Read More »" /> The Legal Aspects Pitfalls of Cooperative Refinancing. Randall Pentiuk & Joe Couvreur | National Cooperative Law Center - Part 2

The Legal Aspects Pitfalls of Cooperative Refinancing

It should be noted here that HUD initially demanded a vote of the members.  When challenged to point to the law or bylaw provision that mandated that, HUD backed off and simply requested evidence that the members had been informed.  While we do not agree that HUD can require it, boards that we represent are encouraged to convene informational meetings for the membership at which time the plans are discussed, for reasons stated below.

Dealing with Membership

        Holding informational meetings with the membership bring to the forefront a number of erroneous beliefs held by some.  It is important to debunk these myths, and to do so with concrete answers.  Otherwise, the rumor mill will run rampant and there will be a lot of confusion, controversy and dissension .

First, there are many members who hold the belief that they will somehow automatically own their units when the mortgage is discharged.  This is simply false.  The legal structure of the cooperative is unaltered, regardless of the mortgage.  The member will still be a member on the morning after; and he or she will still have a proprietary lease (known as an occupancy agreement).  The very same Board will run the Cooperative as the day before. .

This leads to the second myth.  Many believe that the cooperative must take some action at the time the mortgage is paid off.  Nothing is farther than the truth.  Cooperatives are corporate entities, with perpetual existence.  This means that they will continue on and on, forever.  Therefore, no rush to take some action is needed.

We do not mean to imply that the board should not evaluate its options.  As fiduciaries, Board members need to be ever vigilant and consider opportunities.  But our point is that the Cooperative does not have to do something – rather, it may choose to do so.  The difference lies between “must” and “may.”

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