Under Fannie Mae Selling Guide B4-2.1-01, B4-1.4-03 and B4-2.3-02, which statement correctly distinguishes co-op ownership from condominium ownership?
Correct Answer
A) A buyer of apartment 8A who receives shares in the housing corporation plus a proprietary lease for 8A, while the corporation holds title to the building and units, holds a co-op interest; a buyer who receives a deeded unit plus an undivided common interest holds a condominium interest
In a co-op, the corporation or trust owns the real estate; the resident holds shares and the associated proprietary lease/occupancy right. A condominium owner instead holds title to the unit with the designated undivided common interest. Identify actual documents rather than inferring form from physical appearance.
Why This Is the Correct Answer
Option A is correct because it applies each definition correctly. A buyer who receives shares in the housing corporation plus a proprietary lease, while the corporation holds title to the building, owns a co-op interest. A buyer who receives a deed to a unit plus an undivided interest in common elements owns a condominium.
Why the Other Options Are Wrong
Option B: Buyer of Unit 8A receives a deed to fee-simple title in Unit 8A plus an undivided interest in the project common elements, which Fannie Mae classifies as co-op share ownership under B4-2.1-01 because the common elements are owned jointly with the other unit owners
Option B is wrong because it says a deed to fee-simple title in Unit 8A plus an undivided interest in common elements is classified as co-op share ownership. That arrangement is the definition of a condominium; joint ownership of common elements does not turn it into a co-op.
Option C: Condo and co-op are the same under Fannie Mae, since both convey fee-simple title to the dwelling unit and neither involves a proprietary lease
Option C is wrong because it claims condo and co-op are the same and that neither involves a proprietary lease. A co-op owner holds shares and a proprietary lease rather than fee title to the unit, so the two forms differ.
Option D: A co-op borrower holds fee title to their dwelling unit, while PUDs use stock certificates and proprietary leases for each of the homes
Option D is wrong because it says a co-op borrower holds fee title to the unit and that PUDs use stock certificates and proprietary leases. In a co-op the corporation holds title, and stock with a proprietary lease describes a co-op, not a PUD.
Condo deeds, co-op shares
Condo owners get a deed to the unit; co-op owners get shares and a proprietary lease while the corporation holds the deed.
How to use: Use this to classify any ownership scenario that describes deeds, shares or leases.
Exam Tip
Look for who holds title to the unit: the individual (condo) or the corporation (co-op).
Common Mistakes to Avoid
- -Assuming shared common elements make a property a co-op
- -Believing co-op owners hold fee title to their units
- -Judging the ownership form from the building's physical appearance
Concept Deep Dive
Analysis
This question tests the difference between condominium and cooperative ownership. In a condominium, the owner holds title to a unit plus an undivided interest in the common areas. In a co-op, a corporation or trust holds title, and the occupant owns shares and receives a proprietary lease for a unit.
Background Knowledge
In the cooperative form of ownership, a corporation holds title to the project real estate, and occupants own shares that carry the right to a proprietary lease of a unit. A condominium owner holds title to an individual unit along with an undivided interest in the common areas. Appraisers identify the ownership form from the actual documents rather than from the building's appearance.
Real-World Application
An appraiser receives an order for an apartment in an older high-rise. Reviewing the documents, the appraiser finds a stock certificate and proprietary lease rather than a deed, identifies the property as a co-op and uses the appropriate co-op report form and comparables.
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