Co-op Law for Dummies

By Randall A. Pentiuk, esq.

Overview

This class will teach [or remind you] of the answers to the following dozen issues:

  1. Know why a housing cooperative is a superior form of housing.
  2. Know what documents govern a housing cooperative.
  3. Know who governs a housing cooperative.
  4. Know how to manage the cooperative’s employees
  5. Know how to hire professionals
  6. Know how to protect the cooperative & get the most out of vendors
  7. Know how to deal with members
  8. Know how to deal with HUD
  9. Know how to deal with your City Government
  10. Know the answers to “What happens when the mortgage is paid off?”.
  11. Know whether refinancing makes sense.
  12. Know how to get share loans for your members.

Many cooperatives have reached a critical cross roads, and face a multitude of challenges that have converged to threaten the future of the housing cooperative form of home ownership.  Now, more than ever, Board members must be prepared and equipped to respond to questions that are being posed to them.  This course will prepare Boards to face these challenges, and to turn them into opportunities.

1. Know why a housing cooperative is a superior form of home ownership:

I.  Background: Cooperatives in the Midwest are under attack from opportunists who see a chance to convert to condominiums or
to sell out to a developer.  Members are often enticed with the lure of significant cash payments, thinking that they will
get a huge windfall if they buy into the notion that condominiums are inherently worth more that a cooperative membership.

II.  Comparisons:

A.  Maintenance

B.  Screening applicants

C.  Nonpayment cases

D.  Disturbances by neighbors

E.  Adapting rules to new situations

F.  Sense of community

G.  Purchase money – share loan solution

2. Know what documents govern a housing cooperative:

I.  Introduction: Who cares? Why is it important?

These are the tools of corporate control.  They set the ground rules within which the shareholders and board must operate.   They are the standards by which courts will judge issues.  Ignorance of them and how they work among themselves will leave
you defenseless to those who do know how to use them.  It is the difference between winning and losing.

II.  An Inventory of the Cooperative’s Governing Documents

Here, we provide a survey of the governing documents of the Cooperative.  It is not as simple as one would expect.  The
governing documents include what you normally think: articles and bylaws.  But it is really much more expansive than that;
to fully understand your governing documents, you need to recognize that there is a much larger universe of documents which
govern the cooperative.  This list is an attempt to alert you to the general contours of the universe of documents but it
is not exhaustive.

A.  The Cooperative’s Own Documents

1.  Articles of Incorporation

a.  Filed with the State

b.  Public Document

c.  Usually broad and general

d.  Amended by the Members only

e.  Important Clauses:

i.  Purpose of the Corporation
ii.  Amendment Procedure
iii.  Board of Directors

2.  Bylaws

a.  Not filed with the State

b.  HUD should have the bylaws

c.  Under the Regulatory Agreement, HUD is to approve them

d.  Usually detailed and descriptive

e.  Amended by the Members only

f.  Important Clauses:

i. Quorum
ii. Authority of Board
iii. Amendment Procedure
iv. Who can call a Special Meeting of the

3. Board Policies Members

a.  Not filed with the State

b.  Adopted and amended by the Board

c.  While relatively easy to change, if ignored it can create a basis for overturning an inconsistent board decision
Example: Policy on Fines & Rule Violations

B. HUD Environment

1. Regulatory Agreement

a.  Contract between Coop & HUD

b.  Not filed with the State

c.  Limits the authority of the Board
Example: Requires HUD approval to sue

d.  Duration: exists while original HUD-insured mortgage in effect

2. HUD Handbook

a. Incorporated through the Regulatory Agreement

b. May be amended by HUD

c. Duration: expires when Regulatory Agreement ends

3. National Housing Act

a. Incorporated through the Regulatory Agreement but sometimes the Articles will incorporate the Act

b. May be amended by Congress

c. Duration: depends on how it is incorporated:

i. If only through Regulatory Agreement: it ends when the Regulatory Agreement expires
ii. If through the Articles: need to check that language; it may affect the scope or operation of the
Coop inadvertently

d.  Code of Federal Regulations for HUD are created under the Act, as a supplement to the Act, as a means of
“fleshing out” the Congressional intent of the Act.

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