Legal News You Can Use

* As many cooperatives consider an early payoff of the mortgage, there has been a lot of discussion on what happens to the Regulatory Agreement with HUD. Here are some points to ponder:

1) The Regulatory Agreement covers the entire property and continues until the final phase is paid off, according to Rod Hill of the Detroit HUD Office.

2) If your cooperative is a market rate co-op, payoff of the mortgage will end the Regulatory Agreement. Limited equity co-ops will be required to sign a Use Agreement that covenants that the essential elements of affordable housing will continue for the balance of the period that would have been covered by the HUD Regulatory Agreement.

3) HUD in Washington is developing a prototype Use Agreement that will mandate the terms; but up to this point, the Use Agreement has been negotiated by the local HUD offices and approved by Washington.

4) In refinancing the mortgage, we have found that HUD in Washington can be very helpful and that, in at least one instance, the local servicer was not knowledgeable. While normally we go to the local office first, we think that it is best to go straight to the HUD staff in Washington to get the approvals for the refinancing done. In one refinancing we recently completed, we were able to get the paperwork through HUD in a matter of two weeks!

If you are contemplating an early payoff, you should contact a cooperative attorney with extensive experience with cooperative refinancing.

* Good news on the share loan front: the National Cooperative Bank [NCB] advises that it is handling share loans so the incoming members can secure the money necessary to buy the shares. The amount available varies from 80% to 97 ½ % of the cost of the shares. The co-op will need to work out the terms of a Recognition Agreement with NCB or any other share lender.

Please call an experienced cooperative attorney if you need help with this.

*Many co-op bylaws contain a restriction on who can carry a proxy if a member is married. If the member is single, though, the typical clause says that any other co-op member may carry the proxy. HUD has ruled that this restriction discriminates against married people and thus violated Michigan law. You should remove this restriction from your bylaws.

*If your co-op is struggling with a member who has violated your rules, there are occasions when you want to give him or her a second chance. Many times, the Board will meet with the offending member and will put him or her “on probation.” There are, however, significant problems in doing this. Among them are:

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