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What’s A Housing Cooperative?

The question is often asked: what’s a housing cooperative? How does it differ from a condominium? Can I get financing if I purchase a cooperative apartment, and does cooperative ownership give me the same tax benefits as compared to a single family home?

The general public often confuses condominiums with cooperatives. In reality, as far as living standards go, there are few differences. However, from a legal — and financing — point of view, there are major differences.

There are many definitions of cooperatives, but the one I like best is that a cooperative is a multi-unit apartment building, in which each resident has an interest in the entire building, and a lease (or contract or share of stock) enabling the owner to occupy a particular apartment unit within the building.

If you own a condominium, you actually own your entire apartment, as well as a percentage of the common areas (called the “common elements”). A cooperative owner, on the other hand, does not, in fact, own the unit.

The cooperative association, which is usually a corporation consisting of all the unit owners, owns the entire building, including all of the individual units. Each co-op unit owner either owns shares in the cooperative association — just like owning shares in any other corporation — or for non-stock corporations has what is known as a “proprietary lease”. This lease spells out the rights and responsibilities of the owner, as well as the obligations and duties of the Association.

While this may sound complex, in reality cooperative living can be very desirable. Cooperative residents generally get the same tax treatment as other homeowners. If they have a loan and if it is secured by their ownership documents (ie. the stock certificate or the proprietary lease), they can deduct the yearly interest paid on that loan. Additionally, if the cooperative association has a mortgage on the entire building — called a blanket or underlying mortgage — shareholders can deduct their proportionate share of the interest on that mortgage. And under most circumstances they can also deduct their proportionate share of the real estate taxes which the cooperative pays. It gets a little complicated if there are commercial units in the complex.