Market Conditions in 20011>Question Details

Robin Miller, Home Buyer in Gaithersburg, MD

What are the major risks for buying into a cooperative property, when their ratio to those paying co-op fees are delinquent?

Asked by Robin Miller, Gaithersburg, MD Fri Apr 19, 2013

Banks will not lend to buyers in such areas, therefore the sellers only take cash only deals. What could be the future for me as a buyer in this cooperative if I choose to buy with cash in a delinquent area?

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I agree with what Andrea said and there is another concern. Since coops depend on the coop fees to pay the underlying mortgage and the property taxes, your investment in your coop could be at risk if the coop defaults on the mortgage or does not pay its property taxes because of too many non-payers and a lack of funds. At a mimimum you are facing the real possibility of increased coop fees. While there are many stable coops in the metro area and many wonderful buildings, coops are risky and this one sounds very very risky. I would take a pass on it.
2 votes Thank Flag Link Fri Apr 19, 2013
Thank you for your response. I've learned a lot about co-ops during my search and figured that may be the case. Just digging a little deeper (worse case scenario), if the co-op defaults in mortgage payments due to non-payers, increasing the co-op fees would actually not help the problem since the owners aren't paying them anyway, correct? As a owner in the building, if fees raise and they can no longer afford the fees, what is their option, just to walk away and lose out on their investment? What happens to the building itself? Does the bank take it over?
Flag Fri Apr 19, 2013
Yep, Co-ops are tricky... But you should evaluate these considerations against the other value points with co-ops... namely that they are usually at about 75%-80% of condos... Co-op fees include taxes (separated from condo fees)... Now, the reason they are not valued as highly as condos is that they are not always as easily transferable as the fee simple form of ownership.. If you can deal with the financial issues and get them resolved there is value if they place is right.

Phil Di Ruggiero
GreenLine Real Estate
0 votes Thank Flag Link Mon Jun 3, 2013

Whether you're buying in a condo or a co-op high delinquency rates amongst the co-owners is a problem. I would be surprised to find a lender willing to issue a mortgage in an association with high delinquencies.

In associations with co-owners not paying their fees, you might expect to see an increase in deferred maintenance or a reduction in association services if the delinquencies become high enough.

It's true that Washington, DC co-op's include property taxes in their monthly fees. If there is a corporate mortgage, those payments are included in the monthly fees. While some agents have mentioned that this could increase the risk in owning a co-op, co-op boards tend to be able to foreclose very easily on delinquent owners.

To learn more about co-operatives, you may want to visit the DC Cooperative Coalition's website (link below).


Steven Dean
RE/MAX Allegiance
0 votes Thank Flag Link Thu May 23, 2013
Your larger problem may happen when you try to resell. You may experience the same issues that this seller is experiencing.
Many lenders do not lend in Coops anymore. Most Coops will have a short list of the few lenders that will. I find it diminishes all the time.
Another problem, most of my buyers face, is the prospect of very stringent rental restrictions. They really gear Coops towards owner occupied homes so, in some cases, you have to live in the unit for 3,4,5 years, you can then rent for a year or two and then it must be owner occupied again. I have found that this can be a turn off for some buyers that may not be able to have the rental flexibility in the future.
0 votes Thank Flag Link Fri Apr 19, 2013
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