In a housing cooperative, the building containing the residential units or apartments is owned by a corporation. The cooperative is membership-based. Buyers acquire memberships by purchasing shares in the cooperative, in other words, becoming a shareholder in the cooperative. Each shareholder is granted the right to occupy one housing unit (similar to a long term lease).
A unique feature of a cooperative is the process of screening and selecting done by elected representatives, to determine who may live in the cooperative. The buyers usually have to disclose all of their finances and the debt to income restriction is usually around 25-30%. The members/shareholders of the cooperative are governed by the corporation’s article of incorporation and bylaws as well as any occupancy agreements. Each shareholder in a co-op does not own real estate (as in the case of a condo owner), but owns rather a share of the legal entity that owns the real estate, along with the right to occupy a housing unit. Members can be elected to serve on the board of director of the cooperative.
A co-op housing unit generally costs less than an equivalent condo unit.
Since the cooperative holds title to all the property and housing structures, it bears all the costs of maintaining, repairing and replacing them (very similar to a landlord in a rental property), as well as paying the property tax. The costs are then passed on to the members through a monthly fee. The individual members enjoy the benefit of having a substantial part of maintenance done by the cooperative. Because all residents are carefully screened, it is unlikely that the residents will neglect their monthly fee.
In terms of financing, there are generally a few issues related to cooperatives. It is difficult for buyer to borrow money to purchase a share of the co-op because the security for the loans would be the share in the corporation (versus the actual real estate in the case of a condo). Most co-ops have a relationship with a few approved lenders who will finance sales. Most importantly, most co-op owners cannot get a home equity loan or line of credit.
If you have questions about buying or selling a cooperative building unit please call us at 617-249-4358. We are happy to help discuss your options and recommend lenders who can assist as well.
