A few days ago, the Style section of the Washington Post presented its list of "ins and outs" for 1985. One of the items dealt with real estate, and suggested that "condos" are in and "co-ops" are out.
With respect to staff writer Nina Hyde and to the Style section, I must respectfully disagree.
I suggest that co-ops are as much "in" as are condominiums.
For those few people who still do not know the difference between a condominium and a cooperative, let us begin this column with a brief description. In a condominium, the owner has fee-simple title to the condominium unit, and that unit owner is a member of a condominium association.
The association -- acting through an elected board of directors -- has the authority to make basic decisions affecting the lifestyle of the condominium unit owners. But as long as unit owner does not interfere with other owners, he or she has the absolute right to use the condominium unit as he sees fit. In a condominium, each individual owner pays his or her own mortgage and real estate property tax.
Generally speaking, there are no restrictions on the right to sell a condominium unit, although condominium associations will often place restrictions on how the condominium unit can be rented.
In a cooperative, every owner belongs to a cooperative association. The association owns the building, and grants a lease (often called a stock certificate or ownership certificate) to each member of the cooperative association. That lease gives the member the right to have the peaceful enjoyment of the cooperative apartment, on the condition that the cooperative owner follows the rules of the cooperative association. Ownership of the cooperative apartment is in the association itself, and not by the individual owner. The association pays the mortgage, if any, and the real estate taxes -- although under normal circumstances, each cooperative owner is entitled to a proportionate share of the taxes and mortgage interest for income tax deduction purposes.
A cooperative owner usually has to obtain approval from the cooperative association if they want to rent or sell the apartment.
For many years, because of this major distinction between condominiums and cooperatives, mortgage lenders were unwilling to make loans to persons interested in purchasing a cooperative apartment. Thus, for a very long time, in order to sell a cooperative apartment, one either had to require all cash, or "take back" financing -- hold a mortgage from the buyer. It was this inability to obtain co-op financing that led many people to believe that cooperatives were "out" while the condominium boom was "in."
In recent years -- especially last year -- we have seen significant changes in the availability of financing for cooperative housing. The secondary mortgage market -- primarily Fannie Mae and Freddie Mac -- is now moving full swing into making the so-called share loan to enable a purchaser of a cooperative apartment to have the same financing terms as is available to a condominium unit owner. Indeed, the National Cooperative Bank has just created an affiliate organization called the "Share Loan Service Cooperation," which is now making loans to potential cooperative unit owners. And many other mortgage lenders have now realized that cooperative lending is profitable.
Thus, in my opinion, since the financing obstacle has been overcome, co-ops will no longer be the "step sister" in the real estate industry. For all of our friends in the cooperative field, do not be discouraged. You are as "in" as are your fellow condominium unit owners.