Cooperative Ownership in Marin: Distinctions between Condo and Co-op Ownership

Posted by Lisa Mallon on Monday, July 25th, 2011 at 9:00pm.

I recently showed condominiums and cooperatives in Terra Linda to a buyer-client and they were unfamiliar with the differences between these two types of homes. You may be surprised to learn that Marin is home to several cooperative communities so I thought a brief discussion about these two types of properties would be both helpful and instructive.

As a practical matter, there is no significant advantage or disadvantage to cooperative vs. condominium ownership. They are both considered Common Interest Developments or CIDs. However, a condominium is considered real property and a cooperative is considered intangible personal property. In a cooperative, the building containing the apartments is owned by a "cooperative housing corporation." In a condominium, each unit owns an individual apartment as well as an undivided interest in the common areas. Both condo and co-op owners pay monthly fees for community services such as exterior maintenance, parking, most utilities including water, sewer, garbage, electric and cable tv. Insurance to cover damage to the building and grounds - except the contents of each unit - is also inlcuded in the monthly fee.

I've summarized the key differences between condos and co-ops below:

Ownership - A condo owner actually owns the apartment and the property appears in the tax rolls as a separate entity so individual owners pay their own property taxes. In a cooperative apartment complex you don't own any real estate individually but instead you own shares in a not-for-profit corporation. As a shareholder you have the right to lease space in the building and the corporation owns the common areas. The entire co-op property appears as a single piece of property in the tax rolls and the corporation pays the property taxes and passes along the cost to the tenant-shareholders, as part of the monthly maintenance fee.

Financing - The mortgage options for a purchase of a condominium are identical to any other real property purchase. There are many options for finanicng a real property purchase. The condo owner is responsible for their mortgage debt and taxes solely on thier own property. Financing for cooperatives is generally limited to a few approved lenders due to the fact that the security for the loan is the resident's share in the corporation. These lenders generally require larger down payments, charge higher interest rates and only offer a few mortgage options.

Mortgage Deductions - As a condo owner, you are easily able to deduct mortgage interest payments if you reside in the unit and further deductions for such things as depreciation and maintenance if the condo is used as a rental property. The co-op tenant-shareholder can only deduct their proportionate share of the property taxes and underlying mortgage. If other monies were borrowed to finance the actual purchase ofhte tenant-shareholder rights, deductibility depends on a variety of factors and isn't easily done.

Monthly Maintenance Fees - Maintenance fees for co-ops are generally significantly higher becasue they inlcude the collection of mortgage and property tax payments from each shareholder in addition to the common area maintenance for things like yard, pool and insurance. Utilities are also frequently included.

Powers of the Board - Many condo associations claim they are empowered to either approve or disapprove the transfer of ownership but in truth, they have almost no power at all. Co-ops by comparison, have the right to approve or deny the sale of shares on the basis of a buyer's financial strength and inability to make payments. In fact, there is a rigid approval process for every prospective buyer involving a thorough review of that buyer's financial records before the sale can be approved.

There are pros and cons to condo and co-op community living. For those looking for homeownership with limited maintenance, perhaps it's worth exploring these types of properties further. I am familiar with the majority of condominum assoications and cooperative housing communities in Marin County. Please call me if you'd like additional information or I can answer any questions on this topic for you. I work with buyers who have diverse budgets and housing needs and bring an enthusiasm and level of knowledge unmatched in this business.