Traditional Legal Ownerships vs. Land Trust Models
The ownership model chosen for a particular property establishes the structure for the resident's interest in the property and for the limitations imposed by the housing sponsor. Because such limitations are not essential features of most ownership models, the various legal devices described are used as means of implementing the limitations. The ownership models vary in the extent to which they can be altered, in the extent to which they allow enforcement of limitations, and in the extent to which they promote neighborhood stability. They also embody different visions of the function and proper allocation of property in society.
Conventional Resident Ownership
In this model, the housing sponsor transfers to the resident "full" (fee simple) ownership of the entire property. Limitations are established through a deed restriction, a collateral agreement, or a mortgage agreement.
The model works well for a program that simply wants to recapture a subsidy. In that case, the sponsor can simply use a mortgage to secure the amount of subsidy to be repaid upon resale. The conventional resident-ownership model can also be used with resale price restrictions. In order to transfer full title to the resident and then restrict resale, the sponsor will need to use a deed restriction or collateral agreement. Because of the statutory time limits on deed restrictions and the property law limits n perpetual restrictions in either deeds or collateral agreements, any resale price restrictions in connection with conventional resident-ownership will probably have to be limited to a certain time period rather than establishing permanent affordability.
Condominium ownership in multi-family buildings is roughly the equivalent of conventional resident-ownership in single-family homes. The individual owner has fee simple ownership of the unit as defined by the walls, ceilings, and floors. All the unit owners together own the common areas through a condominium association. While condominium ownership was not originally conceived as an affordable housing model, housing organizations have recently begun to set up limited-equity condominiums.
Limitations on the residents' equity are implemented in much the same way as with conventional resident-ownership - through deed restrictions or collateral agreements containing preemptive options, or through mortgages allowing subsidy recapture. Because the model is similar to conventional single-family resident-ownership, the same questions as to the enforceability of long-term resale restrictions apply. The condominium association or housing sponsor may have a stronger justification for an over-all affordable housing scheme for the whole building. Nonetheless, legal concerns about long-term enforceability have led sponsors either to draft restrictions that preserve affordability only for a limited period of time, or to arrange for ownership of the land by a community land trust, with long-term affordability protected by provisions in the land trust ground lease. (Note that in come states, such as New York, the state condominium law specifically requires ownership of the land by the condominium association.)
With the cooperative ownership model, title to the property is placed in corporation rather than being divided among the individual residents. The residents purchase shares of stock in the corporation and participate in governing the corporation as owners. As a shareholder, the resident received a long-term ("proprietary") lease to her housing unit. In limited-equity cooperatives, the bylaws require that each resident agree to a restriction on the price that she can receive when she sells her share of stock. Perpetual resale restrictions on shares of stock do not involve the problems of legal enforceability that accompany restrictions on the resale of conventional resident-owned or condominium homes. The rules against restraints and perpetuities apply primarily to interests in real property. A resident's ownership of stock in a cooperative typically is considered to be an interest in personal rather than real property.
However, while the long-term enforceability of the restrictions may not be a problem, the long-term existence of the restrictions themselves may be jeopardized. As noted above, the restrictions are implemented through the cooperative's bylaws, which can be revised by the resident-shareholders, who may have a strong interest in removing resale restrictions. Cooperative ownership is therefore a less than perfect means of preserving long-term affordability, unless the continued existence of resale restrictions can be assured by means not inherent in the model itself.
One way of ensuring the continued existence of a cooperative's resale restrictions is to arrange for ownership of the land by a community land trust. Land trusts themselves are often the developer/sponsors of limited-equity cooperatives of their land. In these cases, the land trust ground lease requires that specified resale restrictions remain in place perpetually. The land trust monitors the ground lease agreement with the cooperative and can enforce its terms when necessary.