Securing a Family Loan

read:

http://www.irs.gov/publications/p936/ar02.html#en_US_2010_publink1000229984

Thanks. Publication 936 points out that sometimes the coop stock can't be used to secure a debt because of restrictions in the coop agreement. This was the question I originally had: are there often restrictions in coop agreements on what are essentially second mortgages without the consent of the board? I don't have a copy of the coop agreement available and before I ask the management office for a copy I was hoping to get some feedback from the boards.

techno: there are restrictions (from the co-op's point of view) on how you can pledge your stock in the shared entity that is the building. If you want to pledge it to a bank in order to secure a mortgage loan, the condo will make the bank sign an agreement indicating the order of the liens (mortgage vs. maintenance), and make you sign said agreement saying you won't refinance without telling the co-op.

These agreements are sometimes known as "recognition agreements" or "Aztechs."

So yes, if you want to pledge your stock to a family member, the co-op is going to need to approve that pledge. (I'm working on a similar co-op deal, and it's hairy. The plan is to have the family member and the co-op sign Aztechs, just as if the family member were a bank).

However, if the loan is unsecured by any ownership interest, I don't see why the co-op would care. (Of course you should check the bylaws of your particular building).

The bank should care to the extent it cares about your general financial picture and your outside debt - i.e. to the same extent it cares about your car loan.

big I AM NOT A LAWYER disclaimer here.

ali r.
DG Neary Realty

^^ and of course the co-op is going to care about any unsecured loan to the extent that it cares about your total debt load as shown on your REBNY financial statement.

ali