Distressed co-ops are an untapped market.

While many home buyers have been dissuaded from buying units in cooperatives that do not meet mainstream lending criteria, some have found great opportunities.

In the New York metro area for example, there are many cooperatives who don't hit the mark simply due to owner occupancy below 51 percent. In the past, buyers of units in these co-ops would have difficulty securing financing. However, that has all changed.

Today, lenders have recognized the potential of these formerly unacceptable projects, and have begun to offer financing programs.

According to James Banahan, a credit analyst with National Cooperative bank (NCB), "By providing financing to purchasers of primary residences in these co-ops, we are not only offering an alternative to private financing and cash, we're also helping to build equity, increase marketability and most importantly, improve owner occupancy."

"Over the past few months, we've seen a sharp increase in the number of applicants for financing in buildings with low owner occupancy," said Robbie Gendels, a loan officer with NCB. "These inquiries frequently follow recent refinances of the blanket loan by NCB, which automatically makes the project eligible for end loan financing with the bank. For example, we've made end loan financing available at co-ops which are less than 50 percent occupied, including King Village in Brooklyn, 675 West End Avenue in Manhattan, and 219 Bronx River Road in Yonkers."

The potential for appreciation in projects that currently do not meet standard criteria is much larger than in projects that have already reached the standard. Home buyers who are willing to look for these co-ops, and the lenders who will finance them, will reap the largest rewards in the long term.