In a Co-op, the apartments, common areas, and entire building are owned by the cooperative corporation. When you buy a cooperative apartment, you are actually purchasing shares in a Coporation. The Corporation issues shares of its stock allocated to each apartment based upon the size of the apartment. The larger your apartment, the more shares within the corporation you will own. As a shareholder, you are entitled to a "proprietary lease". A proprietary lease is similar to a rental lease but much more detailed.
Most corporations posses a commercial mortgage on the entire building called an "underlying mortgage." If this is the case, each purchaser may have a separate loan for the purchase of their apartment. The security for a co-op apartment loan are the shares of the stock and proprietary lease which is held by the lender while the loan is still pending. The lender will reqiure a Uniform Commercial Code Financing Statement (UCC-1) to be filed in the county where the apartment is located to place a lien on the shares and proprietary lease.
You will pay monthly maintenance fees to the building which covers all building expenses such as heat, hot water, insurance, staff salaries, real estate taxes and the mortgage indebtedness of the building. The part of the maintenance covering both taxes and mortgage interest is tax deductible.
The following pointers are important for you to know when it comes to purchasing a Cooperative:
A Co-op Board of Directors has the ability to determine how much of the purchase price may be financed. The minimum cash requirements vary depending on the building.
Subleasing a co-op can be difficult. Each co-op has its own rules and they should be carefully reviewed prior to application to purchase.
All prospective purchasers will be interviewd prior to approving any purchase.
Most co-ops require that shareholders occupy their apartments as primary residences. Typically, some allowance is made for subletting for one to two years, however, a prospective sub-tenant is required to make a formal application to sublet and must be approved by the board.