Mortgage financing of cooperative apartments (also called “coop” or “co-op” apartments) in Florida has its own peculiar challenges (and opportunities). In spite of these challenges, it is possible to finance cooperative apartments in Florida, depending upon the particular cooperative. The following should be noted:
It is wise to work with a lender accustomed to financing cooperative apartments and, in particular, accustomed to financing cooperative apartments in Florida. There are lenders who specialize in financing cooperative apartments and are accustomed to dealing with the variety of peculiarities that may be encountered in dealing with different cooperatives in Florida.
One of the challenges is that some cooperative documents specifically prohibit financing, others require approval, whereas others are silent. There are some situations (particularly in newer buildings) where the documents contain provisions that are designed to facilitate financing. However, this is rare.
Lenders will require that the cooperative association sign a “Recognition Agreement” or “Acknowledgement” wherein the cooperative association recognizes that the lender has a security interest in the apartment and provides a number of protections for the lender. These include provisions for the giving of notices to the lender in the event that the owner violates the cooperative apartment rules or does not pay his or her assessments on time. The document generally also contains provisions that are designed to protect the lender in the event of a default under the loan arrangements. Sometimes, associations are familiar with such documents and are willing to sign them. Sometimes they are not. Sometimes they will sign them only with substantial modifications that may or may not be acceptable to the lender. Thus, in many cases (particularly where the lender has not dealt with the cooperative previously), the lender surfaces the agreement and provides it to the association early in the process, so as to determine as quickly as possible whether the association and the lender will be able to come into an agreement acceptable to both.
There have been situations where lenders have accepted cooperative apartments as collateral even without a Recognition Agreement or Acknowledgement. This will depend, of course, upon the financial capabilities of the borrower and the availability of other collateral and the like.
Lenders generally require title insurance in connection with cooperative apartment financings. Whether title insurance can be obtained, and if so, whether the title insurance will be acceptable to the lender in a particular case, is variable.
Numerous cooperatives are located on leased land. That is, the cooperative association does not actually own the land where the building is located. Rather, the land is long term leased by the owner to the cooperative association. This will raise additional issues for lenders, depending upon the remaining term of the lease. If the remaining term of the lease is too short, the lender may refuse to make the loan. In addition, the land where the cooperative is located (or the association’s leasehold interest) may itself be subject to a mortgage, creating further issues.
Also, the documentation will be somewhat different from a mortgage on a house or a condominium. For example, there will be a “Mortgage and Security Agreement” or a “Security Agreement.” But the purpose is the same: to secure the loan with the cooperative agreement.
As you can well imagine from the above, the ability to obtain financing of a particular cooperative unit will be dependent on a number of factors including, how cooperative the association’s management and board are, and how sympathetic they are toward allowing financing. In addition, boards and their attitudes may change over time, so the situation regarding financing in a particular cooperative may not be static. So, borrowers need to inform themselves about the board’s and management’s attitude prior to proceeding, in order to avoid wasted time and disappointment.
Mortgage financing of cooperative apartments in Florida presents its own unique challenges and opportunities. Working with a lender (and a settlement agent) who have substantial experience in financing cooperatives, and in particular in financing cooperatives in Florida, is the best way to proceed.