Can You Actually Get a Reverse Mortgage on a Co-Op? (w/Examples) + FAQs

Yes, but only in New York State, and not through the common federally insured program. For decades, a fundamental conflict in property law blocked co-op owners from this financial tool. Federal Housing Administration (FHA) regulations for its Home Equity Conversion Mortgage (HECM) program require the loan to be secured by real property—something you get a deed for, like a house or a condo.

A co-op owner, however, doesn’t own real property; they own shares of stock in a corporation that owns the building, which is legally considered personal property. This distinction made co-ops ineligible for the nation’s primary reverse mortgage program, effectively locking out a huge number of senior homeowners, particularly in New York City where about 75% of residential buildings are cooperatives. A state-level legislative fix was required to create a brand-new path.

This article breaks down exactly how this new system works. You will learn:

🏠 The critical legal difference between a co-op and a condo that created this problem.
📜 How New York Banking Law § 6-O*2 created a unique, state-regulated solution.
🤝 The non-negotiable role of your co-op board and the crucial “Recognition Agreement.”
💰 The step-by-step process for getting a co-op reverse mortgage, from counseling to closing.
⚖️ The pros, cons, and major risks you must understand before considering this path.

The Great Divide: Why Co-ops Were Left Out in the Cold

To understand the solution, you first have to grasp the problem’s core. The entire U.S. mortgage system is built on a specific definition of homeownership. This definition has historically left co-op shareholders on the outside looking in, unable to access the most common type of reverse mortgage available to millions of other American seniors.

What You Actually Own in a Co-op vs. a Condo

When you buy a condominium, you receive a deed to your specific apartment. This makes you the owner of “real property,” just like someone who owns a freestanding house. This deed is a powerful document that can be easily used as collateral to secure a federally insured mortgage from the FHA.

Owning a co-op is fundamentally different. You are not buying your apartment; you are buying shares of stock in a private corporation that owns the entire building. Your right to live in your unit comes from a “proprietary lease,” which is tied to your shares. Legally, these shares are considered “personal property,” like owning stock in Apple or Ford, not real estate.

This distinction is everything. Because you don’t have a deed to real property, you cannot get a standard mortgage. Instead, you get a “share loan”. This unique structure is the precise reason co-ops were, for decades, incompatible with the federal government’s reverse mortgage framework.

The Federal Wall: Why HUD’s HECM Program Says “No”

The most common reverse mortgage in the U.S. is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA), an agency under the Department of Housing and Urban Development (HUD). A bedrock rule for the HECM program is that the loan must be secured by real property. Since co-op shares are personal property, they are automatically disqualified.

For over 16 years, advocacy groups like the National Association of Housing Cooperatives (NAHC) and the Council of New York Cooperatives and Condominiums (CNYC) lobbied HUD to change this. Even though Congress gave HUD the authority to include co-ops back in 2008, the agency never created the necessary regulations to do so. This federal inaction created a major problem for seniors in co-op-heavy markets like New York City, forcing them to sell and move when they needed to access their home’s equity.

New York’s Workaround: A State-Level Solution Emerges

With the federal path blocked, New York State stepped in. Lawmakers created a completely separate system, bypassing HUD and the HECM program entirely. This resulted in a new category of loan product designed from the ground up to work with the unique legal structure of cooperative ownership.

The Law That Changed Everything: New York Banking Law § 6-O*2

On December 1, 2021, a new law authorized “Reverse Cooperative Apartment Unit Loans” in New York, taking effect on May 30, 2022. These are proprietary reverse mortgages, meaning they are private loans offered by lenders and governed exclusively by the New York State Department of Financial Services (DFS), not the federal government.

This law is not just a copy of the federal rules. It has several unique features and powerful consumer protections built specifically for co-op shareholders.

One of the most powerful protections in the New York law is a “complete defense” clause. It states that a lender’s failure to comply with any provision of the new law gives the borrower a complete defense against a foreclosure action. This gives shareholders significant leverage to ensure lenders follow the rules precisely.

Who Offers These New Loans?

With the legal framework in place, a small group of private lenders began offering these specialized loans. Key players in this new market include Nationwide Equities, MortgageDepot, and CrossCountry Mortgage. These are not federally insured products, so each lender develops its own terms and features within the boundaries of New York law.

For example, Nationwide Equities markets its product as “EquityPower”. A major advantage of these proprietary loans is the absence of the FHA’s Mortgage Insurance Premium (MIP), a significant upfront and ongoing cost for all HECM loans. This can make the New York co-op loan a less expensive option over the long term.

The Three Key Players: Shareholder, Board, and Lender

Getting a reverse mortgage on a co-op is a team sport where every player has a critical role. Unlike buying a house, this process involves a third major decision-maker: your co-op’s board of directors. Their approval is not a rubber stamp; it is a legal requirement and often the biggest hurdle in the entire process.

Your Role as the Shareholder

As the person seeking the loan, you must meet a clear set of criteria. You must be at least 62 years old, the co-op must be your primary residence, and you must have significant equity in your unit. You also have to complete a mandatory counseling session with a HUD-approved counselor who is specifically trained in cooperative housing.

This counseling is a critical protection. The counselor is an independent third party whose job is to make sure you understand the loan’s terms, costs, and risks before you even apply. They will discuss your financial goals and explain how compounding interest will eat away at your equity over time.

The Board’s Role as the Gatekeeper

The co-op board’s approval is legally required under New York law. Board members have a fiduciary duty to act in the best financial interest of the cooperative corporation as a whole—meaning all of your neighbors. Their main job is to protect the building from the risk that a shareholder might default on their monthly maintenance payments.

A common fear is that a shareholder will take a large lump-sum payment, spend it, and then be unable to pay their maintenance fees. This would create a financial hole that all other shareholders would have to cover. To prevent this, many boards establish their own policies, such as capping the loan-to-value (LTV) ratio at 50% or 60%, ensuring the shareholder always maintains a large equity cushion.

The Lender’s Role as the Funder

The lender provides the money but also needs to protect its investment. Since they are lending against personal property (shares) instead of real property, they rely on a critical legal document to secure their loan. This document bridges the gap between the lender’s needs and the co-op board’s authority.

The Linchpin Document: Understanding the Recognition Agreement

The entire transaction hinges on a three-party contract called a Recognition Agreement, often referred to by the brand name of the company that created the standard form, “Aztech”. This document is signed by you (the shareholder), the lender, and the co-op corporation. It is a carefully negotiated treaty that defines everyone’s rights and responsibilities.

Here’s what the key clauses of a Recognition Agreement do:

It Confirms Your Ownership: The co-op board officially certifies to the lender that you are the owner of the shares and are in good standing (i.e., you’ve paid your maintenance).
It Gives the Lender a “Right to Cure”: The co-op agrees to notify the lender if you fall behind on your maintenance payments. This gives the lender the option to pay the maintenance on your behalf to prevent the co-op from foreclosing on you, which protects the lender’s collateral.
It Establishes the Co-op’s Superior Lien: The agreement makes it crystal clear that if there is a foreclosure, the co-op gets paid back all of its unpaid maintenance and fees before the lender gets a single penny. This is a non-negotiable protection for the cooperative.
It Preserves the Board’s Power: The lender agrees that if it forecloses, it cannot just sell the apartment to anyone. Any new owner must be approved by the co-op board, preserving the board’s fundamental right to choose who lives in the building.

This document is what makes a co-op reverse mortgage possible. It creates a legal framework where the lender feels secure enough to lend, while the co-op board retains its financial priority and control over the building.

Real-World Scenarios: How It Plays Out

Abstract rules can be confusing. Let’s look at three common scenarios to see how a co-op reverse mortgage works for real people, boards, and families.

Scenario 1: Supplementing Retirement Income

Eleanor, a 78-year-old retired teacher, owns her Riverdale co-op outright, valued at $600,000. Her fixed income is tight due to rising maintenance fees and healthcare costs. She wants to stay in her home but needs more cash flow.

Eleanor’s Choice	Financial Outcome
Completes mandatory counseling to understand the risks.	Gains a clear picture of how interest will reduce her equity but confirms the loan meets her needs.
Applies for a “tenure” payment option.	Receives a steady, tax-free monthly payment for as long as she lives in the apartment.
Uses the funds to cover her maintenance and other bills.	Eliminates her primary financial stress and can comfortably age in place in her community.
Passes away after 10 years.	The loan balance, including accrued interest, is now due. Her heirs must repay the loan to keep the apartment.

Scenario 2: The Co-op Board’s First Request

A 50-unit co-op board in Park Slope receives its first-ever reverse mortgage application. The members are nervous, worried about the potential risks to the building’s finances.

Board’s Action	Cooperative’s Protection
Consults with the co-op’s attorney.	Understands its fiduciary duty is to protect all shareholders, not just the applicant.
Reviews the shareholder’s finances.	Confirms the shareholder is in good standing but identifies the risk of a lump-sum payout being mismanaged.
Establishes a building-wide policy.	Sets a maximum loan-to-value (LTV) ratio of 50% for all reverse mortgages to ensure a large equity cushion remains.
Approves the loan with the LTV condition.	The shareholder gets the needed funds, but the co-op is protected from a high-risk loan that could harm the building.

Scenario 3: The Heirs’ Inheritance Dilemma

John took out a reverse mortgage and has now passed away. The loan balance, with compounded interest, is $350,000. The apartment is now worth $500,000. His two children inherit the shares and the debt.

Heirs’ Decision	Result for the Estate
Option 1: Repay the Loan. The children use other assets or get their own loan to pay the $350,000 balance.	They satisfy the debt and now own the co-op shares free and clear, with $500,000 in equity.
Option 2: Sell the Apartment. The children sell the co-op for $500,000.	The first $350,000 from the sale goes to the lender to pay off the loan. The remaining $150,000 is their tax-free inheritance.
Option 3: Walk Away. The children do nothing and sign a “deed in lieu of foreclosure.”	The lender takes ownership of the shares (subject to board approval for a new buyer) to satisfy the debt. The heirs receive nothing.

A critical feature of these loans is that they are non-recourse. This means that if the loan balance grew to be more than the apartment’s value (e.g., $550,000 loan on a $500,000 apartment), the heirs would not have to pay the $50,000 difference. The lender must accept the proceeds from the sale as full payment.

The Step-by-Step Process: Your Path to a Co-op Reverse Mortgage

Navigating the approval process requires patience and organization. It involves multiple steps, each with its own requirements and timeline. Here is a detailed breakdown of the journey from start to finish.

Step 1: Mandatory Counseling

You cannot begin an application until you complete a counseling session with an independent, HUD-approved agency specifically trained for New York co-op loans.

What Happens: A counselor will spend about 45-90 minutes with you on the phone or in person. They will review your finances, discuss your goals, explain the loan’s features, and talk about alternatives.
The Outcome: You will receive a counseling certificate. This certificate is required by the lender and is typically valid for six months.
Cost: There is a fee for this session, which is one of the upfront, out-of-pocket costs you must pay.

Step 2: Application and Lender’s Financial Assessment

With your counseling certificate in hand, you can now formally apply with a lender like Nationwide Equities or MortgageDepot.

What Happens: You will fill out a detailed application and provide financial documents. The lender will conduct a financial assessment to ensure you have enough income and assets to continue paying your essential, ongoing homeownership costs.
Key Obligation Check: The lender’s primary goal here is to verify your ability to pay your monthly co-op maintenance fees, property taxes, and homeowner’s insurance. Failure to pay these is a leading cause of default.
Upfront Costs: At this stage, you will likely have to pay for the apartment appraisal and a credit report fee.

Step 3: Choosing Your Payout

If the lender approves your application, you must decide how you want to receive your money. New York law provides four distinct options.

Single Lump Sum: You receive all the available loan proceeds in one payment at closing. This is often discouraged by co-op boards due to the risk of mismanagement.
Line of Credit: You can draw funds as needed, up to your approved limit. You only accrue interest on the money you actually use. This is a flexible option for covering unexpected expenses.
Term Payment: You receive equal monthly payments for a fixed period that you choose (e.g., 10 years).
Tenure Payment: You receive equal monthly payments for as long as you live in the apartment as your primary residence. This is a popular choice for supplementing a fixed income.

Step 4: Co-op Board Review and Approval

This is the most unique and often the most challenging step. You must formally submit your application to your co-op’s board of directors for their approval.

What Happens: The process is very similar to getting approval for a regular refinancing. You will submit a package with your financial information, the loan details, and likely the lender’s commitment letter.
The Board’s Scrutiny: The board will review your ability to continue paying maintenance. They may have pre-existing policies on reverse mortgages or create them in response to your request. They have the right to set a maximum LTV ratio or deny the application if they believe it poses an undue risk to the cooperative.
The Outcome: If the board approves, they will signal their willingness to sign the Recognition Agreement with your lender.

Step 5: Closing the Loan

Once the lender and the board have both approved the loan, you can proceed to closing.

What Happens: You, a representative from the lender, and a representative from the co-op board will sign all the final documents, including the loan note and the critical Recognition Agreement.
Right to Cancel: New York law gives you a three-day “cooling-off” period after closing during which you can cancel the loan for any reason.
Receiving Funds: After the three-day period expires, your loan is officially funded, and you will receive your money according to the payout option you selected.

Mistakes to Avoid: Common Pitfalls and Their Consequences

The path to a co-op reverse mortgage is filled with potential missteps. Being aware of these common errors can save you time, money, and immense frustration.

Mistake 1: Forgetting Your Ongoing Costs. Many people mistakenly believe a reverse mortgage means no more housing payments. While you don’t have a monthly mortgage payment, you are still absolutely required to pay your co-op maintenance fees, property taxes, and homeowner’s insurance.
- Consequence: Failure to pay these is a default on your loan. The lender can and will foreclose, and you could lose your home.
Mistake 2: Not Talking to Your Heirs. A reverse mortgage directly impacts what, if anything, your children or other heirs will inherit. The loan is designed to use up the equity in your home.
- Consequence: Your heirs will be surprised and potentially burdened with a large debt upon your passing. They will be forced to either sell the apartment or come up with a large sum of money to pay off the loan if they wish to keep it.
Mistake 3: Assuming Your Board Will Say Yes. Board approval is not guaranteed. Boards are often conservative and may be unfamiliar with these new loans. They have a legal duty to protect the entire building’s financial health.
- Consequence: You could spend hundreds of dollars on appraisal and counseling fees only to have your board deny the application, stopping the process dead in its tracks. It is wise to have an informal conversation with your board president before spending any money.
Mistake 4: Misunderstanding the “Non-Recourse” Feature. The non-recourse feature protects your heirs from owing more than the home is worth. It does not protect you from foreclosure if you default on your obligations while you are alive.
- Consequence: If you stop paying your maintenance fees, the lender can foreclose. The non-recourse protection only applies to the final settlement of the loan after a maturity event like death or moving out.

Pros and Cons: A Balanced View

A co-op reverse mortgage can be a financial lifeline for some and a disaster for others. It is essential to weigh the benefits against the significant drawbacks.

Pros	Cons
✅ Provides Tax-Free Cash: The money you receive is not considered income and does not affect Social Security or Medicare benefits.	❌ Rapidly Depletes Equity: Compounding interest causes the loan balance to grow quickly, often leaving little to no value for you or your heirs.
✅ No Monthly Mortgage Payments: This frees up significant cash flow, making it easier to manage a fixed retirement income.	❌ High Upfront Costs: Origination fees, closing costs, and appraisal fees can be substantial, though they are often rolled into the loan balance.
✅ Allows You to Age in Place: It can provide the necessary funds to stay in a beloved home and community instead of being forced to sell.	❌ Strict Occupancy Rules: You must live in the unit as your primary residence. If you move into a nursing home for more than 12 consecutive months, the loan becomes due.
✅ Non-Recourse Protection for Heirs: Your estate will never owe more than the value of the apartment when it is sold to repay the loan.	❌ Risk of Foreclosure: You can still lose your home if you fail to pay your maintenance fees, property taxes, or insurance.
✅ No FHA Mortgage Insurance: Unlike federal HECM loans, these proprietary NY loans do not have the costly FHA mortgage insurance premium.	❌ Complicated and Irreversible: The process is complex, and once you’ve used your equity, it’s gone. It can limit your future options if you need to sell for other reasons.

Do’s and Don’ts for Co-op Shareholders

Navigating this process requires careful planning. Here are five key do’s and don’ts to guide you.

Do’s

Do Speak with Your Board Early. Have an informal conversation with your board president or managing agent before you spend any money. Find out if they have a policy or any initial concerns.
Do Take Counseling Seriously. This is not a box to check. Prepare questions for your counselor about your specific situation, your fears, and your goals.
Do Involve Your Family. Talk to your children or potential heirs about your plans. A reverse mortgage is an estate-planning decision that affects them directly.
Do Get Everything in Writing. From the lender’s cost estimates to the board’s approval conditions, ensure every important detail is documented.
Do Plan for Ongoing Costs. Create a detailed budget that proves you can comfortably pay your maintenance, taxes, and insurance for the foreseeable future. This will be crucial for both the lender’s and the board’s approval.

Don’ts

Don’t Rush the Decision. These loans are complex and have long-term consequences. The law provides a 3-day cooling-off period after application and another 3 days after closing for a reason. Use that time.
Don’t Assume It’s Your Only Option. Explore alternatives like a traditional share equity line of credit (if you can handle monthly payments) or, in some cases, downsizing by selling the unit.
Don’t Ignore the Fine Print. Read every line of the loan agreement and the Recognition Agreement. Pay special attention to the default triggers—the things that can cause your loan to become due immediately.
Don’t Work with Unapproved Lenders or Counselors. Only use lenders authorized by the NYS Department of Financial Services and counselors on HUD’s approved list for co-ops.
Don’t Forget About Inflation. Your fixed monthly tenure payment may seem adequate today, but rising co-op maintenance fees could easily outpace it in the future, putting you back in a financial squeeze.

Frequently Asked Questions (FAQs)

Can my co-op board just say no? Yes. The board has a fiduciary duty to protect the co-op’s financial interests. It can deny an application based on its risk assessment, as long as the reason is not discriminatory.

Will this affect my Social Security or Medicare? No. The proceeds from a reverse mortgage are considered a loan, not income. Therefore, they generally do not affect your eligibility for Social Security or Medicare benefits.

What happens if my spouse is not 62 yet? This is complex. Unlike the federal HECM program, which has specific protections for non-borrowing spouses, the rules for New York’s proprietary loans may vary by lender. This is a critical question for your counselor and lender.

How much money can I actually get? It depends on your age, the apartment’s appraised value, and current interest rates. Lenders and boards often cap the loan at 40-60% of the unit’s value to ensure you maintain a significant equity cushion.

Can I get a reverse mortgage if I still have a small share loan? Yes. You can use the proceeds from the reverse mortgage to pay off your existing share loan first. The remaining funds are then available to you according to your chosen payout option.

Are the interest rates fixed or variable? It depends on the lender and the payout option you choose. Lump-sum payouts may have a fixed rate, while lines of credit and monthly payments typically have adjustable rates that can change over time.

What are the upfront, out-of-pocket costs? You will likely have to pay for the mandatory counseling session and the apartment appraisal fee before the loan closes. Other costs, like origination fees, are usually rolled into the loan balance.