As a practical matter, ownership of a cooperative apartment is substantially similar to ownership of a condominium, even though there are legal differences between the two. Real estate taxes and interest paid on mortgages, for example, are deductible from federal and DC income taxes to the same extent for both cooperatives and condominiums. One difference, however, lies in the financing of a cooperative purchase. In a condominium, the owner purchases the apartment unit itself, and can finance the purchase with a mortgage in the same way that a single family house is financed. In a cooperative, by contrast, a corporation owns all of the building and grounds, and the purchaser actually is buying shares of stock in the corporation rather than the apartment unit.
There are two sources of financing in the purchase of a cooperative: the master mortgage for which the corporation is responsible and the secondary mortgage, if any, for which the individual purchaser is responsible. When a cooperative is first created, either by developing a new building or by converting a rental property to cooperative status, the cooperative corporation ordinarily takes out a mortgage – a “master” mortgage – on the entire property. A purchaser of the cooperative (i.e., shares of stock in the cooperative corporation) thus assumes the obligation to pay the pro rata portion of the master mortgage during the time the purchaser owns the cooperative’s stock; and the monthly fee paid to the cooperative includes principal and interest related to the master mortgage. At Van Ness North, the master mortgage was paid off in June of 2016.
In contrast to the master mortgage, a secondary mortgage covers only the particular shares of stock being purchased in a transaction, and must be obtained by the purchaser directly from an approved mortgage lender through a process similar to obtaining a conventional mortgage for a condominium or single family house. Because of the legal differences between a cooperative and a condominium, not all mortgage lenders are able to offer secondary financing for cooperative stock. Instead, lenders must enter into an agreement with the cooperative corporation in order to be qualified to provide financing for prospective purchasers of a cooperative. Recognized lenders at Van Ness North (see the inset for names and contact information) include a number of major lending institutions which offer purchaser a variety of loan types, from adjustable rate mortgages to seven and ten year balloon mortgages to the traditional fifteen and thirty year loans.
A final point to be mentioned is the difference between the contract price in the purchase of a cooperative compared to a condominium. In the case of a condominium purchase (or a single family house), the individual purchaser is responsible for payment of the entire contract purchase price at the closing, including arranging for any necessary financing. In the case of a cooperative, however, the individual purchaser is responsible for paying at the closing (and financing, if necessary) only the amount of the contract purchase price that exceeds the seller’s share of the master mortgage held by the cooperative corporation. For example, if the contract price for a cooperative is $250,000 and the portion of the master mortgage held by the corporation applicable to the seller’s stock shares is $50,000, the purchaser is responsible for paying at the closing only the remaining $200,000, i.e., the difference between the contract price and the amount of the pre-existing master mortgage. The remaining $50,000 will be retired as part of the purchaser’s monthly fees paid to the cooperative.
Current Financing at Van Ness North
Financial institutions establish agreements with V.N.N.C., Inc. and offer a wide variety of loan types, from adjustable rate mortgages to seven and ten year balloon mortgages to the traditional fifteen and thirty year loan.