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Conversion Cautions

September 23, 1990

This is a response to an article titled "Southland Hot Spot: Converting Co-Ops to Condos" by F. Scott Jackson and Steven Solomon (July 22).

Cooperatives considering converting to condo should analyze carefully the reasons for converting and consider the major change in home ownership. For some it might not be the right solution after all.

Contrary to four crucial points outlined in the article:

1--Cooperative financing does exist for California cooperatives.

2--Conversions could be costly in some cases.

3--Property taxes could be affected by a conversion.

4--Community control over property is significantly altered.

There is financing available for cooperatives and individual cooperative shareholders needing to borrow for purchasing, refinancing or equity borrowing on their shares or cooperative interests through the National Cooperative Bank, headquartered in Washington, and NCB Savings Assn.

Additionally, the Federal National Mortgage Assn. (FNMA) has a secondary market program for housing cooperative blanket mortgages and individual share loan financing through which local lenders can make these loans available competitively with condominium loans.

A cooperative considering converting with a mortgage on the property will find itself paying off an existing mortgage and each shareholder picking up a new individual condominium mortgage. This means that the individual owner now assumes personal mortgage liability as a condo owner, which the shareholder did not have as a cooperator.

Property taxes may not be affected by the conversion itself if there are no other financial considerations involved. However, taxes may be increased when the first converted condominium unit is sold.

A very careful analysis is needed to see if the increased taxes and possibly other expenses in the use of the property as a home will justify the ultimate "high" resale price if in fact home values do continue to increase.

While the rules and regulations may be the same in regards to community control over property, the ability to enforce them are totally different. As to possession of the home, the cooperative and its owners have a landlord-tenant relationship, thus providing the cooperative substantially greater control to remedy disturbing behavior than a condominium, which normally has to seek a court injunction to alleviate the objectionable behavior.

Additionally, a conversion may have federal income tax impact both to the individual cooperative shareholder turned condominium unit owner on whatever gain is realized in the transaction and on the cooperative corporation upon dissolution. Both of these possibilities need to be carefully analyzed by experienced Internal Revenue Code practitioners.

Contrary to the "white elephant" characterization of cooperatives, there are over half a million people living in housing cooperatives who are members of the National Assn. of Housing Cooperatives (NAHC). These and many hundreds of thousands more throughout the country are obtaining reasonably priced and affordable housing through housing cooperatives.

They have no desire to be part of a more expensive and a less controllable form of mutual home ownership such as a condominium.


Alexandria, Va.

Fisher is chairperson of the board of directors of the National Assn. of Housing Cooperatives.

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