A co-operative is a group of people acting together to meet the common needs and aspirations of its members, sharing ownership and making decisions democratically.

Co-operatives are not about making big profits for shareholders, but creating value for customers – this is what gives co-operatives a unique character, and influences our values and principles.

Things You Should Know About Co-Operatives

1. Ownership means a Stock and Lease, Not Real Estate Unlike a regular, everyday house where a deed gets filed in the public records to name you as the owner, in a cooperative or coop for short, most of mumbo jumbo on who owns what will exist within the coop’s records only – and that will take the form of a stock certificate naming you as shareholder in the coop, and a proprietary lease which names you as tenant for a specific unit. Your coop will own the overall building. The building will likely have a big mortgage, property taxes and lots of in’s and out’s when it comes to maintenance, repairs and all the everyday as to tenant-shareholders, things like collecting the rent and keeping the peace. For the privilege of coop ownership, you’ll get to occupy your unit as tenant under the terms of a lease with your coop as landlord. And if you’d like, as shareholder you’ll have an opportunity to get involved in coop decisions.

2. Co-operative Corporation Runs the Show The greatest and worst thing about owning a coop will lie with the fact that your coop will run the show when it comes to keeping the building in good condition and handling all the finances. Many folks may find that appealing. Others, well, others may insist upon being intimately involved in anything from cutting the grass to refinancing the mortgage. Coops get managed in a few different ways. The shareholders will elect a board of directors (“Board”) generally once per year, sometimes sooner if special reasons come about. The Board will handle everyday decisions like who does the gardening, who sits at the front desk, who can buy or sell – and who they can choose as managing agent, if anyone, to take over on the front line. Some coop’s will choose to manage themselves. Many will hire a managing agent. The shareholders will generally have monthly meetings to address and vote on the big issues like a refinancing or major improvement. The Board will have regular meetings for the more routine things like who can buy and sell or whether to bring an eviction because a tenant hasn’t paid the rent.

3. Blanket Mortgages, Real Estate Taxes and Insurance – Welcome to the World of Co-operative Finances Since ownership and mortgages go hand in hand, most coops will have a building mortgage together with tax bills, insurance and any number of things that a property owner has to deal with. A big mortgage may mean little or no equity in the building and finances that are teetering on the edge. A little mortgage, well … that can mean lots of equity and a clean bill of health financially speaking.

4. Monthly Maintenance Payments Every proprietary lease will provide for monthly maintenance to the coop and those are the monies that a coop will use to make payments on the building mortgage, taxes and whatever else may come about that relates to the business of owning a building and managing the tenants.

5. Tax Deductions for Co-operative Interest and Taxes The tax laws say that when a coop pays mortgage interest and taxes, the owners are entitled to deduct the portion which relates to their unit. So … if you own one percent of the stock, you’ll get to write off one percent of the coop payments. Yessss.

6. Board Approval and the Co-operative Purchase Unlike a regular house where you go to contract, get approved on a mortgage, run a title search and close – coops have another step and that’s board approval. Right after going to contract, a buyer must submit an application to the Board together with all kinds of personal information like employment, finances, and a background on who plans to live in the apartment. The Board will then say yes or no.

7. Financing the Cooperative Purchase will mean a Financing Statement and Recognition Agreement To finance a cooperative purchase, your lender will have to file a “UCC-1 Financing Statement” with the County clerk prior to closing. That’s a must do for lenders. You will also get from your lender a “Recognition Agreement” in standard form, sometimes called the Aztech because that’s the company which originally drafted it back in the 1970’s. Ironically, Aztech shut its doors years ago – but the form survives. Your Aztech will go to the coop so they can sign and deliver it at closing together with all the other doc’s that you’ll need to close. And for those who are curious, the Aztech says that if an owner defaults by not paying the maintenance or by violating a coop rule in a big way, the coop will have to give your lender an opportunity to cure before terminating the lease.

8. Closing Costs are Just Different Closing costs will differ from a regular house. Usually for a buyer, the costs are somewhat less since the mortgage tax doesn’t apply and most transactions will close without title insurance. Most coops and managing agents will generally have an inventory of fees and the range can vary. As for sellers, the closing costs are often somewhat higher than a regular house.

9. Purchases Usually Done without Title Insurance Most purchases are done without title insurance because the policies are somewhat limited as to the risks that are covered and lenders do not require it. This will often mean a greater attention to detail when it comes to property searches and making sure that all liens are addressed.

10. Flip Taxes and Equity Give Backs can Reduce Value Flip Taxes are fees which some coops will charge a seller based upon a percentage of the sales price, often one or two percent. Some coops will charge waiver of redemption or similarly worded fees that can amount to more than fifty percent of the entire sales price depending upon how long you owned your interest. Fees like these are usually done to try and discourage a quick turnover.