Co-Op Unit Owners… No Mortgage/Loan?

Be Sure to Safeguard Your Stock Certificate

Confusion sets in when it comes to the ownership of a Co-Op Unit… as opposed to a Condominium Unit.

When one owns a Condominium Unit, they own a fee simple ownership in “real estate”; to wit, “real property”… whereby a deed of ownership… for real property is designated to said individual.

Ownership of a Co-op (Cooperative) Unit…  is “a horse of a different color”.

The individual owns shares of stock in a cooperation… in essence… “shares” of an entire corporation. This scenario is analogous in nature to a shareholder of a particular corporation on Wall Street.

In essence, the Unit owner is allocated a stock certificate…  with a designated share of ownership… and stock number…  for their particular Unit… as part of of the entire corporation/building.

A stock certificate…  designating specific shares… is indicative of what the person owns. A “proprietary lease” is the instrument that allows the person possessory interest to/of the Unit.

Transferability of ownership is usually subject to “Co-Op Board Approval”; whereby the Cooperative’s designated Management Company and/or Board of Directors must conceded to the prospective purchaser’s credit-worthiness; and approve the sale of the Unit to the new purchaser. In summation, your ability to sell your Co-Op Unit is not “unconditional”.

Back to the subject at hand… in light of the aforementioned, your stock certificate is evidence of your ownership interest. This certificate is deemed “commercial paper”. Typically, where a loan is procured for the financing of said purchase…  the lender becomes custodian/responsible of/for the stock certificate… until either a sale or refinance of the Unit comes to fruition.

In scenarios where there is no financing (in conjunction with the purchase), the Unit owner is presented with (and expected to not part with) the original stock certificate; responsible for the safekeeping of same. Again, said certificate represents commercial paper; a negotiable instrument; a document where one can execute the “back” in a casino in Las Vegas or Atlantic City… and trade same in for cash.

As such, if custodianship of an original stock certificate is compromised… due to the stock certificate being misplaced/lost… and no lending institution is involved… the owner can be mandated to “bond” the lost stock certificate by the Co-Op Management Company.

Said “bond” can be exponentially expensive.

(Notwithstanding, it is understood as to why the Co-Op would want a “lost stock certificate” secured).

Additionally, there can be a substantial fee for issuance of a “replacement” stock certificate.

In conclusion… if you are fortunate enough to purchase a Co-Op Unit, absent the need for bank financing (whereby you are the perpetual holder of your stock certificate)… be sure to safeguard same. Keep it safe… and keep it accessible for when the time comes to sell and/or refinance.

The consequences of losing your certificate can be monetarily disastrous… and can end up in you “cutting through red tape with a machete”… so as to sell your Unit… (or, in actuality, sell shares of stock that represent your ownership interest of the Unit you “own”).

 

 

DISCLAIMER: THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TO BE RELIED UPON AS LEGAL ADVICE. NO ATTORNEY CLIENT RELATIONSHIP IS CREATED BY THIS PUBLICATION. AN INDEPENDENT LEGAL OPINION SHOULD BE OBTAINED BY THE READER.