Re: Which is riskier Co-op vs. Condo: Read This

A condo can take on debt, if it failed to pay I imagine a lien against the common elements is possible. The question of whether a coop or condo is riskier really depends on what risk one is looking at. For example coops generally place major restrictions on rentals, which could be a risk if a need arose to relocate and the owner did not wish to sell into an illiquid down market.

You forgot the 3rd rail, Buying when a bubble is popping.

Condos are also more liquid, bigger pool of potential buyers. Coops are better protected against unpaid common charges. I'm sure this has been listed out elsewhere.

Something akin happens in condos - if the common charges aren't paid then all the other owners have to fork over.

So if your neighbors don't pay their share of the common charges in your condo, you really think you won't get assessed to cover the difference? There's no reason why a coop in NYC would suffer thru a foreclosure unless it had very few units. Just assess the remaining members for the money that is in arrears. Condos are much riskier because of their low downpayments. If you have no equity you have a higher probability of walking away. With a coop the assumptions is most require at least a 20% down, and you can't use your apt has an ATM either. Co-ops also have much lower property taxes and are probably older so the owners have been there for sometime. The last coop I lived in only 25% of the apts were purchased after 2001, so most have lots of equity and many apts are completely paid off. Of course this all goes out the window if most people in NYC lose their job.

In addition of you have someone in your coop that isn't paying their mortgage or monthly charges, the bank must pay it, they are the real leaseholders of that unit. When the bank finally sells off that coop in foreclosure, the coop gets paid first, the bank gets whatever is left over, which is why coops are seen as more risky for banks. That's not true in a condo.

If I was going to live in the apt and not be an investor I would purchase a coop. Condos are for people that can't prove their income, don't qualify, or want to be an investor. All of which makes for bad neighbors, plus I save 30%.

Riversider, Good point, but a lien on the common elements is NOT a loss of home equity. This questions bears on the risk of a co-op shareholder at risk of losing their home equity and being obligated for a personal mortgage. That appears to be a heavy downside that no condo owner bears.

that's why i like the chelsea mercantile. it converted before the majority of the bubble. sure there are some there that overextended during resales, or with HELOC's, but it was fairly stable for a good deal of the bubble.

not all condo buildings are created equally. but as i really prefer a condo i wouldn't touch many buildings for at least three more years, until foreclosures make their way through the process.

w67, so both are too risky for you. Fair point.

There is a MAJOR point being missed here:

If a unit goes into arrears on either maintenance or mortgage payments and gets foreclosed on, the PRIORITY OF LIENS is totally different in a Coop and a Condo.

In a Coop, the maintenance is the first lien. If the Coop forecloses on maintenance arrears, the bank's share loan gets WIPED OUT. In Condo, the Common Charge arrears is SECOND to the First Mortgage so if the Bank forecloses, the Common Charge arrears gets wiped out. If the Condo forecloses for Common Charge arrears, the First Mortgage stays in place.

So, in a Coop, as long as it is "sold enough" (i.e. not too many unsold shares where there is a statutory tenant where the rent doesn't pay the maintenance) the Coop will eventually (even if it has to declare Chapter 13 bankruptcy to forestall) be made whole (or more). OTOH, the Condo will get wiped out of TONS of money and the remaining unit owners will have to make up for the wiped out Common Charges.

In terms of ACTUAL risk, the risk of loss in a Condo is WAYYYYYYY bigger than in a Coop. The only time Coops have found themselves in trouble is when they had large SPONSOR defaults, where the Sponsors still held major portions of the shares.

This piece, while technically correct in what it is saying, is TOTALLY misleading as to what will/would actually occur: the answer should have been: "so foreclose on the units which are in arrears" (which, BTW, takes MUCH less time in a Coop than a Condo because you can do a non-judicial foreclosure).

sorry for the redundancies: I started that post when ther were only 2 in the thread

30 yrs. I take it you own a co-op? FYI in the Depression, some co-op shareholders lost their equity. It could happen again, after the greatest period of property speculation and leverage in our lifetimes.

I own lots of stuff, and have owned LOTS of stuff, so stop trying to play this as something based on what I own. I think I deserve more respect than that based on my posting history here. You should also look at the difference in what Coops were in a lot of cases pre-depression: buildings where half the building was Cooperative shareholders and the other half was tenants of those shareholders. a) not the case today, b) much closer to the "unsold" scenario i spoke of above, c) there were no condos back then, so what are you comparing it to? Had there been condos back then, they also would have gone bankrupt. I'm not saying there are NO circumstances where a Coop could go bankrupt, what teh subject is is the RELATIVE risk. What I'm saying is what is being presented is the Coops are RELATIVELY more risky than Condos, and I'm saying it's the opposite. And I'll even add another log onto the fire: since the vast majority of Condos are MUCH more recent purchases at MUCH higher numbers than the average Coop purchase, the odds of a Condo (individual unit) being under water are MUCH higher (in addition to the point about the initial purchase being more heavily leveraged in condo purchases than Coop purchases).

Asking a question is not only natural to discuss bias, and doesn't belie a lack of respect as you infer. Did you notice w67's renter's bias? I don't think there is any shame in having a bias. That you own lots of stuff and have owned LOTS of stuff--now that, however, is intriguing.

I've never heard of a single case of a co-op owner losing all of their equity. And I've lived in a co-op for nearly half of my life. I will add that I lived in a 20 story building with 3 sections, so if one or two people defaulted, there would be no impact on the co-op's finances.

For two years on here when this issue has arisen I've said for a person who intends to actually live in the apartment, coops are arguably a reasoned, better way to go. Why there is such rancor whenever anyone even suggests coops may be prefereable are immediately attacked is bizarre to me. Apocryphal stories of tyrannic insane boards and becoming a renter upon default are just that: anecdotes about exceptions, not the rules. Yet people seem to seize on these anecdotes for some reason.

so why are co ops usually cheaper then condos? is it because of all the rules they impose?

The_P, some small overextended co-ops have gone bust, but I can't find an example. The best Depression example, though I don't know whether typical, was 834 Fifth in 1932. It says something that we have to go back that far to dig anything up.

Nina15, one reason a co-op may be cheaper than the equivalent condo is that the co-op will almost always have an underlying mortgage. If you add your share of that to the price paid to the seller, a lot of the difference will go away.

Then too, we're not comparing individual apartments. The average numbers are skewed by new construction. Find two same-vintage buildings and analyze their financials and sales, and then we can see.

If you look at bylaws, house rules, alteration agreements, etc., for a co-op and a condo you won't see much difference. The market tends to overvalue so-called "easy" rules in a condo.

If you pay more for a condo, and sell for more, you may have tied that money up for an illusory benefit. I don't know that one appreciates more than the other. Myself, I'd rather not pay a premium for a condo, only to worry about over-leveraged riff-raff partners whose freight I may have to carry.

A good discussion on the topic:

http://www.streeteasy.com/nyc/talk/discussion/8209-co-op-vs-condo-risks-worst-case-scenario

On second thought, I take back my "over-leveraged riff-raff" comment. As 30yrs, cc, and others have pointed out, there's no telling how many co-op owners did cash-out re-financings. They didn't in my co-op (just the normal lower-rate re-fis, with the occasional $50-$100K out for a renovation) but that's just one building.

ooh, can I vote? I currently own both so I call myself "unbiased"...

ali r.
{downtown broker}