While cooperative apartments (sometimes called coop or co-op apartments) are a common form of ownership of apartments in Manhattan, they are less well known in Florida. However, there are certain areas (such as the Town of Palm Beach, which has more than 1,200 cooperative apartment units) and other areas in southeast Florida that have a number of cooperative apartment buildings. And many of these are classic, beautiful buildings in excellent condition. Here’s a brief overview of what cooperative apartments are and how they work:
In a cooperative apartment setup, the apartment building is owned by a corporation. The corporation is, in turn, owned by the owners of the apartments, who hold all of the stock in the corporation that owns the building. In Manhattan, it is nearly universal that the owner also obtains a “proprietary lease” entitling him or her to occupy the apartment indefinitely, as long as he or she pays the appropriate assessments and charges in connection with the apartment and obeys the rules.
In Florida, however, there is little consistency in cooperative apartment ownership documents. In some cases, the owner of a cooperative apartment simply obtains a share of stock. In other cases, the owner obtains stock plus a proprietary lease. In other cases, the owner obtains an “occupancy agreement.” This lack of consistency makes it particularly challenging to close transactions in cooperative apartments in Florida.
Transfer of a cooperative apartment always requires approval by the cooperative’s board of directors. In some cases, the boards are professionally run and assisted by staff or lawyers who are well versed in co-op transfer documentation. In other cases, they are not. In some cases they are helpful, cooperative and speedy. In other cases, they are not.
Financing cooperatives can also be a challenge. Some cooperative documents outright prohibit financing. Some require approval. Some are silent. Some contain provisions that are designed to actually facilitate financing.
Generally, lenders require that the cooperative association sign a “recognition agreement” recognizing that the apartment is subject to the lender’s security interest and providing various protections and notices to the lender. Again, the willingness of the various cooperatives to sign such agreements, with or without changes that may or may not be acceptable to the lender, varies wildly.
Some lenders will accept a cooperative as collateral, even without a recognition agreement. These loans are referred to as “unrecognized” loans. And, even where cooperative documents prohibit financing, lenders will sometimes accept them as collateral.
Title insurance is frequently available in connection with cooperative purchases and financings. However, the requirements of the various underwriters differ and are subject to interpretation. So, it is necessary to examine the documentation for each cooperative on an individual basis in order to ascertain whether title insurance may be available and, if so, the steps that are necessary to obtain title insurance. These steps involve review of the documentation for the cooperative itself, analysis of the documents required to complete a transfer or financing, examination of the public records, and obtaining information from the cooperative itself. Also, the title to the land where the building is located must be examined. The land may be leased by the corporation, not owned by the corporation, and may be subject to a mortgage.
Again, the possibility of obtaining title insurance and the difficulty in meeting the requirements of the various underwriters varies wildly from one building to another. About the only thing that can be said with certainty is that all the underwriters require that some document evidencing ownership of the cooperative be recorded in the public records with some type of legal description.
However, whether title insurance is obtained or not, the steps that the title insurers require are similar to the steps that a prudent purchaser or lender would require in determining whether to close a deal or not.
In light of the above factors, the transfer or financing of a cooperative apartment in Florida requires specialized knowledge and experience if the deal is to close as quickly and as easily as reasonably possible. Premier Title has handled transfers and financing in more than 250 different cooperative buildings in southeast Florida. We have files containing information on each of these coops. Our experience and the information that we have in-house on the various cooperatives allows us to close transfers and financing more rapidly and easily than others and also provides a great deal of “intelligence” on the various cooperatives and their boards of directors that is invaluable to a purchaser or lender.
For more information, contact Premier Title.