HDFC Co-ops in NYC: Income Limits, Rules and Risks

An HDFC co-op is a limited-equity cooperative in New York City where buyers must meet income limits and resale profits are restricted, which is why apartments list far below nearby market-rate co-ops. You can buy one only if your household income is under the building's cap, you plan to live there, and you accept that you won't be able to sell for full market value later.

The details vary building by building. That's the most important thing to understand about HDFCs: the rules that bind you are in that co-op's own documents, and the strictest one wins.

What an HDFC co-op is

HPD explains the history: New York City took ownership of many abandoned, distressed buildings decades ago. HPD rehabilitated some and, over time, let the tenants buy them as limited-equity cooperatives organized as Housing Development Fund Corporations. More recently the city has also financed new construction and rehabilitation of HDFC co-ops.

Under the Private Housing Finance Law, a housing development fund company must be organized to develop housing for persons of low income (PHFL §573). In exchange, HDFC co-ops get reduced real estate taxes; the law lets a city grant exemptions for up to 40 years (PHFL §577). HPD supervises the co-ops for compliance.

Two features set HDFCs apart from ordinary co-ops:

• Equal shares. In HDFC co-ops all shareholders own an equal number of shares, regardless of apartment size.
• Limited profit. Your ability to profit when you sell is limited so the unit stays affordable to the next low-income buyer.

Income limits: three ways a building can set them

Every HDFC must follow Article XI, which defines low income as household income up to 165% of Area Median Income (AMI). HPD says many HDFC co-ops have stricter limits in their deed, certificate of incorporation, bylaws, offering plan or regulatory agreement, and each HDFC must follow the most restrictive rule. In practice you'll see one of these:

The Section 576 formula, step by step

Some HDFC documents refer to a formula in Section 576 of the Private Housing Finance Law instead of an AMI level. HPD describes it this way: your maximum household income is the unit's annual maintenance plus utility costs, times 6 for a one- or two-person household (or 7 for three or more people), plus 6% of the seller's original investment.

1. 1

   Add annual maintenance and annual utilities

   HPD’s example: $700 a month maintenance ($8,400 a year) plus $97 a month utilities ($1,164 a year) = $9,564.
2. 2

   Multiply by 6 (1–2 people) or 7 (3+ people)

   For a two-person household: $9,564 × 6 = $57,384.
3. 3

   Add 6% of what the seller originally paid

   The seller paid $260,000, so 6% is $15,600.
4. 4

   The total is the buyer’s maximum income

   $57,384 + $15,600 = $72,984. HPD’s second example, a three-bedroom sold to a family of four, works out to $102,264.

Notice the effect: a cheaper original purchase or lower maintenance means a lower income cap. Two apartments in the same building can have different limits. Ask for the numbers before you fall for a unit.

Resale limits and flip taxes

Many HDFCs charge a flip tax that splits the seller's profit with the co-op. HPD gives two illustrations: with a 70/30 flip tax, a shareholder who bought at $60,000 and sells at $100,000 keeps $28,000 of the $40,000 profit and the HDFC gets $12,000; with a 90/10 split, a $20,000 profit gives the seller $18,000 and the co-op $2,000. The co-op uses that money for repairs and reserves.

Co-ops with a regulatory agreement may also cap sale prices. HPD says sale prices should be low enough that buyers aren't generally spending more than a third of their income on mortgage, maintenance and utilities. So your future sale price depends on what an income-eligible buyer can afford, not on the open market. Read how co-op flip taxes work for the general concept.

HDFCs also can't simply drop the restrictions. In 2015 the New York State Attorney General published guidance on the legal restrictions on converting an HDFC to a market-rate project, which HPD links on its HDFC page.

Living there: occupancy, sublets and governance

• You must live there. HPD says almost all HDFC co-ops require owner occupancy in their certificates of incorporation.
• Sublets are limited. Short-term sublets with board permission, when you intend to return, are generally allowed; long-term sublets are not. Any subtenant must also meet the income limits.
• The board runs it. Shareholders elect a board, typically every year, which must keep the co-op financially healthy and compliant with income, resale and sublet rules.
• Annual reporting. HDFCs with an HPD regulatory agreement must send HPD certain documents each year.

Financing an HDFC apartment

You need a co-op share loan, and lenders must underwrite both you and the building. HDFC buildings are often small, older, and run by volunteer boards, and their resale limits affect the collateral, so fewer lenders make these loans. Start lender conversations early and ask specifically whether they lend in HDFC co-ops. Some practical points:

• No mortgage recording tax. The Department of Finance notes that mortgages on individual co-op apartments don't incur the mortgage recording tax. See co-op share loans vs mortgages.
• HomeFirst can help. HPD lists the HomeFirst Down Payment Assistance Program, up to $100,000 for eligible first-time buyers at or below 120% AMI, among resources for prospective HDFC shareholders. Check HomeFirst eligibility.
• No co-op/condo abatement. DOF excludes HDFC properties from the co-op and condo property tax abatement, so don't expect that credit on your maintenance.
• Watch for expiring tax benefits. HDFC tax exemptions have terms. Ask the board when the building's exemption or regulatory agreement ends, since a change could raise maintenance.

How to check a building before you bid

1. 1

   Ask for the governing documents

   The board or managing agent should have the certificate of incorporation, bylaws, offering plan, proprietary lease, and any deed restrictions or regulatory agreement. Have your attorney read them.
2. 2

   Search ACRIS

   HPD says deeds, regulatory agreements, security agreements and mortgages are recorded in ACRIS (which covers Manhattan, the Bronx, Brooklyn and Queens). Search by the building's block and lot; see how to search ACRIS.
3. 3

   Confirm the exact income cap for this unit

   Get it in writing: AMI level, or the Section 576 numbers (maintenance, utilities, seller’s original price). Check your household against it.
4. 4

   Review the finances

   Ask for two years of financial statements, the budget, reserves, arrears, any HPD or city loans, and planned capital work. Thin reserves in an old building mean assessments.
5. 5

   Check the building record

   Look up open HPD and DOB violations, complaints and litigation on Roofy's building lookup.
6. 6

   Questions go to HPD

   HPD answers questions about HDFC regulatory restrictions at [email protected].

Where HDFC apartments are listed

HPD says most HDFC apartments for sale are listed like other co-ops, by shareholders or boards through brokers and listing sites, sometimes through nonprofits, and some through NYC Housing Connect. You can also check the homes for sale on Roofy. When you find one, use the co-op board package checklist; HDFC boards will also ask for income documentation for every household member.