The Benefits of HDFC Co-ops Come With Lots of Oversight

Benjamin Flavin, Partner, Finder Novick Kerrigan

The benefits. HDFC co-ops were created to provide affordable housing for people who may not otherwise be able to enter the New York City real estate market. There are also certain tax benefits that lower the cost of owning an HDFC apartment.

The regulatory agreement. Most modern HDFCs have a regulatory agreement with New York City that outlines the financial regulations they’re subject to. I think this can be very difficult for boards because sometimes the agreements are not very clear. 

Take flip taxes, for example. These are often determined when the HDFC was created. Many modern HDFCs have a 70/30 flip-tax ratio — 30% of the sale’s profit goes to the HDFC, and 70% goes to the shareholder. But older HDFCs have a 60/40 flip tax, where 40% of the profit goes back to the city, and the shareholder gets 60%. The HDFC is totally left out of the mix.

Where to locate documents. Many of the documents, like the co-op’s certificate of incorporation, can be obtained from the state. Things like the deed and regulatory agreements are recorded publicly and can be found on ACRIS. And the proprietary lease, bylaws and other such documents can be found in the offering plan in their original form. 

Keep current. One of the most important things for HDFC board members is to understand their co-op’s governing documents. They’ve changed over the years, so if you’ve read something or heard something about HDFCs you should go read your particular documents and find out if whatever you’ve heard applies to your particular co-op.