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March 11, 2009
Co-op Property and bankruptcy
If someone owns a co-op and the "corporation" goes bankrupt for whatever reason, what happens to the "shareholders" (habitats) of the apartment? Are there scenarios where the bankruptcy will end differently? Thanks!
Comments
This actually happened quite frequently in the '30's Depression. Unfortunately, the shareholders typically are left with nothing and the bank that holds the underlying mortgage becomes the owner. In the 30's the building was then sold for pennies on the dollar and turned into a rental.
Posted by: JoeBushwick at March 11, 2009 1:37 PM
Things have changed since the 30s, jackass. Don't listen to this kind of fear mongering. Consult with an attorney if this is an imminent situation. He will need to look at the Co-op docs.
Posted by: daveinbedstuy at March 11, 2009 1:51 PM
DIBS and all;
JoeBushwick is correct. I have a cousin who owned shares in a Coop in Queens that went bankrupt during the last real-estate shake-out in the late 80's. The creditor to the corporation takes possession of the building, and the shareholders of the corporation are left with nothing. As with all shareholders in a corporation, your equity is wiped out if the corporation files for bankruptcy.
Please note that the creditor to the CORPORATION takes possession, NOT the creditors to the individual stockholders. Hence, in such a situation, a shareholder is still on the hook for the loan he took out to buy shares which are worthless. Not a fun situation, as my cousin can tell you.
Posted by: benson at March 11, 2009 2:03 PM
The only real cause for alarm is a coop that is controlled by an invester or the sponsor. If they go under then the rest of shareholdes have to keep the corpotation afloat. That is why banks do not want to lend to coops or to shareholders where the coop is not 90%+ owner occupied.
Posted by: BH76 at March 11, 2009 2:13 PM
This is actually kind of eye opening.
Posted by: serpentor at March 11, 2009 2:44 PM
That is true. The building goes under and you go with it. If you look closer to some of our discussions here you'll see people advising not to buy unless the building is at least 50% sold (that's for condos) and coops have most of their mortgages paid off or have low amounts on them. Run and hide.
Posted by: karo25 at March 11, 2009 4:08 PM
i still find it amazing that people buy into co-ops and have no idea how they work.
Posted by: veggiequeen at March 11, 2009 8:12 PM
Dont own one... yet. Im looking at condos/coops in BayRidge/Shore Rd currently. Thanks for all the insight!!!
Posted by: guikazoid at March 12, 2009 9:39 AM
At this particular point I would be MORE wary of condos than coops. Here's why:
1) Despite the flaunted "benefit" of condos in NY in recent years, they tend to come at a 50% premium over coops (even established coops in NY).
2) Many of the new condos are NEW construction, which is oftentimes shoddy. (Not always).
3) If a condo owner chooses not to pay maintenance the remaining shareholders are on the hook, since heat has to be provided, insurance and taxes have to be paid. The law gives the condo very little means to get this back from unit owners, compared to coops.
I do agree with the above posters: whether you buy into a coop or a condo; it should be a WELL-ESTABLISHED one. THat's no guarantee against future failure, but it does reflect a (hopefully good) track record. If a coop has a mortgage (many do), make sure that the debt to equity ratio is reasonable. Just as you don't want an "under water" owner living next door to you; you don't want to be living in an underwater building, either. Also: the more units sold AND occupied by owners, the better.
Posted by: Minmin at March 12, 2009 10:51 AM
Just in case someone is still tracking this thread, what is a reasonable debt to equity ratio for a large high-rise coop? The one I'm looking at is almost 2:1. Is that bad? Thanks
Posted by: whoever at November 3, 2009 2:36 PM
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