Condominiums and Cooperatives

Exam rule

A condominium owner receives a deed to real property. The ownership has two connected parts. The first part is the unit described in the declaration and deed. The second part is an undivided interest in the common elements. The statute calls that share the common interest. It cannot normally be separated from the unit. The unit owner has exclusive possession of the unit. The owner shares the common elements with the other owners. Common elements can include land, roofs, halls, stairs, foundations and building systems. The declaration defines the actual boundaries for that project. It may also create limited common elements. These serve one unit or a smaller group, although they remain common elements. A balcony, terrace, parking space or storage area may be limited. Never classify one from appearance alone. Read the declaration and filed floor plans. The percentage of common interest affects voting, common expenses and rights in common profits. Owners cannot seek partition of the common elements like ordinary tenants in common. The condominium form keeps the shared property joined to the units. Covenants, conditions and restrictions are often called CCRs. They may appear in the declaration, bylaws or recorded documents. They control use but cannot override law. A cooperative looks similar from the street but uses a different ownership form. A cooperative resident receives shares and a proprietary lease, not a unit deed.

Exam rule

The declaration creates the condominium when it is recorded. It describes the land, buildings, units and common elements. It also states each unit's common interest. The declaration is filed with the Department of State after recording. The bylaws supply the operating rules. They cover the board, meetings, voting, budgets, common charges, insurance and restrictions. A board of managers acts for the condominium. Owners elect the board under the governing documents. The sponsor usually selects the first board and managing agent in a new project. The offering plan must explain those choices and any sponsor relationship. Part 20 limits sponsor voting control in a new condominium. The usual limit is two years after closing or 50 percent of the units closed. The earlier event controls. The sponsor cannot use veto power over required expenses, capital repairs or legal compliance. After sponsor control, the plan should provide for a majority of independent owner-occupants. A contrary arrangement must receive a special-risk warning. The governing documents decide the exact voting and removal rules. Common expenses normally follow each unit's common interest. The board collects them as common charges. The board must keep detailed receipts and expenditure records. Unit owners may examine those records at convenient hours. Limited common element costs may receive different treatment when the documents lawfully provide it. Bylaws may regulate sales, leasing, alterations and conduct. They cannot authorize unlawful discrimination. Always separate board authority from sponsor authority. The sponsor sells under the plan. The board manages under the declaration and bylaws.

Exam rule

A sponsor must file an offering plan before making a public offer. New condominiums generally use Part 20. New cooperatives generally use Part 21. Occupied conversions use different parts. Filing does not mean the Attorney General approved the investment. It means the disclosure was filed under the governing rules. Read the complete plan, every amendment and the purchase agreement before signing. Start with the special-risk section. Then check Schedule A, the budget, taxes, common charges, closing costs and sponsor rights. Compare the stated unit area with the floor plan and measurement method. Check the property description, finishes, appliances, amenities and completion schedule. A model unit or rendering is not a binding promise by itself. Put every material promise in the plan, contract or signed rider. The plan must disclose sponsor control, the managing agreement and material sponsor relationships. Price changes may require a filed amendment. A negotiated price can follow the plan's negotiation terms. Part 20 then requires a prompt amendment reporting the deal. During approved CPS-1 market testing, a sponsor may seek indications of interest. The current policy permits no reservation, binding or nonbinding. It also permits no deposit before the plan is accepted for filing. This corrects the older syllabus wording about reservation letters. A certificate of occupancy confirms lawful occupancy under the code process. A temporary certificate may have limits and an expiration date. Lenders often require acceptable occupancy proof before funding. A closing date in a new project may depend on effectiveness, construction, occupancy approval and lender conditions. Never promise the date without reading the contract. New York City's preservation-plan route is narrow and local. It does not create a statewide conversion shortcut.

Exam rule

A condominium closing transfers the unit and its common interest by deed. The deed must identify the condominium and the unit. A title search checks the deed chain, declaration, amendments, taxes, judgments and recorded liens. It should also confirm the unit's common interest. At a sponsor's first conveyance, blanket mortgages and liens need the required release or protection. Title insurance covers stated title risks under the policy. It does not insure physical condition or every future board decision. Review the contract for a right of first refusal. That right exists only when the governing documents create it. It usually lets the board or its designee match an accepted deal. Flipping and simultaneous closings depend on sponsor policy, contract rights, financing and closing logistics. They are not automatic statewide rights. Separate closing costs by party and source. A buyer may face loan, appraisal, legal, inspection, title, recording and adjustment costs. A financed condo buyer may pay mortgage recording tax. A cooperative share loan uses different collateral and normally has no mortgage to record on the apartment. Seller costs can include transfer taxes, brokerage, legal fees, lien payoff and document fees. A sponsor may shift stated costs to a buyer if the filed plan and contract disclose them. Prorations can cover common charges and real estate taxes. Each condo unit is a separate tax parcel. Unpaid common charges can create a board lien. Taxes and a first mortgage of record have statutory priority over that lien. The lien lasts six years from filing unless paid sooner. A buyer should obtain the board's common-charge statement before closing. New York's additional transfer tax applies at one million dollars or more. The buyer normally pays the one percent state tax. New York City can impose added graduated taxes at higher prices. Local charges must be checked for the actual property. Tax deductions depend on current federal rules and the buyer's facts. Refer that question to a qualified tax professional. Lenders review income, debt, assets, credit, down payment, loan-to-value ratio and reserves. Salary, commission, bonus, business, rental, investment, trust, support and benefit income may need different proof. Assets can include cash, securities, retirement funds, gifts, trusts, real estate and business interests. No statewide ratio guarantees approval. A condominium board also lacks automatic power to reject a buyer. Any approval or first-refusal power must come from the documents.

Exam rule

A cooperative corporation owns or leases the land and building. The purchaser buys shares in that corporation. The shares are allocated to a named apartment. A proprietary lease gives the shareholder the right to occupy that apartment. The buyer does not receive a deed to the apartment. The shareholder therefore holds personal property and lease rights, not fee simple title to a unit. The corporation may own the building in fee simple. It may also hold a long ground lease. That building-level title does not become the shareholder's title. The shareholder has two roles. The person is an owner of corporate shares and a tenant under the proprietary lease. The stock certificate proves the shares. The proprietary lease states possession, maintenance, transfers, subletting, defaults and repair duties. Read both together. Maintenance charges usually follow the number of shares allocated to the apartment. They support building taxes, operations, insurance, debt service and reserves. The corporation has one property-tax bill and may have an underlying mortgage. The shareholder may also have a separate share loan. These are different debts. Shareholders elect directors under the bylaws. The board acts for the corporation. House rules govern daily conduct, while the proprietary lease controls larger occupancy rights. An alteration agreement can set plans, insurance, contractor and restoration duties for apartment work. Always identify the document that controls the issue. Similar words can have different jobs.

Exam rule

Cooperative due diligence has three layers. Review the apartment, the corporation and the buyer's rights. Start with current financial statements and several prior years when available. The balance sheet shows cash, reserves, receivables, debt and other assets or obligations. The income statement compares maintenance and other revenue with operating costs. Notes can reveal litigation, repairs, tax issues and accounting risks. Compare the budget with actual results. Study maintenance increases and special assessment history. Large arrears may signal collection trouble. A small reserve is not automatically fatal. It becomes serious when major work is also near. Review the underlying mortgage balance, interest rate, maturity date and balloon risk. Refinancing can raise maintenance even for a cash buyer. Check whether the sponsor owes maintenance on unsold shares. Read recent board and shareholder minutes. Look for facade, roof, elevator, boiler, plumbing and electrical work. Also look for insurance problems, violations, lawsuits, leaks and planned assessments. Minutes may be incomplete, so compare them with financial notes and inspections. Obtain the current proprietary lease, bylaws and house rules. The original offering plan may contain old versions. Review later amendments and current policies. The proprietary lease controls use, sale, subletting, defaults and repairs. House rules cover daily conduct. An alteration agreement controls proposed work. The stock certificate identifies the shares. The offering plan explains the original deal and sponsor promises. A resale offering plan may no longer describe present conditions. The Attorney General does not regulate an ordinary owner resale like a sponsor sale. The contract and current facts become critical. Verify maintenance, assessments and building approvals in writing. Use an attorney, accountant, inspector or engineer when the issue needs that skill.

Exam rule

A cooperative sponsor files an offering plan before offering shares to the public. Part 21 generally covers new or vacant cooperative projects. Part 18 generally covers occupied residential cooperative conversions. The first conversion draft is often called the red herring. Tenants of record receive it when the sponsor submits the plan. Filing is disclosure, not government approval of the investment. Read the plan, amendments, subscription agreement and sponsor history. Check special risks, the budget, underlying mortgage, reserve funding and sponsor obligations. Review the proprietary lease, bylaws, house rules and management agreement in the plan. Compare written construction promises with the delivered condition. Oral sales claims do not replace the filed promise. Sponsor control varies with the project and governing plan. The Attorney General's general board guide describes a common outside limit. It is over half the shares sold or five years after closing, whichever comes first. Part 21 uses a stricter new-project disclosure rule. Sponsor voting control or veto power ends after two years or 50 percent of units close. The earlier event controls. Read the actual plan because project type matters. Unsold shares remain important after closing. A holder of unsold shares may have broader sale or sublet rights. Those differences must be disclosed. Part 21 also requires sponsor protection for maintenance and assessments on unsold shares. Sponsor arrears can hurt cash flow and threaten the building. Ask how many unsold shares remain, who owns them and whether payments are current. The Attorney General may address sponsor promises and offering violations. It does not settle every private board dispute. Contract rights and private counsel may control after an ordinary resale.

Exam rule

A cooperative board package supports the buyer's request for approval. Requirements come from the building's documents and current application. They are not one statewide checklist. The syllabus lists common items. These include the application, signed contract, verified financial statement and employment letter. It also lists personal and business references, tax returns and credit authorization. Three years of tax returns is a syllabus recommendation, not a universal statute. The package may also request bank, investment, debt, gift and housing records. The agent should obtain the current checklist and submission rules. Organize every item, reconcile the numbers and protect private data. The buyer should understand the complete package before the interview. Many boards meet monthly, but that is a planning point rather than a legal rule. The contract should address board approval and timing. The board reviews financial ability, building fit and compliance with lawful policies. Board discretion does not permit discrimination. Federal, state and local fair housing rules still apply. Licensees should never help a board seek protected-class information. They should also avoid guessing why an applicant was rejected. A buyer must answer lawful questions honestly. Total disclosure does not require surrendering protected information that the board cannot lawfully demand. Primary-residence and sublet rules come from the proprietary lease, bylaws and house rules. Some buildings prohibit sublets. Others limit years, fees or approval. Sponsor shares and holders of unsold shares may have broader rights. Read the plan before promising equal treatment. A flip tax is a transfer fee, not a property tax. The governing documents must authorize it. The documents also state who pays and how it is calculated. An alteration agreement is separate. It controls renovation plans, insurance, access, work hours, deposits and restoration duties.

Exam rule

A cooperative buyer does not mortgage a deeded apartment. The buyer grants a security interest in the cooperative interest. That interest includes the shares and related possession rights. Article 9 of the Uniform Commercial Code governs perfection. A financing statement identifies the debtor and secured party. For a cooperative interest, it also identifies the unit and street address. A cooperative addendum changes where the filing is made. A cooperative lien search checks filed claims against the shares and lease rights. It is different from a condominium title search. The lender also reviews the corporation, underlying mortgage, insurance, finances and governing documents. A recognition agreement coordinates the borrower, lender and cooperative. It commonly gives the lender notice of shareholder default. It may provide cure rights and rules for a lender transfer. It does not turn the shares into real property. At closing, the parties transfer the stock certificate and assign the proprietary lease. The corporation records its consent and updates its books. Loan documents create and perfect the lender's security. Payoff and lien-release documents clear the seller's share loan. Maintenance and assessments must be settled under the contract. Transfer fees and flip taxes must also be handled. A share loan normally does not incur mortgage recording tax on the apartment. New York real estate transfer tax can still reach the cooperative transfer. The corporation's underlying mortgage remains separate from the buyer's share loan. A cash buyer still faces building-level debt through maintenance. Lender approval and board approval are also separate. Each can apply different income, debt, loan-to-value and reserve standards. No income verification is not a promise of no underwriting. Covered mortgage rules generally require a reasonable repayment-ability review. Alternative documentation can still require detailed proof.

Exam rule

A condop has two ownership layers. The building is divided into condominium units. One unit often contains the residential cooperative. Another unit may contain commercial or garage space. The cooperative corporation owns the residential condominium unit. A resident buys cooperative shares and a proprietary lease inside that unit. The resident does not receive a condominium deed. The outer condominium has a declaration, bylaws, common elements and common charges. The inner cooperative has corporate bylaws, a proprietary lease, maintenance and a board. A buyer must review both layers. Outer expenses and commercial rights can affect the residential corporation. Inner rules control the resident's use, transfer and subletting. Condops often separate commercial economics from residential cooperative operations. The syllabus calls the tax issue the 80/20 rule. Current federal law gives a cooperative housing corporation three alternative tests. Meeting one or more can satisfy that part of the definition. The first test uses gross income from tenant-stockholders at 80 percent or more. The second uses residential or related square footage at 80 percent or more. The third uses qualifying property expenditures at 90 percent or more. The tests apply for the relevant taxable year. The old 80/20 label can hide the other two routes. A condominium buyer owns real property and usually gets a unit tax bill. A cooperative buyer owns personal property and pays maintenance to the corporation. A condo loan is secured by a mortgage on the unit. A co-op loan is secured by shares and lease rights. Condominium resales usually have less board screening. Cooperative transfers often require board approval. Both structures can have boards, rules, transfer fees, assessments and major repair risk. Neither structure is always better. Match the buyer's needs with the documents, financing, costs, control and resale rules.