Definition
Building associations are cooperative financial organizations — typically incorporated — formed by groups of members for the purpose of pooling regular monetary contributions, accumulating a common fund, and lending that fund to members for the purchase or improvement of real property, usually secured by a mortgage or deed of trust on real estate. Each member holds shares of stock and makes periodic (traditionally monthly) payments toward those shares. Members who borrow from the association pay interest on the borrowed sum in addition to continuing their share payments. The association matures — and is theoretically wound up — when accumulated payments and investment returns bring each share to its full par value, at which point borrowing members have effectively paid off their loans and non-borrowing members receive the value of their shares.
Building associations are the historical forerunners of what are today called savings and loan associations, savings banks, or thrift institutions. The underlying cooperative structure — members simultaneously saving and borrowing within the same pool — distinguished them from commercial banks and gave them a distinct legal character during most of the nineteenth and early twentieth centuries.
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Common Confusion
Building associations are frequently conflated with ordinary banks or mortgage companies in historical sources, but the legal distinction was meaningful. A building association was a mutual enterprise: members were both the depositors and the borrowers, and profit inured to the membership collectively rather than to outside shareholders. This cooperative character governed how courts treated their contracts, interpreted their bylaws, and assessed their regulatory obligations. Reading a nineteenth-century case involving a "building association" as if it involved a modern commercial lender will distort the legal analysis. Similarly, the terms building association, building and loan association, savings and loan association, and homestead association were used interchangeably across jurisdictions and eras, but each carried slightly different regulatory implications depending on the state and period.
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Recognized Forms
/SUBTYPES
Terminating (or serial) plan: The oldest form. A single class of shares is issued, all members begin paying simultaneously, and the association dissolves when the shares mature. Every member starts and finishes together.
Serial plan: New series of shares are opened at regular intervals (often annually), allowing new members to join at different times. Each series matures independently.
Permanent plan: The association operates as a continuous institution rather than a one-time cooperative pool. Members may join and withdraw at any time, and the association does not terminate upon share maturity. This plan most closely resembles a modern savings institution.
Dayton plan: A variant of the permanent plan originating in Ohio in the late nineteenth century, notable for its pass-book savings structure and withdrawal rights. It influenced the evolution of savings and loan regulation nationally.
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Why It Matters in Research
Building associations represent a significant and underappreciated category in nineteenth- and early twentieth-century legal sources. Several research traps are worth flagging:
Terminology is inconsistent across time and geography. "Building association," "building and loan association," "loan and building association," "homestead association," and "savings and loan association" appear in statutes, cases, and treatises as near-synonyms, but the applicable law could vary significantly depending on which label the state legislature used in its enabling or regulatory statute. When researching a historical dispute, confirming which statutory framework actually governed the entity is essential before applying any general rule.
Regulatory history is layered and complex. Before federal intervention — most notably through the Home Owners' Loan Act of 1933 and the creation of the Federal Home Loan Bank system — building associations were creatures of state law almost entirely. State-by-state variations in chartering requirements, permissible loan terms, reserve obligations, and winding-up procedures were substantial. Generalizations drawn from one state's cases may not travel.
The cooperative character affected contract interpretation. Courts frequently held that a member's relationship to a building association was governed not merely by the loan contract but by the bylaws of the association, which were incorporated by reference. A borrower could be bound by bylaw amendments adopted after the loan was made, a result that would not follow in an ordinary creditor-debtor relationship. This issue appears repeatedly in nineteenth-century equity cases.
The transition to modern thrift institutions erased much of the cooperative structure. Researchers tracing institutional history from building associations forward to savings and loan associations, and then to the S&L crisis of the 1980s, should map the regulatory changes carefully — the cooperative mutual structure was largely abandoned in practice long before it was formally dismantled.
The Corpus connection to real estate and property law is direct: building association lending was almost exclusively real-estate secured, making these institutions central actors in nineteenth-century conveyancing practice, mortgage law, and foreclosure equity jurisprudence.
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Historical Dictionary Support
Bouvier's Law Dictionary describes building associations as cooperative associations, usually incorporated, established for accumulating and loaning money to members on real estate security, with members making monthly payments on each share and borrowers paying interest in addition to share payments. The entry indicates that the association matures — and implicitly terminates — when successive payments bring the stock to its full value.
Bouvier's account captures the essential terminating-plan model that dominated the earliest period of building association history in the United States (roughly 1830s through the mid-nineteenth century), but it underweights the significance of the serial and permanent plan variants that had become dominant by the late nineteenth century. A researcher relying solely on Bouvier for the legal character of a building association active in the 1890s or later should supplement with state-specific treatises and the substantial body of state appellate case law that developed to resolve disputes about premium charges, withdrawal rights, and the effect of bylaw amendments on existing borrowers — none of which Bouvier addresses in useful depth.
What historical dictionaries generally miss: the regulatory dimension. The legal character of building associations was transformed by both state regulatory statutes and, after 1932–1933, by federal intervention. Dictionary definitions frozen at the cooperative-pool model do not capture the entity that most building and loan associations had become by the time of the Depression.
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Jurisdictional Note
Building associations were organized under state law, and enabling and regulatory statutes varied significantly. Pennsylvania, Ohio, and New York each developed distinct legal frameworks that influenced other states, but no uniform national model existed until federal chartering became available in the 1930s. Researchers should identify the state of organization and locate the applicable state statute before applying case law from another jurisdiction.
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Encyclopedia Cross-Reference
The Law Mind Real Estate Transactions & Construction Encyclopedia: Project Delivery Methods (realestate_87) — tangential; primarily useful for the construction-finance context in which building associations historically operated.
The Law Mind Constitutional Law Encyclopedia: The Right of Association (constitutional_106) — tangential only; relevant if research touches the organizational or membership rights dimensions of association law, not the financial cooperative structure.
Note: No Law Mind Encyclopedia entry directly addresses building associations or their successor institutions (savings and loan associations, thrift regulation). Researchers should consult the Real Estate and Property Law encyclopedias for the mortgage and foreclosure law context in which building association disputes most often arose.
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