Why co-ops differ from condos and traditional residential properties.
Contrary to what many people believe, there are significant differences between cooperatives (also known as co-ops) and condominiums. These differences can be very significant, whether you are buying or selling.
HISTORY OF NEW YORK COOPERATIVES
Cooperatives have been a feature of New York real estate since the late 1800s. In fact, there may be more cooperative buildings in New York than in any other place in the United States. Understanding what a cooperative is and how it works can help you avoid legal problems.
SIGNIFICANT DIFFERENCES BETWEEN CO-OPS AND CONDOS
When you purchase a condominium, you are actually purchasing real estate. With a cooperative, you are purchasing shares in a company and do not actually own any real estate. In fact, your unit in co-op is basically a leased unit. Those who wish to sell a unit in a co-op must first have the new owner approved by all participants in the co-op.
When you purchase a condominium, you typically apply for a mortgage and purchase your unit. With a co-op, the company or association that owns the real estate applies for mortgages based on the entire property. Individual co-op owners either purchase their share in cash, or in some cases may be able to obtain financing through the co-op.
CO-OP TAXES AND MORTGAGE INTEREST
Those who own shares in a co-op are entitled to typical real estate tax and mortgage deductions of the entire cooperative. Typically, taxes and interest are divided up between the lessors of the individual units. In this case, the shareholder is advised of his or her proportionate share of property taxes and underlying mortgage notes.
FEES ASSOCIATED WITH CO-OPS
In most cases, the monthly fees in a co-op are significantly higher than they would be in a condominium. Primarily, this is a result of different expenses including property taxes and mortgage payments, as well as general assessments for security, insurance and property maintenance including lawn care and general repairs. For those who belong to a co-op, there is a significant advantage when capital improvement projects are voted on by owners; unlike a condominium, co-ops can fund these projects by borrowing funds.
SELLING CO-OP INTERESTS
Those who participate in a co-op have what are called “lease rights.” Typically, this means lower settlement costs because it is a transfer of shares and not a transfer of real estate. The downside, of course, is that within the law all co-op owners have the right to reject a potential tenant. Co-op owners can deny a sale if they feel a buyer will be unable to make payments or may disturb the quiet of other owners. Co-op owners may also exclude owners with criminal backgrounds or limited financial resources. Such decisions must be made in compliance with federal fair housing laws.
If you are currently residing in a co-op, are considering joining a co-op, or are considering selling your portion of a co-op you may need an attorney who understands how co-ops operate and what laws govern them. Contact Solomon Richman, P.C. for help at (516) 437-6443.