The Co-op

“A cooperative apartment is an apartment in a building owned and managed by a corporation in which shares are sold, entitling the shareholders to occupy individual units in the building.” – A Definition from Merriam-Webster Dictionary

New York City Mediation Law Attorney Alla Roytberg of begins her series on housing issues and divorce, discussing cooperative apartments.Very often, one of the most critical disputes a family may have revolves around housing. Where will the children reside? Who stays in the marital home? Do they own or rent? If the parties own their home, it may be a condominium, a cooperative apartment (co-op) or a house. How should one structure a delayed sale, exclusive occupancy or a buyout if a family unit is restructured?

While in other states a co-op is not such a common phenomenon, in New York State, and especially in New York City, a co-op presents a frequent form of ownership for many people. Most pre-war buildings in Manhattan are co-ops and so are many in Queens, Brooklyn and other boroughs. When you own a co-op, you don’t actually own real property. There is no deed, like in a house or a condominium. Instead, your form of ownership consists of a stock certificate that represents the number of shares allocated to your unit by the cooperative corporation, i.e. the building. The co-op has a Board of officers and members. These people make a lot of decisions. If you want to sell your co-op, your purchaser will have to complete an application for Board approval. The Board can approve or deny this application if it believes that the buyer is not financially secure, or, for any other reason at all under the “business judgment rule”.

When you buy a co-op and you finance the purchase with a bank loan, your bank will hold onto the original stock certificate for your apartment and the original proprietary lease (another document that confirms ownership and the rights of the owner to use common elements of the building) until either the loan is paid off, or you sell the apartment. If the owner sells the apartment, a representative of the bank comes to the closing, receives the balance of the loan, and returns the original stock certificate and proprietary lease. The stock certificate for the owner then gets cancelled by a representative of the Co-op Board and a new stock certificate is issued in the name of the new owner.

If spouses separate and they own a co-op apartment, they may own it in the name of one or both of them. If they decide to transfer ownership to whoever will retain the apartment, they must involve the Co-op Board and, if they still owe a mortgage, their bank.

For example, let’s say that Bill and Mary own a co-op and both their stock certificate and the mortgage are in joint names. If they decide that Mary will get the apartment in a divorce, they have to think through the transfer process fully, and it will include both mortgage/loan issues (common to all homes) and transfer of ownership through the Co-op Board.

  • Can Mary refinance the loan to remove Bill’s name from it?

  • Will her income and credit qualify her to complete a refinance?

  • Will she need to borrow extra money if their settlement discusses her “buyout” of his interest?

  • Even after she succeeds with the refinance, will the Co-op Board approve the transfer?

  • Will the Board have a concern about Mary’s ability to pay maintenance and mortgage on her own?

There are many ways to address these potential issues in the parties’ settlement agreements and ensure that, regardless of the possible scenario, there is a way out. It is very important to include all required provisions and contingencies to ensure that there are no loopholes that would require unnecessary litigation in the future.

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