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COOPERATIVES vs. CONDOMINIUMS
What is a Cooperative?
A Cooperative is a non-profit corporation dedicated to the
interest of its shareholders. In this case the corporation owns
real estate. Unlike condominium ownership, there is only one
master mortgage covering all the units in a Cooperative. Living
in a cooperative is similar to renting, in that you pay a
monthly association fee. Unlike renting, however, you enjoy the
same tax advantages and deductions you are entitled to if you
owned your own home. In order to pass these savings to its
shareholders, the Cooperative [corporation] divides the total
principal, interest and property taxes for the entire
development by the percentage of space you occupy in order to
determine your share of the deduction. In purchasing a
condominium, the buyer takes title to the unit purchased, with
an undivided interest in the common element of the remaining
portion of the condominium development. Taxes are paid
separately.
The one limitation is that you are not allowed to pre-pay the
portion of the master mortgage allocated to your unit. The
master mortgage can only be prepaid if all shareholders in the
Cooperative do it simultaneously. When the master mortgage is
paid off, your association fee continues less the principal and
interest. The Cooperative may then own the real estate free and
clear.
When you purchase the equity of a previous owner, you then
become a member of a non-profit corporation that owns real
estate. Because you are a shareholder, you have an automatically
renewed lease on a portion [your unit] of the real estate owned
by the corporation. When you decide to move, you sell your
equity to the new buyer or, in some cases, back to the
corporation. This advantage over renting makes ownership of a
Cooperative an attractive alternative because you build an
investment potential with your equity. The Board of Directors
must approve all prospective shareholders. This is merely meant
to insure the property’s integrity and the shareholder’s rights
of full and quiet enjoyment.
Monthly Association Fee
Like renting, Cooperative living includes a monthly
association fee. Usually the association fee includes payment of
the principal and interest on the master mortgage, property
taxes, insurance, water, and maintenance of the building and
grounds. In some Cooperatives, the monthly association fee may
also include the cost of heat and air conditioning. Policies
will vary from property to property.
Responsibility of Shareholder [Member]
As a shareholder, it becomes your corporation. At the annual
meeting you elect a Board of Directors who, in turn, runs the
Cooperative. The board manages the day-to-day affairs of the
Cooperative. One of their main duties is to supervise the
building staff, or in some instances, to supervise the property
management firm hired to perform this duty. If nominated and
elected by the shareholders, you must be willing to serve as a
Director or officer of the corporation.
As a shareholder you will are also responsible for the upkeep
of your individual unit, which includes such things as interior
decorating, window treatments, interior window washing, any
customizing you may desire, and all utility payments that are
not covered by your monthly association fee.
Responsibilities of the Cooperative
The Cooperative’s By-Laws spell out the responsibilities of
the corporation. These include arrangements for exterior and
grounds maintenance, snow removal building repairs and exterior
window washing. Interior maintenance of shareholder units, such
as plumbing or electrical repairs, is often included.
Insurance
The corporation carries insurance on the building primarily
for structural defects and liability coverage for the common
areas such as parking lots, pools and community rooms. You must
carry your own insurance on the contents of your home and your
liability as a homeowner.
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