Closing questions
What does a co-op financing cap mean?
A co-op financing cap limits how much of the price a buyer may borrow, set by board policy rather than statute. How it affects contracts and board approval.
What does a co-op financing cap mean?
Quick Answer
Cooperative boards control their shareholders’ leverage in a way condominium boards do not. Because the corporation’s lien for maintenance competes with the shareholder’s lender, and because a defaulting shareholder is a problem for everyone in the building, boards limit borrowing as a matter of policy. Some buildings permit none at all.
The cap is a board rule, so it is not always published and it is not always stable. It can be tightened by resolution, and a purchaser who signed a contract under one policy can meet a different one at package review. Confirming the current policy with the managing agent before contract is the only reliable check.
It interacts with post-closing liquidity requirements. Many boards also want to see reserves left after the purchase, expressed as a number of months of maintenance and mortgage payments. A purchaser who borrows to the cap and leaves nothing behind can satisfy the cap and still fail the board’s financial review.
The drafting response is a mortgage contingency that fits the building. A contingency written for a loan larger than the building permits protects nothing. Counsel should size the contingency to the cap, set the commitment deadline against the board calendar, and preserve the purchaser’s exit if the policy shifts.
Can a co-op board waive its financing cap for one buyer?
Some will, most will not, and none should be assumed to. A board that grants an exception creates a precedent it may not want. Where a purchaser needs more leverage than the building permits, the practical answers are a larger down payment, a gift documented in the package, or a different building.
Does the financing cap apply to a refinance too?
Usually yes. The same board policy generally governs how much a shareholder may borrow against the shares at any time, so a refinance or a co-op line of credit is measured against the cap as well. The corporation also has to sign a recognition agreement for the new loan, which is where the policy gets enforced.
What else should you read before closing?
In the glossary
- Proprietary leaseThe occupancy lease a co-op corporation grants a shareholder for a specific unit. It is assigned at closing together with the stock certificate for...
- Maintenance (co-op)The monthly charge a co-op levies on each shareholder, covering building operations plus that shareholder's share of real estate taxes and the unde...
- Aztech recognition agreementThe agreement in which a co-op corporation acknowledges a lender's security interest in a shareholder's shares and proprietary lease. The Aztech fo...
- UCC searchA search of UCC filings for security interests in personal property, run against the seller and, on entity deals, against the entity itself.
- Escrow (at closing)Funds or documents held by a neutral party until stated conditions are satisfied. At a New York closing it usually means a holdback from proceeds u...
Questions this raises
- What is an alteration agreement?An alteration agreement governs renovation in a NYC co-op or condo: plans, permits, insurance, deposits, work hours and liability. What buyers shou...
- Can you sublet a co-op in NYC?Most NYC co-ops allow subletting only under strict limits: waiting periods, board approval, term caps and sublet fees. What the lease and house rul...
- What happens if a co-op sale falls through after board approval?Board approval does not close a deal. What happens to escrow, the approval and the timeline when a NYC co-op deal collapses after the board has sig...
- Why will a co-op lender not close without a recognition agreement?A co-op loan is secured by shares rather than a recorded mortgage, so no lender funds until the building signs an agreement respecting its interest.
- What should a lender check in a co-op loan file?A co-op lender underwrites the building as well as the borrower: financials, underlying mortgage, arrears, land lease, financing cap and recognitio...
- What is in a co-op board package?A NYC co-op board package carries the application, contract, tax returns, financial statement, lender commitment and reference letters. What each i...
Building types
- Standard co-opThe ordinary New York City cooperative: you buy shares in a corporation and receive a proprietary lease to occupy a specific apartment.
- HDFC co-opAn affordable cooperative formed under Article XI of the Private Housing Finance Law, with an income cap on purchasers and a flip tax that runs to ...
- Land-lease co-opA cooperative that owns its building but leases the ground beneath it from a separate landowner, on a lease with a reset schedule and an expiry date.
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