Most frequent questions and answers provided by Northcountry Cooperative Development Fund
A housing cooperative is a legal corporation. Members of the cooperative live in the cooperative and run the cooperative—from organizing social activities, to maintenance, to handling ﬁnances and landscaping. Members set the bylaws and elect, from among themselves, a board of directors. The board ensures that the cooperative runs smoothly, in accordance with the cooperative’s bylaws and operating agreements. The board organizes a membership meeting at least annually, and hires staff to run the day-to-day business of the cooperative.
A housing cooperative forms when people come together to own and control the buildings they live in. They form a cooperative corporation, to which they pay a monthly amount to cover operating expenses. The cooperative owns the land, the buildings, and any common areas. Members buy shares in the cooperative.
A market rate cooperative sells shares at full market value in the original sale, and permits future unit sales at market value. Much like conventional real estate, a unit’s sale price is determined by the market, allowing for potential accumulation (or loss) of equity by the members.
A limited equity cooperative puts restrictions on a unit’s sale price, with the restrictions outlined in the cooperative’s bylaws. This type of cooperative is designed to maintain long-term housing affordability. While most public sector programs have limited timelines—after which affordability disappears—a limited equity cooperative can continue offering beneﬁts forever.
A leasehold cooperative leases the property from an investor, sometimes with an option to buy. Cooperative members operate the property as a cooperative, but do not own the cooperative.
A senior housing cooperative can be either a market rate or limited equity cooperative that incorporates design and service features appropriate for seniors.
A mutual housing association is a non-proﬁt corporation set up to develop, own, and operate housing. Generally, the association is owned and controlled by residents of the housing.
Cooperative members each own a share in the cooperative corporation. All members combined own the cooperative, which is comprised of the land, building, and any common areas. A member’s right to reside in a speciﬁc unit is governed by a proprietary lease or occupancy agreement.
Each member owns a share in the cooperative, which is comprised of: 1. An ownership interest in the corporation, represented by a certiﬁcate of membership or a corporate share. 2. An exclusive right to occupy a particular dwelling unit that is owned by the cooperative corporation. An occupancy agreement or proprietary lease governs this relationship.
Before selling, the seller must obtain approval from the cooperative’s board of directors. This approval process prevents ‘ﬂipping’ by unscrupulous investors, and ensures that a new member pledges to abide by the cooperative house rules. Selling a cooperative housing unit typically involves lower closing costs. The purchaser assumes the seller’s obligations for pro-rata taxes, etc., under a new occupancy agreement.
Cooperatives are governed by a board of directors that are elected democratically by the membership, from the membership, with one vote per member.
In cooperatives under 20 units, the members generally manage the cooperative themselves, and perform their own maintenance. In larger cooperatives, the board of directors may select an individual or outside ﬁrm to provide management services. In both cases, members develop and maintain the house policies, including criteria for screening, evicting, and foreclosing on problem members.
A new member buys a cooperative corporation share at closing, which represents ownership in the cooperative and the right to occupy a speciﬁc space in the building. The new member also agrees to pay the cooperative a monthly amount to cover operating expenses. A new member can borrow part or all of the share price, secured by his/her interest in the cooperative. The member must individually qualify for the share loan, and is individually liable for this debt.
In most instances, cooperatives and their members receive the same beneﬁt as single-family homeowners. Members can deduct the pro-rata share of the cooperative’s mortgage interest and real estate taxes on their tax return, along with any interest paid on a share loan. In some states, homeowners receive favorable property tax treatment, compared to commercial and industrial uses
A cooperative member owns an interest in the cooperative—which in turn owns the building—and includes the right to occupy a speciﬁc dwelling unit. A condominium owner owns fee simple title in the air space to the back of the paint on the walls of a dwelling unit, plus an undivided interest in the common property of the condominium.
Lower monthly costs—Because cooperatives operate at cost, cooperative carrying charges are often 15 to 25 percent or more below rental market rates.
Tax deductions—For income tax purposes, cooperative members are considered homeowners. As such, they can deduct their share of real estate taxes and mortgage interest paid by the cooperative, in addition to any interest paid on a share loan.
Home equity—In a market equity or limited equity cooperative, members can accumulate equity in their dwelling unit.
Limited liability—Cooperative members have no personal liability, and need not individually qualify on the cooperative blanket mortgage. The cooperative corporation is responsible for paying the blanket mortgage. This arrangement enables persons who normally don’t qualify for an individual mortgage to buy a membership in a cooperative.
Overall savings—Cooperative members beneﬁt from economies of scale inherent in cooperative operating costs, as well as participation in a non-proﬁt enterprise. Bulk purchasing of major building improvements provide members with substantial savings. In a low-income setting, costsharing among members cushions the economic shock of emergency repairs that sometimes lead to mortgage delinquency or foreclosure for single-family homeowners.
Community building—Cooperatives provide homes for members, and build a community within the cooperative as well.
Security—Tenure is secure, within the guidelines of the law, cooperative bylaws, and occupancy agreements.
A housing cooperative can be a high rise apartment building, a garden-style apartment, a townhouse, a single-family home, a senior housing complex, or a manufactured home park. In a manufactured home park, the cooperative usually owns the land, utilities, and community facilities, while the members own their individual manufactured homes.
Cooperatives are a natural vehicle for social and civic organizing. They encourage neighbors to become acquainted, and form mutually beneﬁcial enterprises such as block clubs, childcare cooperatives, buying clubs, and energy cooperatives. Studies have shown that higher levels of civic and community participation and lower levels of crime correlated with the presence of housing cooperatives in neighborhoods.