HDFC coop

[super tenant]

What exactly is an HDFC coop? I am looking to buy a unit and wondering what it is. From what I can understand, it's no longer HDFC, but now HSG. What does that mean? Any information you can give is greatly appreciated

[TenantNet]

Thanks to our friendly HDFC expert:

An HDFC cooperative is a limited equity cooperative incorporated under the Private Housing Finance Law Article XI intended for persons of low income. A Housing Development Fund Company or Corporation (HDFC) are generally created through the Dept of Housing Preservation and Development, (HPD), Division of Alternative Management Programs, (DAMP) in particular the Tenant's interim Lease (TIL) Program, Although various other HPD programs have been used to privatize City-owned residential buildings by converting them into HDFC cooperatives the TIL Program has generated the largest number of HDFC's, approximately over 1300 since 1979 occupied by over 25,000 families.

The last 300 (more or less) buildings in the TIL Program are currently in the pipeline for eventual conversion to HDFC Cooperatives.

Roughly HDFC cooperatives converted prior to 1995 have an income restriction on new shareholders equal to 6 or 7 times the annual maintenance plus utilities. Families with less than 3 dependents use 6 times the annual maintenance plus utilites to determine eligibility of income and families with 3 or more dependents use 7 times for the calculation.

HDFC Cooperatives converted after 1995 have an income restriction of 120% of Area Mediam Income as the maximum qualifying amount. There are a few HDFC Cooperatives that have a restriction of 165% of the Area Median Income.

In all cases the controlling documents should be consulted to determine the actual income restriction and re-sale policies. Since 2000 some HDFC Cooperatives have also a resale price included that varies from building to building - again the controlling documents should be consulted.

The usual "Transfer Fee" most commonly known as "Flip Tax" tend to be 30% of the profit generated in the sale.

Some HDFC Cooperatives converted between 1987 and 1995 also have a Flip Tax of 40% payable to the City of New York, these are usually referred to as 60/40 HDFCs. Although the Flip Tax can be adjusted by the shareholders super-majority vote the 40% to the City CANNOT be eliminated except at the end of the 25 years period of restriction.

It is highly recommended that a Attoreny familiar with cooperatives, particularly HDFCs be consulted and used in purchase of shares.

Controlling Documents are the Offering Plan, Deed, Corporate By-Laws, Proprietary Lease and House Rules. Most of these documents are available on line using ACRIS additonal information can be obtained using the Dept. of Building.database and HPD Online. See the City of New York internet portal at www.NYC.gov to access these various City web sites.

Do not buy shares for an apartment without having consulted an Attorney and done a thorough review of the financial reports of any Cooperative.

[super tenant]

Wow! Thanks for the great information! But, I'm still wondering what HSG means? Itr seems the bldg I'm interested in has passed the HDFC status (i.e. 25 years). Thanks again!

[TenantNet]

HSG = housing

[super tenant]

I know HSG means Housing. What I'd like clarification on is an HDFC co-op that has passed it's 25 year status and is now called HSG. How is HSG different from HDFC? From what I understand, the co-op board in an HSG bldg can set the income limits, etc. Is that true? Thanks!

[TenantNet]

Also from our friendly HDFC expert:

An HDFC continues to be an HDFC after the HPD Restrictions expire at 10, 15, 25 or 30 years as stipulated in the Controlling Documents.

Once the HPD Restrictions expire, the HDFC is free to set their own income restrictions as long as they are within PHFL Article XI. Since 2000 there is a new level of 120% over Area Median Income and as long as an HDFC is HDFC that is the only maximum income they can adopt and of course that it could any other level such as 60% AMI or 80% AMI or 100% of AMI but not exceeding 120% of AMI.

After the HPD Restriction Period the HDFC may ask HPD for permission to reconvert into a regular Limited-equity cooperative and perhaps receive favorable consideration, but off hand I don't know of any HDFC that has done that recently except the Mitchell Lamas PHFL Article II HDFC Cooperatives but those are a different creature of the State and City and not included in the generic HDFC cooperatives rather they are known as Mitchell Lamas.

Again not having access to the Controlling Documents all this is pure speculation. If the block and lot number are known a quick search in ACRIS will reveal the Deed, and Any regulatory Agreement that are included in the Controlling Documents however the Proprietary Lease, Offering Plan and Corporate By-Laws are needed to make a proper determination.

Strongly suggest consutling a cooperative attorney well versed in HDFCs.

[super tenant]

Wow, you are quick! Thank you for the information!

[Fandango]

Hi,

Reading some of the messages and responses here, I have come to the decision of joining and hoping that some of my questions can be answered. I live in a HDFC building that was converted in 1996. When this building was converted, the rule through the City of New York was that 40% of the profits were to go to them and 35% to the Corporation. Somehow those rules were changed (by vote I suppose) and now in the event of selling only 15% goes to the City and there is a flip tax of an amount I cannot recall. A lot of people have benefited from selling their apartments, particularly those who had just moved in and some who came afterwards and have sold for big bucks. It saddens me though the fact that there are some who are exploiting this form of low-income coops in order to get easy money.

Now, reading some of the topics here, it seems to me that there is something fishing going on in the building. For example, how could the 40% which is mentioned as not negotiable has gone down to only 15%? I must admit that at some point this building owed the City over 200K in tax arrears and water bills. We don't have any deficit now and there are some funds available for emergencies.

Can someone please let me know if there is an exception to the rule where a building can pay less that 40% in tax to the City in the event of selling?

How about this so called flip tax. Can the shareholders, especially the ones who have decided to stay unite and do something against it?

I would also like to know if it is mandatory for the shareholders to live in their apartments or if they have the choice to sublease the apartments. Can the shareholders get mortgages or loans through these forms of coops?

Thanks!

[reysmont]

Your building is known as a 60/40 building. That is 40% of the profits after deducting equity (original purchase price plus cost of improvements made to the apartment) is payable to the City of New York. 60% of the profits is to be split between the seller and the cooperative corporation.

60% is to be divided between the seller and the cooperative on a 50% split during the first 10 years. However the splits of the 60% between the seller and cooperative may be adjusted by amending the By-Laws and Proprietary Lease through a vote of the Board and super majority (3/4 or 2/3) of the sharehodlers.

The 60/40 Security Agreement was discontinued to be applied to buildings converting after in April 1995. Those that converted before that date or were in the pipeline still have the 60/40 Security Agreement in effect. Check the Controlling Documents or check "ACRIS On Line" (http://www.nyc.gov/html/dof/html/jump/acris.shtml) to see the Deed and any regulatory or security agreement

The HDFC Council has always promoted the suggestion that the 40% belonging to the City be placed in escrow and not touched, as efforts are being made to have the City assign those monies back to the cooperatives, in which case if paid to the City will be impossible to recover, so better to hold them in escrow until the matter is resolved.

The 40% due to the City CANNOT be changed. Only the split of the 60% between the cooperative and the seller can be changed by the Board and Shareholders refer to your By-Laws for directions on amending them.

Any changes to the 40% of the City Security Agreement is ILLEGAL and SHOULD NOT BE DONE. Only thing that can be done is place it on escrow as we suggest, so is available if/when the City claims their 40%.

The "Flip Tax" really a "Transfer Fee": The HDFC Council has always suggested that at least 30% of profits be retained by the Cooperative as a Transfer Fee and it is commonly done so by many HDFC cooperatives.

The shares were originally sold at $250 and it is only right that some of the profits accrue to the cooperative for their repair and emergency reserves.

The shareholders are expected and required to use the HDFC apartments as their primary home and be in residency not less than 183 days a year.

Subleases are not permitted without consent of the Board of Directors which is seldom granted and if granted only for periods of 6 months extandable up to two years. Longer than that then the Board may consider that the shareholder no longer is in residnecy and move in court to terminate the proprietary lease and recover the unit against payment of an amount to be determined at that time. If sub lets are allowed by the Board, usually there is an agreement bertween the Board and the Sharehodler to split sums over the cost of the monthly maintenance - remember the sharehodler owns "shares" the cooperative owns the apartments so it is only correct to split any profits

Shareholders are able to obtain mortgages and equity-loans with the written approval of the Board of Directors.

Shares in a cooperative, HDFC or otherwise are negotiable but subject to the restrictions that may be specified in the controlling documents (Deed, Offering Plan, Proprietary Lease and Corporate By-Laws).

I suggest that before proceeding on any of these issue you engage legal counsel.

The opinions and suggestions reflected my experienmces of over 15 years dealing with over 700 HDF cooperative but should never be considered as legal advise which only an attoney at law familiar with HDFC cooepratives can provide.

For further information on HDFC Cooperatives: http://forums.prospero.com/HDFCCentral

[Juletta]

This applies to me too, I think.

Your building is known as a 60/40 building. That is 40% of the profits after deducting equity (original purchase price plus cost of improvements made to the apartment) is payable to the City of New York. 60% of the profits is to be split between the seller and the cooperative corporation.

So we CAN deduct the cost of improvements from the profit, as defined for the City's share and the cooperative's share?

If we buy an apt. for $200K, spend $100K in renovation, and sell it for $350K in 5 years...

Do we have to give $60K to the city and $45K to the cooperative, and keep $45K, which would mean we would actually lose $65K?

Or do we give $20K to the city and $15K to the cooperative and keep $15K?

This is a serious issue and so far no one has located any documents with an answer...and our application is due...

I don't want to waste the $100 application fee and $250 legal retainer if the profit is based on share price, rather than share + improvements, or if there is a low cap on the improvements amount.

[TenantNet]

This is a duplicate of your other post.

[Juletta]

Sorry but I'm finding information that is clarifying the issue for me and hoping that I will eventually provide information, simply enough, that someone will answer.

It seems like a basic legal question--does capital improvement figure into the net profit figure for 60/40s? You'd think there would be an answer somewhere.

[TenantNet]

Which is why I asked the HDFC person to look at your initial thread, not this one, which is months old. I gave you the HDFC URL and that's where the best information is.