makes a co-op a co-op is its legal status. The three ways in which
condos and co-ops differ: the definition of legal ownership, management,
and your financing options.
Definition of legal ownership:
Deed versus stock
you buy a condo, you get a deed to your unit. When you buy a co-op,
you get a stock certificate (to prove that you own a certain number
of shares of stock in the cooperative corporation) and a proprietary
lease, which entitles you to occupy the apartment you bought. The
corporation owns the building.
most cooperatives, shares are allocated based on a how big a unit
is and what floor it's on. Thus, a top-floor apartment usually has
more shares than a ground-floor unit of the same size. The more
shares you have, the greater your influence in the co-op. You also
have pro rata share of the cooperative's total maintenance expenses.
Management: Homeowners association
versus board of directors
cooperatives are corporations that are run by boards of directors
elected by you and the other owners. Just like the homeowners association
in a condominium, the board of directors is responsible for the
cooperative's day-to-day operations and finances.
Financing your purchase
a mortgage to purchase your co-op may be difficult. Many lenders
flat-out refuse to accept shares of stock in a cooperative corporation
as security for their mortgage. Conversely, some co-ops absolutely
won't permit any individual financing over and above the mortgage
the corporation has on the building as a whole. These co-ops believe
that one proof of creditworthiness is your ability to pay all cash
for your unit.
buy a co-op if only one or two lenders in your area make cooperative-apartment
loans. You'll pay a higher interest rate due to the lack of lender
competition and lender concerns about the greater risks of co-ops.
Worse yet, what if these lenders stop making co-op mortgages and
no other lenders take their place? You won't be able to sell your
unit until you find an all-cash buyer or until you have the financial
resources to lend the money yourself to the next buyer.
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