What is a Master Mortgage Loan?
A master mortgage loan is the principal mortgage debt secured against an entire building that is used for cooperative (co-op) housing. This type of loan is typically handled by the co-op organization that owns the building. While each co-op tenant-shareholder is responsible for a portion of the master mortgage debt, this liability is distinct from any other loans taken out to purchase individual shares in the co-op.
How It Works
The co-op organization, often referred to as the co-operative housing corporation, takes out a master mortgage loan to purchase the building. When individuals buy into a co-op, they acquire shares in the corporation, not the real property itself. Thus, the purchase is treated somewhat differently from traditional real estate sales. Each buyer becomes a co-mortgagor (a participant) in the larger master mortgage loan for the entire building.
Example
Practical Scenario:
When the Morgans decided to buy a co-op apartment, they bought shares in the cooperative housing corporation rather than purchasing the property outright. Consequently, they automatically became co-obligors in the master mortgage loan that the co-op organization had secured to initially purchase the building. As co-mortgagors, they are entitled to deduct a prorated share of the mortgage interest from their federal income tax returns.
Frequently Asked Questions
Q: What is the difference between a master mortgage loan and an individual mortgage?
A: A master mortgage loan is taken out by the co-op organization for the entire building, while individual mortgages are loans taken out by tenant-shareholders to purchase their shares in the co-op.
Q: Can I deduct mortgage interest paid on a master mortgage loan?
A: Yes, co-op tenant-shareholders are generally allowed to deduct a prorated share of the mortgage interest on their federal income tax returns.
Q: What happens if a co-op default on the master mortgage loan?
A: If a co-op defaults on the master mortgage loan, it can affect all tenant-shareholders. The lender may initiate foreclosure proceedings, which impacts everyone who holds shares in the cooperative housing corporation.
Q: Do monthly maintenance fees cover the master mortgage loan?
A: Yes, a portion of the monthly maintenance fees paid by co-op tenant-shareholders typically goes toward servicing the master mortgage loan.
Q: How is my share in the master mortgage loan calculated?
A: The share in the master mortgage loan is usually calculated based on the proportion of shares you hold in the co-op relative to the entire equity of the co-operative housing corporation.
Related Terms
Cooperative Housing: A type of housing where individuals own shares in a corporation that owns the property, rather than owning the property itself.
Co-op Share: Represents an individual’s ownership in the cooperative housing corporation. Purchasing shares often grants the individual a leasehold interest in a co-op unit.
Maintenance Fees: Monthly fees paid by co-op residents that cover building upkeep, utilities, and a portion contributing to the master mortgage loan.
Pro-rata Share: Refers to the proportionate division of costs and expenses like mortgage interest, calculated based on the percent of ownership in the cooperative housing corporation.
Online Resources
- The National Association of Housing Cooperatives (NAHC)
- HUD Information on Co-op Housing
- IRS Publication on Home Mortgage Interest Deductions
References
- “Home Mortgage Interest Deduction,” IRS, IRS.gov.
- National Association of Housing Cooperatives, NAHC.
- “Understanding Co-op Housing,” U.S. Department of Housing and Urban Development, HUD.gov.
Suggested Books for Further Study
- “Cooperative Housing Development: A Manual prepared for the Federal Ministry of Urban Development and Housing” by Christof Little and Jana Dietsch
- “The Building of Cities: The Co-Operative Housing Association” by James Albion Clark
- “Understanding Cooperatives: Housing Cooperatives” by John H. Baarda
