After the Mortgage is Paid Off Changes to the Governing Documents

You may also consider taking advantage of corporate law benefits that have been made available since the original incorporation of your cooperative, such as the liability limitation for officers and directors.

Many cooperatives, when they have paid off the original mortgage, and no longer have to abide by HUD restrictions, opt to move from limited equity to market rate – allowing members to transfer their memberships for whatever a buyer is willing to pay. In such case, modifications will be necessary to the bylaws – such as the equity table for transfer values. We are not recommending this for all limited equity cooperatives but merely mention it as an option to consider. It requires much due diligence including an analysis of your members’ economic status and the market for cooperative units in your surrounding area.

Even if a limited equity cooperative is not moving to market rate, there usually is a need to amend the equity table in the bylaws. This table usually covers forty years only, leaving open the question of what happens after that. Litigation is likely if this is not addressed.

A word of caution: qualified legal assistance for any of these amendments is strongly recommended. And if you amend the bylaws, remember to evaluate whether the articles and occupancy agreement, as well as the board policies, should be amended in order to maintain consistency.

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