News About Co-op and PPP Loans

Unlike other residential dwellings, a housing cooperative or housing co-op is a very unique legal entity for a residential unit.  You may already own or be part of a potential housing cooperative and have not even known about it.  Essentially, a housing cooperative is a legal entity, jointly owned by its members or cooperative members, that come together to form a cooperative or a legal corporation, which owns real estate consisting of one or more residential buildings.  Housing Cooperatives or co-ops are very good real estate investment opportunities.  Not only do coops protect you, the owners, legally as a corporation, better protecting you from personal liability, but the coops are structured as a good solid foundation as the basis of your real estate rental empire.  

Moreover, with the recent federal law passed by Congress on December 21, 2020, coops now qualify for PPP loans, making them even a better investment for real estate.  With the backing of the federal government through its non-payback PPP loans, coops are definitely a good investment.  This article shall discuss the new PPP law and how it affects coops and coop loans, why coops are a good investment, and the importance of hiring a competent real estate attorney to handle your New York City real estate transactions on behalf of your coop.

What Has Changed?  Co-op Loans Review?

Under the Consolidated Appropriations Act, 2021 (“CAA”) newly passed by Congress on December 21, 2020, the CAA renders housing cooperatives eligible for the Paycheck Protection Program (“PPP”).   In fact, Division N, Title III of the CAA, known as the “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act,” includes important and even retroactive changes to the eligibility and administration of the PPP for co-op loans review.  Now, a small business providing housing to its tenants and employing workers of 300 or less will not have to struggle with the day-to-day overhead of having to meet its payroll since the majority of its tenants still have not paid their rent.  Under the CAA, a housing cooperative can apply for a PPP loan of up to $10 million that does not even have to be paid back.  The only condition of non-payback is that 60% of this loan has to be used for employee payroll, but 40% can be used for business purposes.  This is referred to as PPP investment.  What is PPP investment?  It’s loan money used to invest back into your coop through use of the PPP loan.  This primarily includes satisfying expenses and PPP projects through use of the PPP loan.    

Business expenses include: 

• “payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records, and expenses.” 
• Any property damage due to vandalism that occurred during the 2020 year that was not covered by insurance compensation.
• “an expenditure made by an entity to a supplier of goods for the supply of goods” that are essential to operations or made pursuant to a contract.  
• Safety devices, such as drive-through window facility, air systems, business space expansion, health screening machines, and other personal safety equipment.

With coops now qualifying for the PPP loans, owners can use this money to help fund their business expenses, as seen above.  Use of this PPP loan will allow the coops to be able to free up more money to be able to purchase or sell real estate on behalf of their coop. 

Cooperatives Continue to Remain a Great Investment and Home Purchase

The main advantage of buying a co-op is that they are more affordable and less expensive to buy than a condo.  As a result, this is the primary reason this type of housing is extremely popular in New York City, with traditionally a high cost of living.   Furthermore, you typically get better square footage for your money if you purchase a coop.  In addition, since the real estate investor is a shareholder in the corporation, they will then have a say in how the building is run, thereby giving the owner more autonomy and ownership over the coop.    Under a coop, since the shareholder must live in the housing unit for a period of time, traditionally typically 1 – 3 years, before it can be rented out, this means that as far as a long term investment is concerned, the owner will reap the benefits of homeownership and real estate appreciation.

More importantly, however, with the introduction of the CAA allowing for coops to qualify for PPP loans that are forgivable, the coop will have more funds and money at their disposal to be able to use for expenses discussed above.  Not having to have to worry about payroll as much allows for the coop to expand and purchase additional units if needed.  Or it will allow for the coop to finally be able to fix up certain units so that can be sold for profit.  

Whether you are looking into a coop purchase or sale, it is imperative that you hire an experienced real estate attorney to be able to navigate the transaction.  If you are purchasing real estate, the real estate attorney will prepare and review documents relating to the coop, mortgage, purchase documents, title documents and finally transfer documents.

Most importantly, a real estate attorney will always prepare for and then later attend the closing with the buyer. A closing is when the money is actually paid and the title is transferred. The attorney’s job is to ensure that the transfer is legally binding.

Prior to the closing, the real estate attorney will prepare documents, write, complete title searches on the property to determine if there are any hidden liens or encumbrances on the property, and handle the transfer of funds for the purchase. 

Prior to even submitting a purchase agreement, your real estate attorney will sit down with you and do a income analysis of your income and determine if this real estate property is for you.  If you are unable to afford this property, your attorney will advise you accordingly.

Furthermore, in the event of a real estate dispute, such as an issue involving contracts or chain of title, the attorney will be your advocate.

Similarly, if you are selling a coop property, the real estate attorney has a number of duties to the seller.  For one thing, the seller’s lawyer drafts the contract that binds the parties.  

Prior to closing, the seller’s lawyer will analyze and review the proposed settlement statement that the buyer’s lawyer has drafted, being careful to review any debits and credits.  

The seller’s lawyer will review any disclosure statements issued to the buyer, being careful to protect the seller from liability.

The seller’s lawyer will obtain the precise costs and amounts from any lender by holding a note secured by the property and passing this information to the seller and buyer.

The seller’s lawyer will prepare a certificate of satisfaction that shows the seller had paid off any such lender. This certificate is recorded after closing.  

Lastly, the seller’s lawyer will represent the seller at closing, making sure that everything is legally binding and that everything goes smoothly. 

Importance of An Choosing the Right Attorney for Real Estate Transactions

Choosing the right attorney can be tricky.  You can’t just pick any real estate attorney out of the phone books.  Your attorney must be knowledgeable, experienced, and be an advocate on your behalf.  You need to ask the right questions when choosing your attorney.

Specifically, when deciding on an attorney for your real transaction, you must discuss their experience.  How many real estate closings have they handled?   What types of real estate transactions have they handled?   Have they only handled run-of-the-mill simple purchases and sales, or have they ever handled anything more complicated?  

How much do they charge?  What is expected in their representation of you?  What is their knowledge base?  

The Law Office of Yuriy Moshes represent buyers and sellers of coops in the greater New York City area, including all its boroughs, including Manhattan, Brooklyn, Queens, the Bronx, and Staten Island) as well as Northern New Jersey, Long Island, and Upstate New York.