So folks want a balloon mortgage, e.g.; interest only, to then stiff the owners five years hence.

In effect the board is proposing to have five years of freebies (lower monthly maintenance rates) and then when they leave, they want the residents who remain in the building to pay for their less than honest fiscal policies.

Quite frankly, any board that proposes to employ interest only mortgages for “n” years has abrogated its fiscal responsibility.

Co-op must have an axiom, pay as you go. There will always be capital expenditures, so if one pays for past capital expenditures in the future (balloon mortgage) what will finance the capital expenditures in five years? Will it be another balloon mortgage?

Inevitably, the residents in ten years will be faced with a mortgage market that refuses to lend anymore, the building will have at-risk facilities that demand immediate relief via high value capital expenditures with no money to fund the work. Next the building will be deemed uninhabitable….unless of course the residents pay off all outstanding mortgage balances in one fell swoop, by underwriting their pro-rata share of the outstanding co-op debt via personal mortgages.

Yes a very ugly picture, but one that can become a reality in due time.

My view is that any board that floats interest only mortgages has abrogated its fiduciary responsibility and thus should be deposed or sued for breach of fiduciary responsibility.

I’ll bet none of these folks has obtained an engineering study for capital expenditures for the building as required by the AICPA.

Just to give ya a swag….try this for size.

Using the “swag” number $40,000 per unit, this is the estimated capital expenditures most buildings are facing over the next fifteen years for capital expenditures outside unforeseen emergencies. If you can’t believe me, then ya need to do your own homework and tell us all what it is. So, if the co-op has 100 units, the estimated capital expenditures over the next fifteen years is $ 4,000,000; not adjusted for inflation which should bring it closer to $5,000,000.

Sure you can argue whether its $30,000 a unit or $50,000 a unit, but regardless it is a “big number”. So is the assessment program organized to bring these funds into the coffers? Bet not!!

So can ya pay off the balloon mortgage and do required capital improvements? I don’t think so?

But go ahead live cheaply today and stiff future owners.