FAQ's about Cooperatives:Thinking of buying a cooperatively owned house or apartment? If you are, you may have noticed that housing co-ops are a bit different than other types of homeownership. Here's what's involved: What is a housing cooperative?A housing cooperative is formed when people join with each other on a democratic basis to own or control the housing and/or related community facilities in which they live. Usually they do this by forming a not-for-profit cooperative corporation. Each month they simply pay an amount that covers their share of the operating expenses of their cooperative corporation. Personal income tax deductions, lower turnover rates, lower real estate tax assessments (in some local areas), controlled maintenance costs, and resident participation and control are some of the benefits of choosing cooperative homeownership. Fact: Nearly 80 percent of all housing cooperatives are located in New York. For more information click here. What do I actually own?The main distinction between a housing co-op and other forms of homeownership is that in a housing co-op you don't directly own real estate. But if you don't own real estate, what exactly are you buying? You are buying shares or a membership in a cooperative housing corporation. The corporation owns or leases all real estate. As part of your membership (being a shareholder) in the cooperative you have an exclusive right to live in a specific unit (this is established thorough a occupancy agreement or proprietary lease) for as long as you want, as long as you don't break any of the rules or regulations of the cooperative. As part of your membership, you also have a vote in the affairs of the corporation. What are the steps I need to take to buy?1. Once you have decided you are interested in purchasing, contact the seller’s representative, Whitney Blessing, or seek your own representation. 2. Make an offer to the seller by submitting a purchase agreement and an earnest money check. Please note that your offer is “subject to the approval of the co-op board.” You may also begin to fill out the co-op membership application and begin gathering the appropriate documents that accompany it at this time. 3. If you need to borrow money to pay for the cost of the unit, you will need what is called a "share loan,” similar to a mortgage. Few lending institutions provide this kind of funding, but 2309 Grand recommends speaking with Andrea Wilkin, a loan specialist with National Cooperative Bank (NCB) at1-866-622-6446 Ext. 3428 for pre-approval on a share loan. *Note: 5% minimum down payment is required. 4. The lender provides you with a Good Faith Estimate/rate sheet/pre-qualification letter and information regarding loan and closing costs. All of this is provided to you free of charge. 5. When the seller accepts your offer, you will receive the Owner’s Guide, which will include financial disclosure documents, articles and bylaws pertaining to the co-op, and recent minutes from meetings held by the co-op board and its members. You have a 10-day opportunity from the time you receive the disclosures to review them and rescind your offer in writing if you choose. 6. Once your offer has been accepted, you must also apply to become a shareholder of the co-op by submitting an application to 2309 Grand Co-op along with a $100 nonrefundable check made payable to: 2309 Grand Associates Cooperative which is used to obtain a credit report and background check. A blue-ink signed copy of Frequently Asked Questions—Buyers and the General Consent Form must also accompany your application. Your application must be complete before it is turned over to 2309 Grand Associates for consideration. 7. Once you have submitted your application to the co-op, an interview will take place between yourself and the Sales Review Committee of the co-op. A second appointment is set in which the co-op board will then vote to approve or deny your membership request. 8. Once you have been accepted by the co-op, you will submit your loan application and application fee to the lender. Final approval of your loan can take 2-5 working days. A closing time will be established. 9. The closing is attended by the seller and/or representative, buyer(s), lender, designated co-op board member and closing agent. 10. Congratulations! You are the proud owner of your new co-op home! Click here for a printable version. Why is living in a cooperative better than renting?Lower monthly costs. Because cooperatives operate at cost, cooperative carrying charges are often 15 to 25 percent or more below rental market value. Tax deductions. For income tax purposes, cooperative members are considered homeowners. As such, they can deduct their share of real estate taxes and mortgage interest paid by the cooperative, in addition to interest paid on their share loan. Home equity. In a market equity or limited equity cooperative, members can accumulate equity in their dwelling unit. Limited liability. Cooperative members have no personal liability, and need not individually qualify on the cooperative blanket mortgage. The cooperative corporation is responsible for paying the blanket mortgage. This arrangement enables persons who normally don’t qualify for an individual mortgage to buy a membership in a cooperative. Overall savings. Cooperative members benefit from economies of scale inherent in cooperative operating costs, as well as participation in a non-profit enterprise. Bulk purchasing of major building improvements provide members with substantial savings. In a low-income setting, cost-sharing among members cushions the economic shock of emergency repairs that sometimes lead to mortgage delinquency or foreclosure for single-family homeowners. Community building. Cooperatives provide homes for members, and build a community within the cooperative as well. Security. Tenure is secure, within the guidelines of the law, cooperative bylaws, and occupancy agreements.
What can I do as a member of a cooperative?A housing cooperative is a legal corporation. Members of the cooperative live in the cooperative and run the cooperative—from organizing social activities, to sitting on committees, to maintenance, to handling finances, and doing the landscaping. Members set the bylaws and elect a board of directors from among resident-members. The board ensures that the cooperative is run in accordance with the cooperative’s bylaws and operating agreements. The board organizes a membership meeting at least annually, and arranges for staff to run the day-to-day business of the cooperative. For additional information about membership benefits and expectations, click here.
Do I get a mortgage to buy a cooperative?You will not need a mortgage. If you need financing to buy a co-op, you will need what is called a "share loan." A share loan is similar to a home mortgage. The difference is the collateral. The collateral for a single-family or condominium mortgage is the fee simple real estate. In a housing cooperative, the collateral is the cooperative "share" interest (certificate of membership or corporate shares). This cooperative interest gives you an exclusive right to occupy a particular dwelling unit in perpetuity (occupancy agreement or proprietary lease).
How do I accumulate equity?Good question. It actually depends on what type of cooperative you are buying into. 2309 Grand Associates Cooperative is a "market rate" housing cooperative. In a market-rate cooperative you can buy or sell a membership or shares at whatever price the market will bear. Purchase prices and equity accumulation are very similar to condominium or single-family ownership. What are the monthly association dues?The monthly dues cover your proportionate share of operating and maintaining the cooperative, which can include blanket mortgage payments, property taxes, management fees, maintenance costs, insurance premiums, utilities, and contributions to reserve funds.
Do I pay property taxes?Taxes are assessed on the cooperative corporation, as owner of the property. Your monthly payments to the co-op are, in part, used by the co-op to pay the real estate taxes. Even though you don't pay real estate taxes directly, federal tax law allows you to deduct your share of the co-op tax payments, as well as your mortgage interest payments, on your personal income tax return.
Are cooperatives allowed to discriminate?Like any other form of housing, cooperatives may not discriminate based on the protected classes listed in the Fair Housing Act, which includes race, color, religion, sex, familial status, national origin, or disability. Historically, the basic cooperative principles include both open membership without restriction as provided by law and non-partisan in politics and non-sectarian in religion. However, many co-ops are selective in approving memberships. As communities of people who share a financial obligation and responsibility for governing how they want to live together, it is important for co-ops to ensure that incoming members can meet their financial obligation and will abide by the rules of the community. What questions should I ask before buying into a cooperative?Remember, since you are buying a share of a corporation that owns real estate, you will want to find out about the financial health of the corporation. You will also want a clear understanding of what your financial obligations to the cooperative will be. Be sure to find out what all the rules and regulations of the community are. Here are some sample questions to ask before making your investment: What is the share price? Confused on any of these terms? Check out our glossary. Also, to understand your rights and responsibilities as a co-op resident, visit www.CoopHousing.org or www.CoopLiving.coop. If you have any legal questions about co-ops, you should be sure to consult an attorney. |