Articles

Membership Equity in a cooperative housing corporation is one of most fundamental characteristics, and benefits recognized in this unique form of housing and stock ownership. For housing cooperatives where members gain equity in their membership or stock certificate, whether or not based on increased value of the dwelling unit, improvements, or general trends in real estate markets, in instances where a member sells their membership, the return equity amounts frequently become issues of legal dispute. These disputes, if unresolved, can easily reach a point where a former member files a lawsuit against the Cooperative seeking money damages.

You may be curious as to how a Cooperative Board of Directors determines how to expend its cooperative finances. As Cooperatives are formed as non-profit corporations, any monies derived from carrying charges from members go straight to the operation and management of the Cooperative. However, the expenditure of financials can vary from Cooperative to Cooperative depending on how a Cooperative is organized.

Every Housing Cooperative establishes a set of membership application and eligibility criteria. Screening applications, while itself is not an unlawful practice if decisions do not violate the Fair Housing Act for discrimination against one or more protected classes (i.e., race or color, religion, sex, national origin, familial status or disability) or other relative federal, state and local laws, serves a legitimate purpose. These purposes include insuring that members can meet financial obligations, that members and their immediate family meet occupancy standards for certain sized dwelling units, and passing criminal background checks.

All housing cooperatives either have a requirement that all members of the Board are to also be members of the corporation, or, that at least a majority of the Board must be members of the corporation. Not all housing cooperatives, however, have any requirement when it comes to how the members themselves are qualified to be on the Board of Directors.

When HUD is no longer involved, there are two schools of thought as to whether the governing documents should be amended. There is the “Do Nothing School.” The rationale given is that by operation of law, the obsolete references in the articles and bylaws are void; thus, it is unnecessary to amend them.

Excitement is growing as cooperatives that were developed over three decades ago look ahead to the day when their original mortgages are finally paid off. Boards everywhere are asking that lies ahead, and how they should prepare. This article gives valuable guidance on how to look at the issue and to plan properly for the mortgage burning (and its corresponding HUD regulatory agreement termination) event.

The governing documents of your cooperative are the tools of corporate control. They set the ground rules within which the members 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.

As most cooperatives reach the point where their original mortgages are paid off, and the HUD Regulatory Agreement ends, a debate occurs on whether they should remain as a form of housing cooperative, or convert to condominiums. We have written an article on this debate and will not reiterate it here; rather this article will present some strategies to help those boards that want to remain as a cooperative by taking steps to prevent future boards or memberships from undoing the decision.

Many of us have recently spent time cleaning and organizing our homes during the shelter in place/stay at home orders. This may have even included organizing your most vital documents. Members living in a cooperative have an extra vital document to keep in a safe place and that is his/her membership or stock certificate.