Co-op fees can be a source of confusion for many residents and board members. To avoid disputes, it is essential to understand what these fees are, what they pay for, and how they are calculated. It is also imperative to know that nonpayment of these fees can lead to unsavory consequences, including eviction or foreclosure.
Do Co-ops Have HOA Fees?
Cooperative associations work similarly to traditional HOAs and condominiums. Just like these housing developments, co-ops come with maintenance fees. Residents, also known as tenants, pay these fees on a monthly, quarterly, or annual basis.
What are Co-op Fees?
Co-op monthly fees are payments that shareholder-residents make to the cooperative association. These fees cover everything from building upkeep and utilities to property taxes.
While they share many similarities, co-ops are not the same as condominiums or single-family HOAs. Both may come with fees, but the purpose of these fees can vary greatly.
Co-op Fees vs Condo Fees
In a co-op, tenants own shares in a corporation. That corporation owns the building. Meanwhile, in a condo, residents own the actual real estate.
Generally, co-op fees are higher than condo fees. This is because the co-op maintenance fee covers operating expenses, property taxes, and the underlying mortgage payments for the entire property.
Additionally, co-op boards usually have greater control over operational and building costs. As a result, fees may change based on shareholder votes.
Co-op Fees vs HOA Fees
In a cooperative, fees are also typically higher than in traditional HOAs. Again, this is because co-op dues are all-inclusive. They cover property taxes, utilities, and the underlying mortgage on the entire building, along with everything else that HOA fees usually cover.
On the other hand, HOA fees usually only cover expenses related to common areas. These include maintenance costs, insurance premiums, and landscaping fees. They don’t include property taxes on individual homes.
The structure of ownership is different. Cooperatives have shareholders who buy into the building. They are essentially tenants who own shares, allowing them to reside in the property. In a traditional HOA, homeowners own their lots and properties outright, only sharing in common expenses.
What do Co-op Fees Cover?
While exact expenses can vary, co-op fees typically cover the following:
- Property taxes
- Building maintenance and repairs
- Heat, water, and other utilities
- Building insurance
- Mortgage
- Building staff
- Amenities
- Administrative costs
- Reserve contributions
- Professional fees (management, engineers, accountants, etc.)
How are Co-op Fees Calculated?
The exact formula can vary from one association to another. Co-op boards, which are responsible for determining dues, must refer to their governing documents for guidance.
That said, the general calculations are based on the number of shares a resident owns in the corporation. In a condominium, this calculation may be based on the square footage of the unit. Finally, in an HOA, common expenses are typically divided equally among all owners.
Is There a Limit to Co-op Fees in Maryland?
Maryland law currently does not limit how much a cooperative may charge in maintenance fees. That said, board members should check their governing documents. Some CC&Rs and bylaws impose a cap, either in dollar amount or percentage.
Are Co-op Fees Tax-Deductible?
Yes, a portion of the fee may be tax-deductible. This is because co-op fees often include property taxes and, sometimes, even the mortgage interest for the entire building. That said, it is best to check with an accountant for confirmation.
Other Fees in a Cooperative
The monthly maintenance fee isn’t the only financial obligation that shareholders have. Typically, cooperatives also charge other costs. These include:
- Application Fees. These are fees related to submitting and reviewing the application to purchase shares and become a tenant of the cooperative.
- Credit Check Fees. The screening process includes a credit check, which may come with separate fees.
- Flip Tax. This fee is paid when selling the unit.
Many cooperatives also levy special assessments when there’s a budget shortfall or an unanticipated expense.
What Happens When You Don’t Pay Co-op Fees?
Co-op fees are a financial obligation that shareholders agree to fulfill when they move into the community. When they fail to meet this obligation, they can face a number of consequences, ranging from late fees to eviction.
1. Late Fees and Interest
Section 5-6B-29 of the Maryland Cooperative Housing Corporation Act permits co-op boards to charge late fees on unpaid dues, subject to certain limits. The late fee can be up to $15 or 10% of the unpaid amount, whichever is higher.
2. Suspension of Privileges
Depending on the governing documents, a co-op may be able to temporarily revoke a shareholder’s privileges for unpaid dues. This usually includes suspending access to amenities and voting rights.
3. Collection Agency
The co-op board may refer the delinquent account to a collection agency. As part of its collection measures, an agency may report the debt to a credit bureau. This will negatively impact the tenant’s credit scores, affecting their ability to secure loans in the future.
4. Legal Action
In some communities, tenants will receive a demand letter, followed by a lawsuit for a money judgment. A court may order wage garnishment to settle the delinquent fees.
Additionally, the shareholder will be responsible for all legal fees and costs incurred by the association. This often exceeds the original debt, thereby compounding what the shareholder owes.
5. Liens
Left unpaid, co-op fees can result in liens. The process involves the board filing a lien on the co-op shares. This lien is typically recorded in the public records.
6. Eviction or Foreclosure
Because shareholders are considered tenants, the co-op can bring a summary nonpayment proceeding, resulting in a warrant of eviction. If the debt is not settled, the co-op can foreclose on the resident’s shares, forcing a sale to satisfy the debt.
Essential to the Entire Operation
Co-op fees serve an important purpose in ensuring the continuous operations of cooperative associations. Living in such housing developments comes with perks, such as access to amenities and services. Yet without monthly fees, co-op boards would have no way to maintain these facilities.
Majerle Management, Inc. provides management services to HOAs and condo associations in Maryland. Call us today at (301) 220-1850 or contact us online to get started!
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