What is a Co-Op’s Worst Nightmare
Written on June 25, 2011 by Cheryl Rankins
When the co-op is near a default, the co-op’s worst nightmare comes true. If you want to make it worse, add a shareholder meeting to that nightmare as well.
Unfortunately, things are mostly the same in the real world as well. Where a co-op goes bankrupt, the owner is left in the cold.
A Typical Co-op:
For those who don’t know what a co-op is, it is a corporation where the housing arrangements are carried out. In a typical co-op, a share of the legal entity is also held by the resident. Therefore, these individuals, the shareholders, hold a certain amount of shares in the corporation and not the real estate.
Technically speaking, the real estate is the property of the corporation. As for the one who owns the shares, a monthly maintenance cost is paid, which basically covers a list of things. This includes the likes of building management expenses such as cleaning, heat, water, employee salaries, garbage removal, repair costs, taxes, insurance, and the building’s underlying mortgage.
Types Of Default:
There are two basic types of default:
- A Technical default is something that is a bit less serious than its other type. Although not terribly serious, this default has the failure to make repairs in violation of the mortgage agreement.
- A Mortgage default, on the other hand, is something very serious. This is so, because the lender does not receive the payments as stated in the original agreement. Which states that the shareholders face a frustrating situation. In this way, filing a bankruptcy for co-ops becomes the fastest route.
Foreclosure:
This is the worst that can happen. This is a form of foreclosure where the fight to earn the legal right for the building, hence filed by the lender. The foreclosure may take many years to be resolved but until and unless the co-op brings in a sound defense, the option revolves around an auction. In such situation, the auction is held by the referee where the building is put up for sale, and the shareholder continues being the rental tenants.
Co-op Bankruptcies:
Co-op bankruptcies are not very common. According to the experts, since the World War II, less than 10 co-ops had been foreclosed in NYC.
On the other hand, it would never hurt to be extra vigilant.
Shareholders:
From the shareholder’s side, nothing much can be done if the co-op apartment has been already purchased.
However, if their shares lie in a troubled co-op, guidance must be sought out for from a qualified lawyer.
According to the gurus, one must make sure if there had been any problems in the past. Furthermore, you can take a look at the last financial statement to insect, whether a clean audit letter has been issued. Further, you can ask your lawyer to see if there had been any filed against the building. You can also find out if many shareholders are failing to pay their maintenance.
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