One of the big problems we run into with Housing Cooperatives is that this form of home ownership is such a big mystery. Consequently, financial institutions miss a large business opportunity to provide loans to people interested in buying Cooperative units, or those already living in Cooperatives that want to finance improvements or draw some of their equity out. Most banks and even credit unions (which is surprising since they are based upon cooperative principles themselves) do not have a clue that they can safely make secure loans to such borrowers, using the share itself as collateral, coupled with an agreement between it and the Cooperative that recognizes the loan to the member and provides remedies upon a default by the member,neither with the loan or the carrying charge payments.
There are a few exceptions. Down in Atlanta, Housing Cooperatives are working among themselves to make share loans on a limited basis. There is also one major lender in the field that makes share loans, but our experience thus far is that this bank is seriously deficient when it comes to servicing the loans, causing a terrible amount of frustration, not to mention legal problems, for those Cooperatives that have the misfortune of being saddled with this institution that does not respond to routine requests associated with these loan transactions.
We are working on changing this. At Pentiuk, Couvreur & Kobiljak, we are engaged in discussions with area credit unions to expose them to the opportunity. In addition, NAHC has formed a committee, and I have been appointed to serve on it. Our committee is laying plans for a pilot project to try a share loan program in the Detroit market. Finally, I have had preliminary discussions with some clients on starting a credit union comprised of Housing Cooperatives that will provide all types of financing for the needs of the Cooperatives and their members.
I believe that the time has come to fill this void in the financial realm. One way or another, it appears that share loans will soon become a common tool. Stay tuned for more.
Randall A. Pentiuk, Esq.