today, HUD continues to deny co-op owners from applying for
reverse cooperative apartment unit loans. With the correct regulations
and liability protection, aging populations should be permitted to
obtain such loans, instead of being forced to relocate from their homes.

With this bill, extended consumer protections will be added to the proc-
ess of acquiring a reverse cooperative apartment unit loan and will
ensure that the elderly community that so desperately wishes to stay in
their homes will be able to do so."

FORECLOSURE - STANDING AND REVERSE MORTGAGES

OneWest Bank, N.A. v FMCDH Realty, Inc,  2018 NY Slip Op 06101, Decided on September 19, 2018, Appellate Division, Second Department:

"Generally, in the context of a motion for summary judgment in an action to foreclose a mortgage, " a plaintiff establishes its prima facie case through the production of the mortgage, the unpaid note, and evidence of default'" (Deutsche Bank Natl. Trust Co. v Brewton, 142 AD3d 683, 684, quoting Plaza Equities, LLC v Lamberti, 118 AD3d 688, 689; see U.S. Bank N.A. v Cruz, 147 AD3d 1103, 1103). When standing is at issue, the plaintiff must also prove its standing in order to be entitled to relief (see Deutsche Bank Natl. Trust Co. v Brewton, 142 AD3d at 684; Aurora Loan Servs., LLC v Taylor, 114 AD3d 627, 628, affd 25 NY3d 355; Wells Fargo Bank Minn., N.A. v Mastropaolo, 42 AD3d 239, 242). A plaintiff has standing in a mortgage foreclosure action when it is the holder or assignee of the underlying note at the time the action is commenced (see Aurora Loan Servs., LLC v Taylor, 25 NY3d at 361; Deutsche Bank Natl. Trust Co. v Brewton, 142 AD3d at 684). "A holder' is the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession'" (Deutsche Bank Natl. Trust Co. v Brewton, 142 AD3d at 684, quoting UCC 1-201[b][21]; see Deutsche Bank Natl. Trust Co. v Webster, 142 AD3d 636, 638; Wells Fargo Bank, NA v Ostiguy, 127 AD3d 1375, 1376). Where the note has been indorsed in blank, the holder must establish its standing by demonstrating that the original note was physically in its possession at the time of the commencement of the action (see Deutsche Bank Natl. Trust Co. v Brewton, 142 AD3d at 685; U.S. Bank, N.A. v Collymore, 68 AD3d 752, 754).

Here, the document referred to by the plaintiff as the note is in fact the 14-page Cash Account Agreement. In support of its motion, the plaintiff, seeking to establish its standing, submitted the affidavit of its assistant secretary, who averred, based upon his review of the plaintiff's business records, that the plaintiff received the original Cash Account Agreement, indorsed in blank, on May 5, 2011, and had it in its possession at the time of the commencement of this action. The plaintiff also submitted proof of the borrower's death, and the default of her estate in repaying the underlying debt (see JPMorgan Chase Bank, N.A. v Weinberger, 142 AD3d 643, 645; Deutsche Bank Natl. Trust Co. v Naughton, 137 AD3d 1199, 1200; HSBC Bank USA, N.A. v Spitzer, 131 AD3d 1206, 1206-1207; Emigrant Mtge. Co., Inc. v Beckerman, 105 AD3d 895, 895).

In opposition, the defendant argued that, in a prior foreclosure action commenced in the Supreme Court, Nassau County, by Financial Freedom Acquisition, LLC, the lender had attempted to establish its standing based on the physical delivery of the Cash Account Agreement, to which an undated allonge, indorsed in blank by an unidentified representative of Freedom Financial and referring specifically to the borrower and the address of the subject premises, was affixed. In support of the instant motion, by contrast, the Cash Account Agreement submitted by the plaintiff did not include the previous allonge, but instead bore a different, undated indorsement in blank signed by Judith Clements, a vice president of Freedom Financial, which referred neither to the subject premises nor to the name of the borrower.

The Supreme Court accepted the prima facie showing made by the plaintiff, disregarding the absence of the prior allonge relied upon by the plaintiff's predecessor in interest in the prior action, and accepting the new indorsement in blank by Judith Clements. Because the plaintiff is seeking to establish standing on the basis that it is a valid holder in due course of the Cash Account Agreement, this Court requested a postargument submission on the threshold question of whether the Cash Account Agreement falls within the definition of a negotiable instrument as [*2]contemplated by section 3-104 of the Uniform Commercial Code.

Upon our review of the record, including the additional postargument submissions received from both sides, we conclude that the Cash Account Agreement does not constitute a negotiable instrument within the meaning of UCC 3-104. Therefore, the plaintiff cannot establish its standing merely by demonstrating that it was in possession of the original Cash Account Agreement, indorsed in blank, at the time the instant action was commenced."

PROPOSED RULES ON REVERSE MORTGAGE FORECLOSURE

Last month, New York Assemblywoman Helene Weinstein (D-Brooklyn) and Senator Jeff Klein (D-Bronx/Westchester) announced the introduction of legislation (A10745/S8177). The bill will provide reverse mortgage homeowners with the consumer protections given to other homeowners currently not included in many of the protections of New York State’s residential foreclosure prevention laws such as notices to reverse mortgage borrowers 90 days in advance of filing a foreclosure action against the homeowner, including a notice containing contact information to free non-profit resources to help negotiate a resolution early in efforts to avert the filing of a foreclosure action and homeowners would also be entitled to in-person mandatory residential foreclosure settlement conferences with the foreclosing entities under court oversight.

See https://www.nysenate.gov/legislation/bills/2015/s8177/amendment/original

THE OTHER SIDE OF REVERSE MORTGAGES

I had several consultations yesterday which demonstrated the down side of these types of loans. This article is from the Consumer Financial Protection Bureau:

http://www.consumerfinance.gov/blog/consumer-advisory-dont-be-misled-by-reverse-mortgage-advertising/

ON REVERSE MORTGAGES AND YOUR HEIRS

A recent article from CNBC (http://www.cnbc.com/2016/03/18/is-a-reverse-mortgage-right-for-you.html) notes:

"But before you rush to take out a reverse mortgage and savor your good fortune, make sure you understand the downsides and potential risks.....As a result, when the owner moves permanently or dies, the equity in the home will have been reduced or even used up. If your heirs are not aware that you are taking out a reverse mortgage and are banking on inheriting the property, it can be a nasty surprise."

And here's the story of one such "nasty surprise":

http://kstp.com/news/forest-lake-family-works-to-reclaim-home-reverse-mortgage/4087762/

ON REVERSE MORTGAGE ADS

From yesterday's release from The Consumer Financial Protection Bureau regarding a study it conducted:

http://www.consumerfinance.gov/blog/consumer-advisory-dont-be-misled-by-reverse-mortgage-advertising/

REVERSE MORTGAGES NOT FOR EVERYONE

And the reason of course is "affordable housing". That's because under the new rules, you’ll now be subject to what’s known as a “financial assessment” — much like what lenders do when sizing up applicants for regular mortgages. Lenders will now review the income, cash flow and credit reports of prospects. You’ll need to prove that you have the “willingness” and “capacity” to continue paying your home’s property taxes and insurance premiums. If the assessment convinces the reverse mortgage lender that you won’t have the cash to make those home-related payments, you may be rejected. That’s because a reverse mortgage borrower who fails to pay property taxes or homeowner’s insurance could be tossed out of the home and the house could then go into foreclosure.

I believe this new rule is a major "point". And yet, it would appear that those involved in marketing reverse mortgages (Home Equity Conversion Mortgage or HECM) downplay this new rule. For example:

http://www.reversemortgageadviser.com/blog/reverse-mortgages/reverse-mortgages/

NEW RULES ON REVERSE MORTGAGES

They go into effect March 2 and will be restrictive - it may no longer be available for some seniors.

Many articles have been written - this one is from The Huffington Post:

http://www.huffingtonpost.com/jack-m-guttentag/after-march-2-reverse-mor_b_6541782.html

TONIGHT CLE ON REVERSE MORTGAGES

At Nassau County Bar Association. For details:

https://www.nassaubar.org/Calendar/Signup.aspx?EventNo=7930

ON REVERSE MORTGAGES

Both of these links should give you some insight - they have their pros and cons:

 

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmhome

http://www.dfs.ny.gov/consumer/reversemortgage.htm

 

CHANGES IN REVERSE MORTGAGES

This took effect in October: many believe although the purpose was to prevent defaults on seniors not paying property taxes, the HECMs (Home Equity Conversion Mortgage) are now costlier, smaller and complicated. Here are some articles that discuss these issues:

http://www.reuters.com/article/2013/09/10/column-miller-mortgages-idUSL2N0H615C20130910

http://www.dailyherald.com/article/20131102/entlife/711029967/

A REVERSE MORTGAGE NIGHTMARE

That is the title of this newspaper article that was referred to me from The Home Equity Theft Reporter Cases & Articles concerning property in Southhampton, New York:

HARTFORD COURANT - A REVERSE MORTGAGE NIGHTMARE

And according to the email I received from The Home Equity Theft Reporter Cases & Articles:

"Reverse mortgages, even today's friendlier versions that offer upfront counseling, can be hazardous to elderly borrowers' financial health and potentially costly for their heirs. Nearly one in 10 federally-backed reverse mortgages is in default, risking foreclosure for owners. Family members need to be involved from Day One. And stay involved."

SIGNIFICANT PENDING CASES RE: REVERSE MORTGAGES

As I mentioned earlier, there was a CLE sponsored by Empire Justice Center on Wednesday regarding reverse mortgages - a product that appears to be heavily promoted once again.

There are two spending cases on reverse mortgages that all should be aware of:

Robert Bennett, et al., vs. Shaun Donovan HUD 703 F.3d 582 (D.C. Cir. 2013) - The right of a Non ‐Borrowing Spouse to assume a FHA reverse mortgage closed solely in the name of a now deceased spouse

Chandler vs. Wells Fargo (U. S. Dist CT ND Cal) - The right of an heir to purchase the property of a now deceased reverse mortgage recipient for the lesser of the loan balance or current market value.

The AARP has also taken an interest in these cases and a discussion, etc. can be found at the AARP
website at:

AARP Foundation Legal Advocacy - Docket Housing

FREE CLE ON REVERSE MORTGAGES

On July 10, the Empire Justice Center will be conducting a webinar "Reverse Mortgages: Facts-Myths-Consequences" Contact them for details.

REVERSE MORTGAGES

Yesterday I attended a CLE on reverse mortgages sponsored by Tradition Title Agency.

A reverse mortgage is actually called a Home Equity Conversion Mortgage (HECM). It is a FHA program and, in my opinion, may not be completely explained in the commercials I see on television. Some basic information about them, the costs, eligibility, etc. can be found at these links which I found to be helpful:

HUD - Frequently Asked Questions about HUD's Reverse Mortgages

WIKI - Reverse mortgages in the United States

Another interesting fact I learned is that not all banks are offering reverse mortgages.