Condominiums and Cooperative Flashcards
Cooperative
A dwelling unit owned by a corporation in which an owner owns stock commensurate with the value of his or her apartment compared to the value of the building as a whole. The stockholder has a proprietary lease to the apartment.
(you will have personal property, not real property)
-has board of directors
-The corporation that owns the cooperative owns the real estate in a co-op building
-receives a proprietary lease at closing
-considered personal property, and chattel
Share Loan
A loan in which shares of stock are used as collateral. Typically found in cooperative purchases.
Proprietary Lease
A lease given by a corporation to another. It is often used in a co-op context, where the owner is given a certain number of shares in the co-op, along with a proprietary lease for one of the residences in the building.
Maintenance
Monthly payments by a shareholder to a cooperative corporation. Common costs that you share with building (operating costs: fuel, utilities, insurance, wages and salaries, Real Property Taxes, Debt Service Costs)
UCC1: Uniform Commercial Code (form No. 1)
publicly recorded document in county and state capital where building is located
-This is filed to give notice that a loan was given on a cooperative apartment
Due Diligence Issues
Banks will carefully examine the financial strength of both the Coop and the applicant before giving out a loan
Banks will typically not lend to Co-ops in which less than 50% of the shares are sold
Sponsor
The developer or owner organizing and offering for sale a condominium or cooperative development.
Person or entity that owns the building.
Key Documents in a Co-op Sale/Purchase
- ->Contract of Sale
- Buyer
- Seller
- Purchase Price
- Financing requirements (unit has to be offered to coop before it gets offered to a potential buyer)
- Subject to Approval (by board)
- -> Offering Plan (key information required to be disclosed)
- -> Amendments to the Offering Plan
- -> By-Laws
- Meeting Rules
- Co-op board election
- -> Proprietary Lease
- Obligations
- Maintenance
- -> House Rules
- Define the day to day operations of the Co-op (ex. washer/dryer in unit, pets, subletting policies)
- -> Board Minutes
- -> Financial Statement
Martin Act
The Martin Act, NY General Business Law article 23-A, sections 352-353, is a 1921 piece of legislation in NY that gives extraordinary powers and discretion to an attorney general fighting financial fraud. The act’s powers exceed those given any regulator n any other US state.
- This Act requires that key disclosures be provided by a cooperative in the purchase of a unit
- The requirement for a cooperative to provide purchasers with an offering plan is dictated by this Act
Governs how and when these types of interests in real estate can be sold. Requires certain amount of minimum disclosure. –> Offering Plan (for units for sale)
Red Herring
Owners or sponsors present an offering plan to each tenant and to the Attorney General. It is only a preliminary prospectus and is referred to as a “red herring” because the title on the cover is printed in red
-It’s a draft, subject to change.
Black Book
Outlines the terms of the original Coop offering and amendments update along with rules of the building. Approved by attorney general. Black ink. Has special risks - higher risk for a purchaser.
- has financial statement, by-laws, prices, description of property etc
- Basic sales doc you’ll be using
What to look for in a Financial Statement
-Corporation Reserve Fund (working capital fund) = A bank account with money in it that is available to coop in case of unanticipated expense.
As a general rule of thumb, a coop should have at least 3 months worth of Reserve Funds set aside
- Underlying Mortgages
- Upcoming Capital Improvements
Due Diligence
The review and investigation of a property to evaluate any legal liability. A period of time that a purchaser has to review key issues that relate to purchase or sale of particular unit
Board Package
A series of documents submitted for the review by a cooperative board. (usually has a fee and questionnaire)
May Include:
- Financial Documents (tax returns, verification of employment, bank statements, net worth or financial statement, loan commitment)
- Personal recommendations
- Loan commitment from bank
(They want to know if you can pay for it and who is going to be occupying it)
Alteration Agreement
Describes the terms under which the cooperative gives permission to a shareholder before making any changes or improvements to the unit the shareholder occupies
- What’s going to be done and how long it’s going to take
- governs what a shareholder wants to do to their apartment.
- Makes sure they have a licensed contractor and permits
Real Estate Salesperson Role (for co-ops)
- The salesperson often plays a crucial role in the Board presentation to the Co-op Board
- Agents should know how often applications are considered by a Co-op Board. Applications can be reviewed upon submission, weekly, monthly, etc
Key Factors to have in mind:
- Timing
- Board Package (contact Managing Agent)
- Need for Improvements (requires alteration agreement)
Sponsor Unit
Can be sold from the sponsor without board approval
Condominium
A form of fee simple ownership of part of a structure having multiple units. Owners have title to their own units plus a share of the common elements. Inside is being owned in fee. (it’s real property with a deed) Interior of unit is privately owned.
-minimum of 2 units
- When purchasing a condominium, it is often easier to obtain financing as banks are primarily interested in the financial status of the purchaser
- A condo owner can sell their property without going through board approval
Common Elements: building, land surface, stairs, air rights, etc.
-has a Board of Managers
