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Chapter Eleven: Ownership Models

This chapter examines different ways in which you, either as an individual or with others, can own property -- from housing ownership to development of spaces through community partnerships. Each model can be adapted to address artists' space and ownership needs.

Three scenarios to consider:

  • Say you are a writer working from a rented condominium, and the owner offers to sell the property to you. Before you buy, you need to know what ownership of a condominium entails.
  • Or, imagine you are one of six artists working in a small industrial building, and the building is put on the market. Faced with an uncertain future, the six of you consider buying the building together. How could your joint ownership be structured to protect your interests and needs, both individually and collectively?
  • Or, perhaps you want to start a nonprofit organization that specializes in affordable housing for artists. You will need to know what it takes to start and manage a nonprofit, and how to finance the enterprise.

The legal aspects of property ownership are complex, especially if more than one person is involved. The information presented here provides an overview of available options. This is not legal advice, so be prepared to do additional research.

Seek professional advice before deciding how to structure your ownership. Chapter 4: Professional Services provides information on locating the necessary professionals.

Home Ownership

This section discusses various ownership models traditionally associated with the purchase of residential property.

Sole Ownership

This is the easiest to understand, and the easiest to undertake. An individual who purchases a property then owns title and can sell at any time, recouping any gains or losses. The owner is 100% liable for the property, including payment of the mortgage (if there is one), taxes, insurance and repairs.

Joint Tenancy

Joint tenancy is commonly used when two or more individuals purchase real estate property together. As joint tenants, each purchaser owns an equal interest in the property. Even if one party contributes more towards the purchase price, each tenant's share of the property is equal. In essence, each tenant owns the entire property jointly with the other owner(s), and is equally liable as well.

An important component of joint tenancy is the right of survivorship. When an owner dies, his/her interests and rights to the property are automatically transferred to the surviving owners only.

For example, say you and three colleagues purchase a warehouse. A few years later, one colleague dies, leaving a wife and three children. His share and rights to the property are automatically transferred to you and the remaining two owners, not to his heirs. Even if he has written a will that transfers ownership of his portion of the property to his wife and children, his surviving relatives cannot claim ownership. Essentially, the will is null and void when it comes to the property he owned in joint tenancy with you and the other owners

Tenancy in Common

If you buy as a tenant in common, the situation is very different from that of joint tenancy. Each person owns a specific percentage of the property. The tenants in common can divide ownership however they decide. This may (but does not have to) reflect their financial contributions towards the purchase price.

Another important difference from joint tenancy involves the right of survivorship. When an owner who is a tenant in common dies, their interest passes in accordance with their legal will or by the rules of the court if no will has been left. This can lead to problems if the beneficiary wants to sell his/her inherited interest in the property.

Condominium

The term "condominium" refers to a form of ownership in which a specific building unit is owned by the unit purchaser, while common areas such as hallways, elevators, loading docks, balconies/patios, etc. are owned jointly by the Condominium Corporation. Each unit owner is a member of the Condominium Corporation, which elects a board comprised of owners to manage the building's administrative and operational needs. Every owner has a voice in how the building is managed, and can run for election to the board.

The Board is ultimately responsible for the sound management of the building, and uses both the CC&R (covenants, conditions and restrictions) and bylaws in its decision-making process. The CC&R stipulates how tenants/owners can use space in the building. For example, if you had a workspace condominium, the CC&R might dictate the facility's hours of operation or the type of art production allowed on the premises. Bylaws are the rules, regulations and procedures that govern how the condominium is managed. The bylaws and CC&R are different for each building, and are developed and amended by the Condominium Corporation. The Board's responsibilities include enforcing the condominium rules, collecting assessments, maintaining common areas and making other building management decisions.

As with the purchase of a house or commercial building, you can take out a mortgage or a loan to purchase a condominium unit. You are responsible for the property taxes, utilities and maintenance costs for your unit, as well as a share of the costs associated with upkeep of the common areas.

You will also be expected to make an additional monthly payment to the condo association called an assessment fee, which covers the shared maintenance costs, additional insurance for the building, security and other expenses inherent to this form of ownership. Assessment charges vary widely -- from a few hundred to a few thousand dollars each month -- and are normally determined by factors such as the type of amenities provided, reserve funds needed by the corporation, needed repairs, unit size and/or location, etc.

Technically, Condominium Corporations are a form of nonprofit. As such, condominiums in Washington State are governed by The Washington State Condominium Act further outlines the do's and don'ts, responsibilities and requirements of condo ownership. The act is outlined on the Washington State Legislature's website at http://apps.leg.wa.gov/RCW/default.aspx?cite=64.34

For additional information about the Condominium Act there is a helpful website at The Washington State Chapter Community Associations Institute: http://www.wscai.org/Community-Associations-Institute-Washington-State-Chapter~5379~294.htm

Co-operative

A cooperative or "co-op" is a form of ownership in which members own shares or stock in the cooperative, and it (not you) owns the building in which your space is located. To guarantee rights and privileges regarding a particular unit or space in the building, you normally sign a proprietary lease, also known as an occupancy agreement, with the cooperative.

Co-op members must pay a monthly assessment fee to cover the building's mortgage and maintenance, insurance, security, property taxes and other fees associated with ownership. Assessment charges vary widely, from a few hundred to a few thousand dollars each month, and normally are based on the amenities the co-op offers, needed repairs, and unit size and/or location.

As with condominiums, cooperatives are governed and managed by an elected board of tenants that administers community by-laws and the CC&R.

You must follow and file the correct paperwork, just as though you were operating a nonprofit. Failure to do so can lead to the dissolution of the organization. Similar to other real estate purchases, you can obtain a mortgage or loan to buy your shares in the cooperative, which then "leases" you a unit.

Cooperative members do not "own" their units, but shares in the larger organization. If you default on your mortgage, the bank cannot take possession of your unit -- only your shares in the co-op. This limits the number of lenders who are willing to provide co-op mortgages. See the resource section of this chapter for a list of lenders that provide coop mortgage financing. If you stop paying your assessment, however, the co-op organization can move to have you evicted from your unit.

For a variety of reasons (tax determinations, lending issues, etc.), cooperatives are often considerably less expensive than condominiums. Co-ops can be risky, however, because all members are responsible for paying the mortgage every month. If someone can't pay their portion due to illness, job loss, etc., your assessment will increase to cover their portion of the mortgage.

There are three primary types of cooperatives:

  • Limited Equity Cooperatives (LE): These have income caps and other controls to limit the resale price of shares to maintain affordability.
  • Market Rate Cooperatives (MR) : Prices are based on the free market value of the cooperative's shares. As with any other space purchase, you can negotiate share price. However, ensure that the price you are being quoted includes the cost of the monthly mortgage of the building. You do not want to pay an exorbitant price for the shares and high assessments fees as well.
  • Leasing Cooperative (LC): This type of cooperative does not own a property, but rents its space. One benefit: When the cooperative is ready to purchase a space and convert to either a Market Rate or Limited Equity cooperative, it can do so more quickly because it does not have to go through the process of establishing and forming the nonprofit organization. The downside: As with any other type of leasing or rental agreement, the LC cannot access any of the equity in the property it is presently utilizing.

For additional information on forming a cooperative, check out the Washington Secretary of State website: http://www.secstate.wa.gov/corps/NonprofitCorporations.aspx

Business Organization

This section discusses business organization models that can be adapted to purchase space (and that can also help you to structure a business or nonprofit, or develop the framework of an operation and use agreement if you are purchasing space with others). It is meant to get you to think outside the box in regards to how you can purchase and manage space.

After reviewing this section, take a look at the Business Models Comparison Chart, which compares various business organization models and their requirements for taxes, personal liability, and other aspects.

Sole Proprietorship

Purchasing space through a Sole Proprietorship (SP) business is similar to buying property through the model of the same name. However, as a business entity, you purchase property under the name of your company, not your own name.

The Sole Proprietorship is the simplest structure to establish. It involves the least amount of government regulation, requires the least amount of reporting, and is very inexpensive to start -- just apply for a business license to be considered legally valid. If you work on contract, are self-employed or are paid by commission, you are automatically considered a Sole Proprietorship, even if you have not registered your business as such.

Ease in paying taxes is also a benefit of the SP model. SPs can file on their personal income taxes, and do not need separate or extensive organizational tax systems.

The main concern with an SP is that you are completely and personally liable for the business. Your personal assets (home, car, bank account, etc.) are not protected, and can be used to fulfill legal judgments filed against your company. Depending on the level of risk associated with your business or art practice, this model's liability status might not work for you. However, other organization models discussed in this section allow you to purchase space and reduce your personal liability.

Corporation

A corporation is a legally recognized entity that enjoys the same rights and responsibilities as a person. A corporation or its representatives can sign leases, purchase property, or be sued. Corporations are managed by a board of directors and company officers, and their owners and/or founders do not have to participate in everyday management of the business.

The corporation is the most complex business model, and is subject to considerable government regulation and reporting requirements. Forming a corporation can be both expensive and time-consuming. Failure to file the proper forms and paperwork annually (state and federal) can result in the immediate dissolution of the organization.

The benefit of the corporation model rests in the limited liability enjoyed by its owners and/or founders. A corporation does not provide complete protection, but does protect your personal assets from legal judgments and liens filed against the company. If you personally guarantee a loan or lease for your business, however, the personal liability protection offered by the corporation structure is negated, and your assets will be vulnerable.

There are two types of corporations to choose from, each with its own benefits and risks. C-Corporations and S-Corporations. A major difference between the two models hinges on how taxes are reported and paid. Conventional corporations (a.k.a C-Corporations) pay corporate taxes on the company's earnings, as well as income taxes if you are paid a dividend or salary from the company. Owners of Subchapter (a.k.a. S-corporations) pay taxes only on their individual federal income taxes.

Both C and S models remain in existence even if one member wants to end their association. For example, you and three colleagues incorporate your experimental performance group into a corporate entity (The Dancing Contortions) and purchase a building under the corporation's name. Three years later, one member wants to leave the group and end all legal and financial responsibilities. Unless s/he can find someone to purchase his shares, or sell them to the remainder of the group, s/he remains an owner of the Dancing Contortions and will remain liable for the mortgage loan.

Corporations are governed by the Washington Secretary of State Office.

Limited Liability Company

A Limited Liability Company (LLC) is a business structure that offers the tax benefits of a sole proprietorship and the liability protection of a corporation. LLC owners can file your business taxes on your personal federal and state income tax returns.

"Limited liability" means that, if your business defaults on a lease or mortgage, your personal assets, home, car and other collateral are protected in the event that the company is sued and a judgment is filed against the LLC. If you personally guarantee a loan or lease for your business, however, the personal liability protection offered by the LLC structure is negated, and your personal assets will be vulnerable.

Because of its liability protection, the LLC is fast becoming more popular than the sole proprietorship (SP) model for small businesses and single-person shops. However, unlike an SP, you must file the correct paperwork to gain LLC status.

LLCs are governed by the Washington Secretary of State Office.

Nonprofit Corporation

A nonprofit corporation is specifically organized for purposes other than profit-seeking. Nonprofits can include, but are not limited to, religious organizations, academic institutions, professional associations and cultural organizations.

The most important difference between for-profit and nonprofit corporations is that nonprofits cannot be organized for individual personal gain, and are required to give their assets (funds, office equipment, etc.) to a similar nonprofit upon disbanding. In addition, profits earned by nonprofits cannot be disbursed to individuals (the board of directors, staff members, volunteers, etc.), but must be used to advance the organization and its mission.

Nonprofits enjoy the same benefits as for-profit organizations, including the ability to purchase property. A common misconception is that nonprofit status automatically confers property tax exemptions; this is not always the case. For a detailed explanation on property tax exemptions for nonprofits, see Chapter 15: Property Taxes. Like for-profit corporations, nonprofits must also file the correct paperwork on an annual basis or face dissolution. Both condominiums and cooperatives are considered nonprofit corporations. See the previous sections for more details on these models of ownership, as well as the Corporation sections.

Washington nonprofits are governed by the Washington Secretary of State office.

Community Development

The community development models featured here require working with businesses or nonprofit organizations that are willing to work with the community to manage and develop space. These models might be traditionally associated with the creation of affordable housing, yet offer insight into developing space for artistic use. A key concern of this section is to get you to think creatively about how you can access and develop alternative resources to create art spaces.

Financial Institutions and Corporations

At the heart of programs in this category is a desire to support economic initiatives and community development in low-income and underserved communities. These efforts often include the development and/or support of affordable housing. There are two primary vehicles of financing in this category: Community Development Financial Institutions (CDFIs) and Community Development Corporations.

There are four primary types of CDFIs:

  • Community development banks,
  • Community development credit unions,
  • Community development loan funds (CDLF), and
  • Micro-enterprise Lenders.

Both community development banks and credit unions operate like their commercial counterparts, while CDLF and micro-enterprise lenders often offer grants or small-scale (micro) loans. All four types are considered nonprofit, and all offer a variety of programs. A CDFI might focus its efforts on housing issues, and provide personal assistance programs such as residential mortgages or larger affordable housing developments. Or, the CDFI may support community development initiatives and offer grants and loans to small businesses that operate within its service area.

For more information on CDFIs, visit the Coalition of Community Development Financial Institutions Website, which provides additional information and links and listings of CDFI organizations nationally and locally. Also, visit the Foundation Partnership on Corporate Responsibility Website.

Another option to review in this category are community-based venture capitalist organizations. Venture capitalists invest in innovative and/or specific projects in which they are interested. For additional information on the types of financing programs available in this category, check out the Small Business and nonprofit Assistance Programs resource section in Chapter 8: Buying Real Estate.

Community Land Trust

A Community Land Trust Organization (CLT) is a public-private partnership designed for the sole purpose of creating affordable space opportunities. Typically, a CLT acquires, holds and owns the land itself in perpetuity, but sells any residential and commercial buildings on the property. Individuals, organizations or businesses that purchase buildings on the CLT's land are called leaseholders, and lease the right to use the CLT's land.

In an effort to maintain long-term affordability, CLTs place equity limitations on their land lease agreement. The CLT restricts the resale price of the properties on its land in order to maintain these spaces' affordability.

The CLT is governed by a board of directors elected by its membership, comprised primarily of leaseholders and other community representatives.

CLTs can play a crucial role in the creation of affordable spaces, as they remove the cost of purchasing land in the development process. By working with a CLT, potential leaseholders only have to worry about the costs of purchasing materials and labor to develop, build or rehab a space. However, creation of a CLT is an intensive and complicated process.

The Institute for Community Economics developed the national CLT model, and works with community groups around the country to develop CLTs.

The City of Seattle Office of Housing funds several local land trusts such as Homestead Community Land Trust and House Key Trust Seattle to provide down payment assistance to purchase homes in Seattle

Buyers purchasing homes through a land trust receive a substantial up-front subsidy reducing the mortgage amount needed. Under a land trust, homes are taxed on the affordable price, providing additional savings to owners. These combined benefits significantly reduce monthly housing costs, allowing low- and moderate-income buyers to attain and sustain homeownership and wealth creation.

For More information visit the City of Seattle Office of Housing Website: http://www.seattle.gov/housing/buying/programs.htm.

Other non-profit housing groups include the Housing Resources Group www.hrg.org and the Seattle Housing Authority: www.seattlehousing.org.

Mutual Housing

A Mutual Housing Association (MHA) is a form of partnership in which a nonprofit develops and owns affordable housing. MHAs are membership associations, and may include residents, supporting corporations and other community groups or institutions.

Members pay a fee, which grants them full participation in the association's activities: home ownership workshops, financial counseling, community support groups (senior, youth, etc.) and community celebrations, just to name a few. MHA members may or may not live on the premises. For resident-members, the fee for occupancy is considerably higher. Management of these properties is governed by a board of directors, which is voted on by the residential and non-residential MHA members.

There are two types of Mutual Housing: Integrated and Federated:

  • Integrated : The MHA develops, owns and manages the properties on its lands. To occupy a unit, residents sign a lease for rights to the space. Although residents cannot access the equity in the property, they do have access to MHA benefits and activities.
  • Federated Mutual Housing : The MHA is formed when several independent cooperatives partner up to create a support network or community. As in the Integrated model, members have access to MHA activities and benefits.

For more information on Mutual Housing and specific successful examples in Seattle, see the following document: www.practitionerresources.org/cache/documents/19449.doc

General Partnerships

In this ownership model, a corporation or nonprofit interested in developing affordable space simply builds or purchases the space and partners with the residents to manage and operate it. The design of the partnership and division of rights and shared responsibilities are different for each situation.

For example, a building owner might handle financial issues associated with the building (taxes, new residents, rehabbing the space), while the residents handle day-to-day management (maintenance, enforcing bylaws, electing boards).

Partnerships can form for many reasons. For example, a property gets new owners who are interested in this form of community development. Or, the partnership forms at the suggestion of community members who approach interested businesses or organizations to assist with development of a space. Each partnership model is different, and may require a little ingenuity on your part in locating a funder interested in community space development.

TIP: You must read the CC&R and bylaws of the condominium association or cooperative to get a clear picture of what it will be like to live or work there. Ask for and review minutes from the prior three years of board meetings. Also, ask for information about the organization's capital reserves: funds set aside for emergency repairs and general maintenance.

TIP: A lawyer can help shape the values of each prospective co-ownership owner into a clear legal framework that will best protect everyone and help preserve friendships.

TIP: Seeking a lawyer's services is advisable in any real estate purchase, but is even more important when you consider forming a business organization or non-profit in order to purchase the space.

Which Model Is for You?

Having examined the most typical models of ownership, you must now determine which one is best-suited to your particular situation. You can purchase through traditional home ownership routes, use business models, or develop space through a community partnership.

If you are planning to purchase space on your own, the situation is relatively straightforward. If you are self-employed, discuss with your accountant and lawyer the model that reflects your needs and wants most effectively, and whether you should purchase through a privately held company. See the section Business Models Comparison Chart for more information on the pros and cons of each model.

Trying to decide if an ownership model will work for you becomes increasingly more complicated when it involves working with others. The remainder of this section will discuss common concerns in co-ownership.

Costs of Ownership

Each ownership model discussed in this chapter involves the law, to some degree. In addition to legal fees, you will also have to pay fees for filing the correct paperwork with the state and local government, as well as property taxes.

Some ownership models, such as condominiums, can cost several hundred to several thousand dollars to legally divide each individual space into separate tax-paying units. Other models, such as corporations, can become expensive and time-consuming. You will need to file paperwork with a variety of state and federal government agencies on an annual basis, as well as develop bylaws, create stocks, shareholders agreements, etc.

Seeking a lawyer's services is advisable in any real estate purchase, but is even more important when you are considering forming a business organization or nonprofit in order to purchase the space. Again, not only will you need to file the correct paperwork if you pursue this model of ownership, but you will also need to compose an operation agreement to stipulate how the space is operated and managed.

See Chapter 4: Professional Services for information on obtaining legal advice. For more information about forming a corporation (including condominiums and cooperatives), see the section Home Ownership, which has links to the legal guidelines and requirements set by the Washington Secretary of State Department for each ownership model.

Work Space

When comparing models of ownership, you might notice, condominiums, corporations and cooperatives are models of development that are easily adaptable to the development of workspace. For example, if six artists purchase a small industrial building, it is possible to structure the ownership as a condominium corporation. Each owner receives title to their particular studio space, and shared ownership of the common elements (which might include pricey equipment and exhibition or rehearsal space). Owner-tenants also share ownership of other studio spaces that can be rented out to help generate income for the property. This model provides security, since each partner has ownership to his/her own unit.

One might also follow the cooperative model, similar to the above condominium example. The cooperative owns the workspaces and leases space to its shareholders.

The process of establishing a condominium or cooperative can be lengthy, complex and expensive. Seek legal counsel. Many of the same procedures for establishing a condominium corporation apply to a cooperative. Although these ownership models seem similar, they have many differences. Review the Cooperative and Condominium sections of this manual for further information.

Ultimately, when it comes to creating art work spaces, or rehearsal or performance space it is important to find creative solutions to accessing property.

Co-Ownership

If you are considering purchasing real estate with other people, you will find the co-ownership models discussed in this chapter to be particularly relevant. Each model of ownership reflects a different set of values, and confers certain economic and financial rights and obligations in terms of use of the space.

While you examine the different models, think about the values that you would bring to a co-ownership agreement. For example, if you are interested in ownership because you value stability and are not overly concerned about profits, would your co-owners share these values? Or, do they value achieving a return on their investment, and plan to sell the building if the real estate market turns hot and a substantial return is guaranteed? Thinking about these issues is imperative if you are considering co-ownership.

The following questions will help you define your personal values when it comes to owning property and living or working with others:

  • Should there be collective control over who occupies the space?
  • Should the price for new owners remain affordable over time? Or should it reflect market trends?
  • How should conflicts be addressed?
  • How can joint decision-making be achieved?
  • Should the property be exclusively owned and maintained by the occupants? Or should you hire a management company?
  • To what extent will each owner accept financial liability for the other owners?
  • Will the property accept renters?
  • What type of live/work or work-only is allowed in the space?
  • How much do you need to know about each other's financial situation, credit history, etc.?
  • What skills or attributes (property management, maintenance, fundraising) do the others bring to the table?
  • Are your uses -- art production methods, space needs, administrative abilities, etc. -- compatible?

In addition, you and the other potential co-owners should jointly discuss your values, expectations and intentions for the enterprise. When everyone has come to an agreement on these issues, you should seek legal assistance to help you design a legal structure that most closely fits these expectations and meets your needs.

The legal documents must clearly spell out the requirements, consequences for actions, rules of conduct, rules for arbitration and other stipulations. You never know what will happen in the future. For a list of documents you will need in order to legally create each model, review the Business Models Comparison Chart.

A group can purchase property as tenants-in-common or joint tenants, form a corporation or limited liability company, or set up a cooperative or condo. A lawyer can help you to decide which form of ownership is best-suited to your particular situation, which type of co-ownership agreement you need, and your potential liability in each case. With the assistance of an accountant, an attorney can also advise you on the personal and business tax implications of each model.

Potential Pitfalls

Collective ownership can work very well if your co-owners share similar values and goals. However, co-ownership can be fraught with problems if the group enters into the transaction without having thought through and agreed upon what steps to take in difficult situations. Write a very clear agreement outlining your individual and collective rights and obligations as co-owners. These agreements, taken together, are considered the bylaws and CC&R (covenants, conditions and restrictions) of the community, and will govern how you interact and solve problems and disagreements when they arise.

Your agreement should address every conceivable eventuality, such as:

  • If one owner (let's call him Joe Somebody) wants to sell his interest, what are his obligations in finding a buyer?
  • What if Joe finds a buyer, but the buyer is unacceptable to the other owners? For example, you want your space to remain a quiet haven for writers and Joe wants to sell his studio space to a pianist.
  • What "first rights of refusal" do the other owners have to purchase Joe's space, and at what price?
  • What rights and responsibilities do the other owners have if they do not want to buy him out, and no other purchaser can be found?
  • Who is responsible for paying common bills?
  • What happens if Joe gets behind in his payments? Who has to pay his portion and what are the penalties? (This might not apply, depending on the type of ownership model the space is under.)
  • What happens when Joe dies? Who pays his portion (if applicable)? What happens to his share of the property; Does ownership transfer to the remaining co-owners, or to Joe's heirs?
  • What if Joe wants to rent out his space? What do the other owners do if the tenant is noisy or does not pay the rent?
  • What happens if you agree collectively to sell, but the value of the property has fallen below what you have all put into it? Does each person owe for the balance of the loss in equal proportion to his/her ownership?
  • What happens if Joe is unemployed and repairs need to be made? How will his portion of the payment be paid? If the other group members pay his portion, how will they guarantee he will reimburse everyone for the payment?

These potentially controversial issues do not need to destroy a co-ownership as long as they have been discussed and formally addressed (via an agreement) upon prior to the purchase. It is very important to seek legal advice when creating the wording and content of such an agreement, and to correctly file all appropriate paper work.

Co-owners might consider obtaining individual legal counsel, to protect each individual's interest. Another possible solution: Have one member's lawyer draft an agreement. The other members could then ask their own counsel to review and edit the draft. This will ensure that the final document reflects the interests and needs of each co-owner, and the group as a whole.

TIP: Seek legal advice when creating such an agreement, and correctly file all appropriate paper work. See Chapter 4: Professional Services for information on finding an attorney

Co-Owner Financing

If you are considering financing property with others, the lender will require each owner to sign the original mortgage. The lender holds each member personally liable for the mortgage, regardless of his/her individual level of investment in the property.

For example, say your contribution to the down payment represented 10% of the building price. You are now expected to pay 10% of the mortgage each month. Despite your agreement with the other co-owners to pay 10%, the lender will, in most cases, still want a 100% guarantee on the loan. If the mortgage goes into default, the lender will come after you personally to pay all or a portion of the loan. Typically, the lender will require some type of guarantee from all co-owners.

The lender will look for as much security (or more) as in a single-owner purchase. In addition, your individual credit records will impact the financing package, even if you are purchasing the property as a business entity or nonprofit. See Chapter 3: Understanding Credit for more information on credit's role in the financing process.

Condominiums

Problems with owning a condominium can arise in insuring your property. Because you own only your unit, many insurers are only willing to provide coverage that addresses incidents occurring within your unit, such as burglary or a kitchen fire.

However, some insurers might want to insure the entire building, not just your unit -- for example, if a flood damages the foundation and makes the building uninhabitable. Although your insurance policy covers your unit, it does not cover the building. In this instance, the condo association will need to have purchased insurance that covers the entire building.

When considering a condominium, see if the association carries enough insurance to cover major calamities. See Chapter 19: Insurance for more information on insurance issues for condominiums. Also, investigate insurance packages that will protect you should the condominium corporation become short on funds. You might face increased assessments for property damages and liability losses that occur on the property, which are uninsured or underinsured by the corporation.

For example, if the common areas sustain damage, the master deed might stipulate the condominium owners (i.e. you) are personally liable to pay the remaining balance for any repairs that the insurance does not cover. Find an insurance package specific to condominiums that offers increased liability protection. Again, see Chapter 19: Insurance or more information.

Cooperatives

Financing a cooperative is typically cheaper than financing a condominium, but can be extremely difficult. In a cooperative, you do not own any real property but instead own shares in the cooperative corporation, which in turn allows you to "rent" your space. In essence, the only real collateral for the lender is your stock.

In the event that the building is foreclosed upon, the primary mortgage taken out by the cooperative organization will have to be paid first. Any additional loans given to the tenants will be considered secondary. The lender that provided the mortgage for the actual building will be paid, while the lender that provided the mortgage for the tenants' shares (i.e. your mortgage lender) may not be compensated if a foreclosure occurs. For this reason, many lenders shy away from financing cooperative loans. However, the National Cooperative Bank and others specialize in financing cooperatives.

When it comes to insurance, many of the same standards and issues that apply to condominiums apply to cooperatives. See Condominiums for more information.

Examples of Successful Models

In the City of Seattle there are several examples of integrated and creative models for successful multi - use spaces:

1. DNDA and the Youngstown Cultural Arts Center: www.dnda.org

2. Coleman School and the African American Museum

3. Central District Forum: www.cdforum.org

4. Historic Seattle: www.historicseattle.org

Resources

Association of Condominium, Townhouse and Homeowners Associations (ACTHA)
Focuses on educating boards of directors and unit owners on various methods of operating an association. Also keeps information on legislation effecting condominium, townhouse, and homeowner associations.

Cohousing Association of the United States (Coho / US)
Promotes cohousing efforts and development and is comprised of a network of communities, households, and professionals involved with cohousing.

Condominium Business Network, Ltd.

Links to every aspect of condominium business.

Cooperative Housing Coalition
(CHC)
Works toward the creation of cooperative housing.

Institute for Community Economics (ICE)
A national community development organization promoting economic justice through community land trusts (CLTs) and community investment.

Internal Revenue Service (IRS)
Provides extensive information on filing income taxes for individuals, businesses and nonprofits. Explains documents for filing and completing federal tax forms, and makes them available for downloading.

National Association of Housing Co-operatives (NAHC)
The only national cooperative housing organization. Offers information and resources on cooperative ownership issues.

National Cooperative Bank (NCB)
Provides a broad array of financial services to the nation's cooperative businesses, including many housing co-ops.

National Cooperative Business Association (NCBA)
Provides information on cooperative businesses across the U.S.

Northern Trust
Provides financing options for cooperatives.

Senior Cooperative Foundation
Provides information and resources on senior-owned cooperatives. Website lists senior housing cooperatives.



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