A Glossary of Housing Cooperative Terms

The alteration agreement describes the terms under which the cooperative gives permission to a shareholder before making any changes or improvements to the unit the member occupies.

The annual membership meeting is a yearly meeting to which all the members of the co-op are invited. At the annual meeting, members elect the co-op’s board of directors, bylaw revisions can be voted on, and other important matters can be brought before the entire membership. The financial status and overall health of the cooperative is usually reported on. Most cooperatives, as corporations, are legally required through their bylaws to hold an annual member/shareholder meeting. The bylaws state when, where, and the agenda.

The articles of incorporation are the legal document that establishes the existence and purpose of the cooperative corporation. The articles of incorporation must be filed with the appropriate state government agency, usually the Secretary of State, under applicable provisions of state law. Some states have specific laws that pertain to cooperatives and/or cooperative housing corporations.

An artists housing cooperative is shared living/work space-owned on a cooperative basis-for local artists. Artists cooperatives are generally set up as limited-equity cooperatives in order to keep the housing permanently affordable for artists.

A blanket mortgage is a single loan covering an entire building or the entire property that the cooperative owns.

BMIR is an FHA abbreviation for Below Market Interest Rate. This term applies to certain FHA mortgage insurance programs where the mortgage carries with it a subsidized interest rate that is below the market. This reduces monthly cost and makes it possible for low- to moderate-income families to benefit from the cooperative form of home ownership.

A co-op’s board of directors is elected by the members/shareholders to govern the cooperative including setting policy, making rules and regulations and other decisions which govern the operations and the welfare of its members/shareholders.

The bylaws are a written set of provisions and directions that the cooperative corporation follows in governing operations. Usually any changes to the bylaws require a vote by the entire membership at a duly called meeting upon proper notice. Bylaws typically cover topics such as how the board of directors is elected, when membership meetings shall be held, and other issues related to the governance of the cooperative.

See Monthly Carrying Charges.

A condominium is a form of homeownership that combines individual ownership of one’s unit with shared ownership of common facilities. Each owner has a separate mortgage for his or her individual unit and is individually responsible for making the payments on it and real estate taxes. An elected board of directors is responsible for operations and management of all common facilities.

A conventional loan is a mortgage loan obtained from a private lender that is usually at a market interest rate and is not insured by FHA, or guaranteed by VA.

A cooperative is any type of organization that is owned and controlled by its member-users for a common purpose and that follows the cooperative principles. A cooperative operates for the benefit of its members on a not-for-profit basis in order to provide the goods and services members need at the lowest practical cost. Members/shareholders own the cooperative and participate equally in the governance of the cooperative.

The cooperative interest is the combination of the cooperative ownership (share or membership) and occupancy rights (occupancy agreement or proprietary lease). The two interests cannot be divided.

The cooperative principles are a set of seven principles that cooperatives worldwide follow. They are based upon principles developed by the Rochdale Pioneers in England during the1800s, generally considered to be the founders of the modern cooperative movement. The International Cooperative Alliance revised the principles in 1995.

A number of documents set down the parameters under which a housing cooperative operates. Certain documents such as the bylaws and the articles of incorporation relate to the cooperative corporation itself. Other documents such as the occupancy agreement/proprietary lease, subscription agreement, and house rules spell out the relationship between the cooperative and each member-shareholder. Yet other documents, such as recognition agreements and regulatory agreements describe the relationship between the cooperative and other entities, such has government agencies or financial institutions.

The difference between the value of the cooperative property and the total amount of all debt against the property. It reflects the book value of the member/shareholder interest in the co-op.

An FHA/HUD term that refers to income paid by residents who, at certification or recertification, have income over the prescribed limits, thus requiring the payment of a monthly charge above the basic rate. This term is most commonly used in relation to a Section 236 development.

See Federal National Mortgage Association

The sub-governmental unit within HUD that insures mortgages and provides subsidies. The FHA insures many housing loans, including cooperative loans.

Fannie Mae is a private corporation, created by the National Housing Act to establish a secondary market facility for home mortgages by buying and selling such mortgages and returning cash to lenders so that they can lend again.

Fee simple ownership refers to the private ownership of real estate in which the owner has the right to control, use, and transfer the property at will. In 9 states, cooperative shares are or can be considered real estate. In other states) cooperative housing ownership is not considered fee simple because shareholders do not own actual real estate, but rather a share in a cooperative corporation, which in turns owns the real estate. The share is considered personal property.

See Federal Housing Administration

A flip tax is a fee that is levied by the cooperative in return for waiving the co-ops right to purchase when a cooperative shareholder sells his or her share.

HUD-related cooperatives are required to maintain a reserve fund at a level specified in the regulatory agreement for the purpose of providing funds in emergency or crisis situations. Many non-HUD related co-ops also maintain these reserves.

House rules are rules of conduct developed by a co-op to ensure harmonious cooperative living. House rules typically cover issues such as noise levels, parking, pets and garbage disposal.

Housing cooperatives are a form of homeownership where individuals own shares or memberships in a corporation that owns or controls the land and buildings that provide housing. The ownership of a share entitles one to occupy a unit within the cooperative.

Housing finance agencies are public agencies established by statute in certain states. They are empowered to raise money and make direct loans to sponsors of low and moderate income housing under conditions more favorable than those available in the open market.

HUD is an agency within the U.S. government with chief administrative responsibility for providing a wide range of assistance for public and private housing and development of the nation’s cities.

Income limits are found in many types of affordable housing. The co-op or sponsor sets certain eligibility requirements for admission or continued occupancy in housing developments designed for low-income people. Certain housing cooperatives, primarily those that have been developed through government subsidy programs for the purpose of providing affordable housing, have income limits on incoming members. However, unlike most rental or public housing with income limits, in a cooperative, if an individual or family’s income goes over the limit once they have moved in, they do not have to move out.

Section 216 is a section of the U.S. federal tax law that permits individual cooperative members to deduct mortgage interest and property tax on their income tax returns just like other homeowners do. Section 216 allows cooperative housing corporations to pass-through the mortgage interest and real property tax deductions to their stockholders on a pro rata basis.

In a land-only cooperative, only the land beneath the building(s) is owned on a cooperative basis. The individual homes are owned subject to lease on the land. Mobile home park cooperatives or manufactured housing park cooperatives are almost always land-only cooperatives. Other than mobile home park or campground cooperatives, land-only cooperatives are quite rare.

The cooperative corporation owns the building(s), but leases the land. Leasehold cooperatives are found in urban renewal areas, tribal lands, Hawaii, land fill waterfronts, and similar areas.

In a leasing cooperative, the cooperative corporation does not own the property in which members reside but rather leases it from another entity.

A limited equity cooperative is a cooperative where the bylaws limit the resale price of a membership/shares for the purpose of keeping the housing permanently affordable to incoming members. The resale value of shares is not determine by whatever the market will bear as in market rate co-ops, but rather it follows a pre-determined formula in the bylaws that limits that maximum resale value over time. Limited equity cooperatives also usually restrict purchase of memberships to persons below a certain annual income level. This also serves to preserve the property for low and moderate income families.

See Monthly Maintenance Fee

A management agent is a firm or entity hired by the cooperative to manage the development. The relationship between the cooperative and the management agent is usually governed by a specific contract, called a management agreement. Not all cooperatives use a management agent. Some larger cooperatives hire a General Manager as an employee of the co-op, others are managed by the members themselves. However, most large co-ops use a management company.

The management agreement is a contractual arrangement between the cooperative corporation and the firm hired to manage the cooperative’s property. These contracts outline the firm’s responsibilities and compensation. While there are standard forms of such contracts, they are usually adapted to the specific needs of the particular cooperative.

A specific plan of operations provided by a management agent to the cooperative, in substantially greater detail than that provided in the management agreement. The plan may be attached to the management agreement as a rider.

A manufactured housing park cooperative is a manufactured housing park that is owned on a cooperative basis. Typically the cooperative owns the land, and residents each own their individual manufactured homes. Cooperative ownership provides residents with a much higher level of economic security since they do not have to live with the constant threat of higher rents or sale and closure of the park.

A market rate cooperative is a cooperative (1) financed with interest rates considered market rates and (2) with no restrictions on membership/share resale prices.

An individual who owns a share or membership in a cooperative. Depending on the type of cooperative, members are also be referred to as shareholders.

(see “Equity”)

Membership can either refer to all the members of a cooperative, or an individual share in a cooperative.

Many cooperatives have a membership committee that reviews incoming members and approves or rejects their application based upon specific criteria set forth by the Board of Directors. (See “Right of Approval”.) Often incoming members will need to have an interview with the membership committee before they will be approved for membership. In some co-ops, the board of directors will screen incoming members. In other cooperatives, management performs this function.

See Annual Membership Meeting.

New York State established the Mitchell-Lama Housing Program in 1955 for the purpose of building affordable housing for middle-income residents. The housing developed under this program is more commonly known as “Mitchell-Lama” housing, derived from the last names of the state legislators MacNeil Mitchell and Alfred Lama, who sponsored the legislation. Mitchell-Lama co-ops are limited equity co-ops, supervised by local government. 60,000 cooperative apartments were developed through this legislation.

See Manufactured Housing Park Cooperatives

The monthly carrying charges or monthly maintenance fee is the member/shareholders’ proportiate share of the cooperative’s operating expenses, reserve funding, and mortgage payments.

Mortgage insurance is insurance with a guarantee that if an owner defaults on mortgage payments, the insurer (FHA/HUD/VA) will pay the lender the owed balance. The FHA charges a “mortgage insurance premium” for the insurance it provides against default on the mortgage. It is generally at a rate of 1/2% of the original mortgage balance.

A multifamily development is usually defined as four or more units of housing in a single building.

A mutual housing association is a nonprofit corporation that develops, owns and/or manages, or assists cooperatives and other forms of nonprofit resident-controlled housing. It is democratically structured for participation by its organizational members, its resident members, those waiting to become residents, and other individuals who support its purpose.

The occupancy agreement or proprietary lease is the contract between the cooperative corporation and the member that sets the conditions for the right to occupy a particular unit. FHA co-ops and some other co-ops call this contract an occupancy agreement; others refer to it as a proprietary lease. It sets forth the rights and obligations of the member and the cooperative to each other. Legally, it is viewed as a lease by the member with the housing cooperative.

In addition to the board of directors, all cooperative corporations have officer positions held by members of the board. The bylaws of a cooperative usually describe these positions and explain how they are elected. President, Vice President, Secretary, and Treasurer are typical officer positions.

Personal property is property which is not real property (real estate), consisting of things temporary or movable-refrigerators, stoves, or air conditioners.

PITI is an abbreviation for the costs that make up the mortgage payments-Principal, Interest, Taxes, and Insurance.

See Occupancy Agreement

A proxy is an authorization of one person to act on behalf of another for voting purposes. Some cooperatives allow “instructed” proxy voting, others do not. Usually the co-op’s bylaws state whether or not proxy voting is allowed.

RCM stands for Registered Cooperative Manager. It is a professional designation for cooperative site managers who have successfully completed NAHC’s Registered Cooperative Manager Program.

Real property denotes land and generally whatever is erected on it, growing upon it, or affixed to it. It is also known as real estate. In most states, co-op members do not own real property, but rather a share in a corporation, which in turn owns the real property.

A recognition agreement is an understanding between a cooperative and a financial institution that provides share loans to the cooperative’s members or shareholders. The recognition outlines the responsibilities between the co-op and the bank and the courses of action that must be taken by each party if a shareholder/member defaults on the loan.

Co-ops that are have mortgage insurance through HUD or the FHA have certain obligations that are outlined in a document called a regulatory agreement. Co-ops financed by state and local housing authorities often have similar contracts, which are often modeled on the standard HUD agreement. Basically, the regulatory agreement requires the co-op to abide by the regulations of HUD (or FHA), which insured the mortgage in order to induce a lender to finance the development. This document binds the mortgagor (the cooperative) and mortgagee (the financial institution that holds the mortgage until the amount borrowed, plus interest, is paid) with the Secretary of HUD.

A replacement reserve is a reserve fund to provide savings for the timely replacement of major appliances, building components, and structures.

The term resale describes the process of transferring a share from an outgoing co-op member to a new member.

See Transfer Value.

See Replacement Reserve and General Operating Reserve)

Most co-ops have a process to review and approve new members/shareholders. Your purchase of a membership/share is conditioned on the co-ops review and approval of your application and abilities to meet your obligations under the occupancy agreement. Co-ops may not discriminate against any protected class under local, state, and federal law.

A right of first refusal is often stipulated in a co-op’s bylaws. If a co-op’s bylaws contain a right of first refusal clause, the co-op has the first option to purchase or refuse to purchase the outgoing member’s share at an agreed upon price.

Section 8 is a federal assistance program that subsidizes the monthly rents of low-income individuals. Individuals who receive Section 8 assistance must fall under certain income requirements. Individuals benefiting from Section 8 pay only a certain percentage of their monthly income in rent, the government pays the rest directly to the landlord or co-op.

Section 202 is a HUD program that provides financing for housing developed for the elderly and disabled. A number of senior housing cooperatives have been developed using this program.

HUD’s Section 203(n) single-family cooperative mortgage insurance program insures loans for persons buying a share/membership in a housing cooperative. The loan is made by a lending institution, such as a mortgage company, bank, or savings and loan association, and is insured by HUD’s Federal Housing Administration (FHA). (See “Share Loan”)

Section 213 is a HUD program that insures mortgages only on cooperative housing projects on a market rate basis. Section 213 has been used to insure over 500 cooperative housing projects, totaling over 70,000 units.

See “Internal Revenue Code Section 216”

Section 221(d)(3) is a HUD/FHA program that insures mortgages for the new construction or substantial rehabilitation of multifamily cooperatives and nonprofit rental housing. Under 221(d)(3), a nonprofit sponsor may receive an insured mortgage for up to 100% of the HUD/FHA estimated replacement cost of the project.

Previously, the Section 221(d)(3) Below Market Interest Rate (BMIR) program provided below market interest rate financing for sponsors of low-income housing projects. Many cooperatives that were developed during the 1960s and 70s used this program. BMIR projects were replaced by the Section 236 Mortgage Subsidy Program under authority of the Housing Development Act of 1968. Presently no new mortgages are insured under the BMIR or the Section 236 programs.

Section 236, a HUD program enacted in 1968, provides a subsidy to reduce mortgage interest payments down to as low as 1%.

In a self-managed cooperative, cooperative members perform the function of maintenance and administration themselves, or contract to various vendors.

A senior housing cooperative is cooperatively owned or controlled housing designed especially for seniors.

A share is the proportion of the cooperative that each member owns, and it represents the proportionate amount that each member invested in the co-op when the co-op was started. A certificate, often called a stock or membership certificate, documents the purchase price and membership in the cooperative.

A shareholder, also called a member, is the owner of a share in a housing cooperative.

A share loan is a loan obtained to purchase a share in a housing co-op secured by the shares and occupancy rights (cooperative interest). A member can get an individual loan for that amount from a bank or other lending institution (just as when an individual is buying a house).

A site manager is the individual who is employed by the cooperative or the cooperative’s management agent to perform the necessary on-site management functions. The site manager may or may not reside on-site, and may or may not be employed full time.

A stock certificate is a documentation of ownership of share(s) in a cooperative. It indicates the number of shares registered in the name of the owner. Stock shares are issued by stock issuing corporations.

Located near colleges and universities, student housing cooperatives provide a variety of shared housing, dormitory arrangements, or apartments to meet student needs for low-cost housing.

Subchapter T refers to Sections 1381 to 1388 of the U.S. Internal Revenue Code, which cover cooperatives that serve some public benefit. Cooperative housing corporation pay federal corporate income taxes in accordance with the provisions of Subchapter T.

A sublease is a lease between a current co-op shareholder and another person. Most co-ops restrict subleasing and require subleases to be approved by the board.

A subscription agreement documents the purchase of shares in the housing cooperative.

Subscription funds are a fee or price paid along with the subscription agreement or purchase agreement.

A subsidized housing co-op receives a subsidy of some kind from the federal, state, or local government or other sources in order to lower the overall costs of the housing.

Sweat equity is the act of providing personal labor in building or rehabilitation a property by a resident-owner in order to reduce the price and/or as a part of a purchase agreement, especially as used in subsidized or self-help housing.

The transfer value is the dollar amount of the membership or share in a housing cooperative as set by the bylaws in event the cooperative re-purchases the membership/share. In a limited equity co-op, the transfer value is the maximum amount at which a member’s share in the co-op may be sold according to the co-op’s limited equity formula.

Income from a trade or business that is not substantially related to a not-for-profit organization’s tax-exempt function and that is regularly carried on by the organization. Annuities, interest, dividends, Annuities, interest, dividends, royalties, and rent from certain real and certain personal property are specifically excluded from the definition of unrelated business income. A corporate tax is imposed on UBI in excess of $1,000 in order to place the tax-exempt organization on an equal footing with taxable organizations with respect to their business operations.

Glossary provided by National Association of Housing Cooperatives (NAHC) website