Michigan
Cooperative
Law
Center
Glossary
of Useful Cooperative Terms
The
following terms are from the National Housing of Cooperatives (NAHC) web site: http://www.coophousing.org/glossary.shtml
BMIR
("Beemer")
BMIR is an FHA abbreviation for Below Market Interest Rate. This term
applies to certain FHA mortgage insurance programs where the mortgage
carries with it a subsidized interest rate that is below the market. This
reduces monthly cost and makes it possible for low- to moderate-income
families to benefit from the cooperative form of home ownership.
Excess Income
An FHA/HUD term that refers to income paid by residents who, at
certification or recertification, have income over the prescribed limits,
thus requiring the payment of a monthly charge above the basic rate. This
term is most commonly used in relation to a Section 236 development.
Flexible Subsidy Loan
Loans
provided by HUD pursuant to section 201 of the Housing and Community
Development Amendments of 1978. In general these loans were provided to
assist in financing of capital improvements. Some of the flexible subsidy
loans had interest rates at 1% per annum and generally have a balloon
payment due upon the maturity date of the original mortgage or upon
prepayment of the original mortgage.
General Operating
Reserve (GOR)
HUD-related cooperatives are required to maintain a reserve fund at a level
specified in the regulatory agreement for the purpose of providing funds in
emergency or crisis situations. Many non-HUD related co-ops also maintain
these reserves.
Income Limits
Income limits are found in many types of affordable housing. The co-op or
sponsor sets certain eligibility requirements for admission or continued
occupancy in housing developments designed for low-income people. Certain
housing cooperatives, primarily those that have been developed through
government subsidy programs for the purpose of providing affordable housing,
have income limits on incoming members. However, unlike most rental or
public housing with income limits, in a cooperative, if an individual or
family's income goes over the limit once they have moved in, they do not
have to move out.
Internal Revenue Code
Section 216
Section 216 is a section of the
U.S.
federal tax law that permits individual cooperative members to deduct
mortgage interest and property tax on their income tax returns just like
other homeowners do. Section 216 allows cooperative housing corporations to
pass-through the mortgage interest and real property tax deductions to their
stockholders on a pro rata basis.
Limited-Equity Housing Cooperative
(top)
A limited equity cooperative is a cooperative where the bylaws limit the
resale price of a membership/shares for the purpose of keeping the housing
permanently affordable to incoming members. The resale value of shares is
not determine by whatever the market will bear as in market rate co-ops, but
rather it follows a pre-determined formula in the bylaws that limits that
maximum resale value over time. Limited equity cooperatives also usually
restrict purchase of memberships to persons below a certain annual income
level. This also serves to preserve the property for low and moderate income
families.
Market-Rate Housing Cooperative
(top)
A market rate cooperative is a cooperative (1) financed with interest rates
considered market rates and (2) with no restrictions on membership/share
resale prices.
Occupancy Agreement
(or Proprietary Lease) (top)
The occupancy agreement or proprietary lease is the contract between the
cooperative corporation and the member that sets the conditions for the
right to occupy a particular unit. FHA co-ops and some other co-ops call
this contract an occupancy agreement; others refer to it as a proprietary
lease. It sets forth the rights and obligations of the member and the
cooperative to each other. Legally, it is viewed as a lease by the member
with the housing cooperative.
Recognition Agreement
(top)
A recognition agreement is an understanding between a cooperative and a
financial institution that provides share loans to the cooperative's members
or shareholders. The recognition outlines the responsibilities between the
co-op and the bank and the courses of action that must be taken by each
party if a shareholder/member defaults on the loan.
Regulatory Agreement (top)
Co-ops that are have mortgage insurance through HUD or the FHA have certain
obligations that are outlined in a document called a regulatory agreement.
Co-ops financed by state and local housing authorities often have similar
contracts, which are often modeled on the standard HUD agreement. Basically,
the regulatory agreement requires the co-op to abide by the regulations of
HUD (or FHA), which insured the mortgage in order to induce a lender to
finance the development. This document binds the mortgagor (the cooperative)
and mortgagee (the financial institution that holds the mortgage until the
amount borrowed, plus interest, is paid) with the Secretary of HUD.
Replacement Reserve
(top)
A replacement reserve is a reserve fund to provide savings for the timely
replacement of major appliances, building components, and structures.
Section 8 (top)
Section 8 is a federal assistance program that subsidizes the monthly rents
of low-income individuals. Individuals who receive Section 8 assistance must
fall under certain income requirements. Individuals benefiting from Section
8 pay only a certain percentage of their monthly income in rent, the
government pays the rest directly to the landlord or co-op.
Section 202 (top)
Section 202 is a HUD program that provides financing for housing developed
for the elderly and disabled. A number of senior housing cooperatives have
been developed using this program.
Section 203(n) (top)
HUD's Section 203(n) single-family
cooperative mortgage insurance program insures loans for persons
buying a share/membership in a housing cooperative. The loan is made by a
lending institution, such as a mortgage company, bank, or savings and loan
association, and is insured by HUD's Federal Housing Administration (FHA).
(See "Share Loan")
Section
213 (top)
Section 213 is a HUD program that insures mortgages only on cooperative
housing projects on a market rate basis. Section 213 has been used to insure
over 500 cooperative housing projects, totaling over 70,000 units.
Section 216 (top)
See "Internal Revenue Code Section 216"
Section
221(d)(3) (top)
Section 221(d)(3) is a HUD/FHA program that insures mortgages for the new
construction or substantial rehabilitation of multifamily cooperatives and
nonprofit rental housing. Under 221(d)(3), a nonprofit sponsor may receive
an insured mortgage for up to 100% of the HUD/FHA estimated replacement cost
of the project.
Section 221(d)(3)
BMIR (top)
Previously, the Section 221(d)(3) Below Market Interest Rate (BMIR) program
provided below market interest rate financing for sponsors of low-income
housing projects. Many cooperatives that were developed during the 1960s and
70s used this program. BMIR projects were replaced by the Section 236
Mortgage Subsidy Program under authority of the Housing Development Act of
1968. Presently no new mortgages are insured under the BMIR or the Section
236 programs.
Section 236 (top)
Section 236, a HUD program enacted in 1968, provides a subsidy to reduce
mortgage interest payments down to as low as 1%.
Share Loan (top)
A share loan is a loan obtained to purchase a share in a housing co-op
secured by the shares and occupancy rights (cooperative interest). A member
can get an individual loan for that amount from a bank or other lending
institution (just as when an individual is buying a house).
Subchapter T (top)
Subchapter T refers to Sections 1381 to 1388 of the U.S. Internal Revenue
Code, which cover cooperatives that serve some public benefit. Cooperative
housing corporation pay federal corporate income taxes in accordance with
the provisions of Subchapter T.
Subsidized Housing
Cooperative (top)
A subsidized housing co-op receives a subsidy of some kind from the federal,
state, or local government or other sources in order to lower the overall
costs of the housing.
Transfer Value (top)
The transfer value is the dollar amount of the membership or share in a
housing cooperative as set by the bylaws in event the cooperative
re-purchases the membership/share. In a limited equity co-op, the transfer
value is the maximum amount at which a member's share in the co-op may be
sold according to the co-op's limited equity formula.
For additional
Cooperative related terms visit the National Housing of Cooperatives (
NAHC
) web site: http://www.coophousing.org/glossary.shtml
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