While news of defaults, liens, and other financial train-wrecks have dominated  the news and caused many building boards plenty of sleepless nights, co-ops  have been lucky. While a spike in defaults on maintenance payments over the  last three years has forced many condominium boards to scramble to make up for  lost income, legal and management professionals say that co-ops have survived  relatively unscathed. But why is that?  

 Luck, or Planning?

 Actually, luck has little to do with it, according to attorney Dennis DePaola,  executive vice president of Manhattan-based Orsid Realty Corporation, which  manages 120 buildings, around 80 of which are co-ops. “There are a lot of mortgage foreclosures, but not by co-ops, because co-op  boards have been more diligent through the years in restricting their amount of  financing. Co-ops are not typically over-leveraged.”  

 Another advantage co-ops have over condos is their priority over bank loans in  order of payout in a foreclosure, says attorney Stephen M. Lasser of the  Condominium & Co-op Group in the New York office of Stark & Stark, where he is a partner. “In a condo, the mortgage gets paid first," says Lasser. "If the owner doesn’t pay their common charges, it doesn’t really affect the lender. So the lender has no incentive to pay the common  charges.”  

 A co-op, on the other hand “has a statutory lien,” explains Lasser, “and that has priority over the bank. If somebody doesn’t pay their mortgage in a co-op, in most cases the bank will step in and pay the  arrears in order to prevent their lien from being wiped out if the co-op sells  the apartment.”  

 Additionally, says to Steve Osman, CEO of Metropolitan Pacific Properties, a  management company in Manhattan, “Condominiums are very hard to foreclose on. It could take years. Co-ops are  rather easy. You’re just calling in common stock.”