Cooperative Mortgage
Definition and meaning of Cooperative Mortgage in real estate.
A cooperative mortgage, often called a share loan, is a personal loan secured by a borrower's shares in a cooperative corporation and their associated proprietary lease. Unlike a traditional mortgage, it is not secured by a lien on physical real property because the cooperative corporation retains ownership of the building.
In more detail
When applying for a cooperative mortgage, buyers must seek approval from both the lender and the cooperative board. The lender evaluates the financial health of the entire cooperative project, including its master mortgage and reserve funds, in addition to checking the borrower's credit. Because this loan involves shares rather than real estate, lenders use a specialized document called a recognition agreement to define the rights of the lender, the borrower, and the cooperative corporation.
Interest rates on these loans are generally similar to traditional mortgages, though underwriting criteria can be more restrictive.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Collateral | Corporate stock shares and a proprietary lease |
| Key document | Recognition agreement signed by three parties |
| Approval required | Granted by both the lender and the co-op board |
A buyer secures a cooperative mortgage to finance the purchase of shares in a residential building, signing a recognition agreement that outlines how the lender will protect its loan.
Frequently asked questions
How does a cooperative mortgage differ from a traditional home mortgage?
A traditional mortgage is secured by a lien on physical real estate, while a cooperative mortgage is a personal loan secured by stock shares and a lease agreement.
What is a recognition agreement in co-op financing?
It is a legal contract where the cooperative corporation agrees to notify the lender if the shareholder defaults on maintenance fees or lease terms, helping protect the lender's collateral.