- Ben Franklin established the first cooperative in the U.S. back in 1752.Gentleman writing on desk image by patrimonio designs from Fotolia.com
In the U.S., cooperatives go back to 1752 when Benjamin Franklin formed the first one in Philadelphia. In 1865, Michigan enacted the first law recognizing the cooperative method of buying and selling property through membership shares. The 1920s and 1930s saw Congress extend even more help to this burgeoning form of shared risk and property ownership. The National Credit Union Administration was created in 1934 to aid in this effort, in fact. - Cooperatives are legal entities set up to purchase and own real estate.Sunrise on the bank of river image by spiller from Fotolia.com
A cooperative housing project is a legal entity set up to own real estate. It's usually a corporation, and it normally consists of at least one residential apartment building. A shareholder in the cooperative is granted the right to occupy one of those apartment units. The resident shareholder, by virtue of that share, receives membership in the co-op's association. By law, the shareholder doesn't own real estate. Instead, she owns a share of the corporation. - Mortgage lenders don't like the fact that co-ops sell shares of the co-op itself, not the actual apartment.Colorfull apartments image by TekinT from Fotolia.com
The issue lenders sometimes have with cooperatives is in the form of ownership of the apartment. Condominiums come to their owners with full property rights. They take title in fee simple, though they have to obey condo association bylaws. Still, condo owners can usually sell their property as they choose. This isn't the case with co-ops, generally speaking. Co-op associations own the real property (the apartment) while members of the co-op finance purchase of a stock share. - Because a co-op apartment isn't real property, it's riskier for a lender to finance.luxury house image by yong hong from Fotolia.com
Because there's no real property involved, lenders consider co-op share purchases to be risky propositions. By law, co-op apartments are considered intangible personal property. They're also subject to securities regulations. This tends to scare lenders away. That's because they're being asked to finance a large personal property purchase. Cooperatives, though, are skilled at working with certain lenders that help finance share purchases. Unfortunately, though, co-op shareholders usually can't obtain home equity loans or lines of credit. - Co-op associations have a great deal of power over co-op share sales and purchases.boring apartments image by green308 from Fotolia.com
Co-ops resemble condominiums in many ways. This includes how their associations run things. Keep in mind, though, that co-op associations have a great deal of power in approving or denying share purchases. Most often, a denial is due to the purchaser's perceived inability to afford the monthly share payments. Sometimes, it's because they feel the purchaser will actively disturb the peace. Mortgage lenders are often unsympathetic to co-op apartments for these reasons as well.
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