Coop & Condo Breakthrough Loans

Thought I would post guidelines for those interested in combining coop and condo units.

Combining of Two or More Units (Combo)

Written Approval by COOP Board for the Combination of the units is required

Appraisal:
Appraised Value to be based on an “as completed” combined unit per the plans and
specs
Appraiser required to use other similar size units for comps
Address if typical for market and implication on marketability

Renovation Funds would be held in escrow until completion- Estimate would come from general contractor.

Completion should occur within reasonable period post close.
Generally a maximum 180 day timeframe
Loan is not eligible for sale to Agencies or Shelf until work is completed.
Extensions possible but require justifications

Combos are considered as a Refinance
Unless units to be combined are purchased together
Three day rescission period applies

Special Lien Search & Closing conditions

There are two cases where we do a co-op (or condo) breakthrough, with #1 being more common:

1. Someone owns a co-op unit and wants to buy the unit next door (I’ve even seen breakthroughs where they buy the unit above or below their current unit). We treat the loan as a cash out refi, with our loan being used to pay off the current loan and purchase the new unit. We escrow for the actual construction work (the break through) to be done post closing.

2. Someone who does not own any units currently buys 2 adjacent units and combines them. This is treated as a purchase, obviously.

In either case, we must comp out the unit adequately and also show that this is somewhat common and customary to the area.

A few key points to keep in mind:

– the co-op has to approve the combination of the two units
– they’ll need an estimate to remove the kitchen and create the doorway
– an escrow is created to make sure the work is completed
– the end transaction should be one loan for both units (treated as a cash-out refi)
– typically both units will be combined into one stock certificate however it’s ok to keep two stock certs as long as they are both referenced on the security agreement.