Financing A Co-op

Financing residential cooperatives may relate to individual units or to an entire building in instances where large capital improvements can not be funded from monthly fees or accumulated reserves.

People who buy cooperative units typically borrow from banks or other institutional lenders, just like those who buy condominiums or houses. Financing choices are abundant in Washington, provided the co-op board has signed a recognition agreement with the prospective lender. The recognition agreement defines the relationship between the lender, the co-op and the borrower, and establishes the priority of claims in the event an individual borrower is in arrears on either the monthly maintenance fee or the monthly mortgage payment.

A settlement company or a real estate agent familiar with co-ops can tell you which buildings have agreements with which lenders. These contacts can discuss standard loan terms and interest rates.

Blanket Mortgages

Because a cooperative’s real estate is owned by a corporation, the owners/ members may elect to mortgage the co-op’s property to fund major improvements, pledging the real estate as collateral. This is not possible with a condominium, where the normal means of raising funds for unforeseen expenses is through a special assessment. For co-ops, such a mortgage is called a “blanket” or “master” mortgage, and a portion is allocated to each unit. The portion of the mortgage allocated to a unit typically is assumed by the purchaser of the unit and deducted from the seller’s proceeds at the time of settlement. During the term of a blanket mortgage loan, eligible co-op members can take tax deductions for their shares of the interest on the loan.

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