Thursday, February 13, 2014

Board application packages: More fun than a root canal, but not much.

Part 6 of a series

I will not lie to you.  The application process for a co-op is painfully invasive.  And lately, the same goes for condos.

Think of your broker as a local anesthetic*.  He will make the pain go away, or at least most of it, but you will still be involved, and you will know what’s going on.

Don’t forget, everyone who lives in a co-op or condo has gone through this process.  

And because your neighbors have met the financial requirements of your co-op, they are not likely to default on their maintenance charges, leaving you and your more solvent neighbors to pick up the slack. 

It's the predominance of co-ops, with their stringent financial requirements, that has kept New York from having the huge number of foreclosures that other parts of the country have seen.  

So this whole Byzantine, complex, invasive process is definitely in your best interests as an owner.

Today, board application packages for condos are almost--often exactly--the same as those for co-ops**.  If the condo board doesn’t like your board package (condo boards don't normally interview applicants), their only recourse is to buy the condo themselves at the contract price.  They can't turn you down, but they still want the information.

The only way out is to buy in a new building (developers don't care; they just want your money) or to buy a house.  All cash.  If you want to finance, you will find that the banks are also nosy.  So are rental landlords.

Here’s what happens:

Once your offer has been accepted and a contract has been sent to your attorney, your attorney will do his due diligence on the property.  

In all likelihood the seller's broker will continue to show the property until the contract is signed, and by law, any and all offers must be presented to the seller. So move through this part of the process with all deliberate speed.

Your attorney will read the two most recent years' financial statements and the offering plan and all its amendments, which either the seller’s broker or the seller’s attorney will have sent him. 

He will also go to the office of the managing agent for the co-op and read the minutes of the meetings of the co-op board (you can go along if you want; these are almost never sent out).  

By the time he's through, he should know everything there is to know about the co-op.

At the same time, he and the seller’s attorney will be negotiating the contract—the closing date and various other provisions which he will discuss with you.

While he’s doing this, you will be having any inspections done (definitely if you’re buying a house, and a good idea if you’re buying in a small loft building or an apartment in a townhouse) and bringing your architect in if you’re planning to do work.  

Your broker will set up appointments, be present, and generally hold your hand through all of this.

When the contract is ready, you will go over it with your attorney, sign it and give your attorney a check for 10 per cent of the purchase price to be held in escrow until the closing, when it becomes part of the purchase price.

Now you’re committed, and as soon as the seller countersigns, he is also committed. The property will no longer be shown, and offers will not be considered.

Your 10% deposit will be returned to you if your contract is contingent on financing and you can’t get financing (your attorney will explain the ins and outs of this—it’s complicated) or if you’re buying a co-op and your application is rejected by the board.

Which brings us to the board application.

First, you and your broker put together the board package.

This is where you will be VERY GLAD you have a broker.  All you have to do is give him the information.  He will collect the materials from you, get them typed if necessary, assemble them in the correct order, check all the numbers and the arithmentic to make sure they’re accurate, make sure the reference letters are appropriate and will serve their purpose, make sure the package is complete, put the whole thing together with dividers labeling each section, write a cover letter and make the necessary number of copies. 

It will look beautiful, and as impressive as we can make it while staying within the boundaries of truth.  We pride ourselves on our board packages.

A typical package includes an application form to be filled out with personal information—your name and address, your attorney’s name and contact information, plus information about your employment, your supervisor’s contact information, your employment history, where you were educated, names of personal references, names of business references, bank and credit references, etc. 

Then there’s a financial statement that includes all sources of income, all projected costs, all assets and liabilities. You’ll be asked for two years’ income tax returns, personal reference letters, business reference letters, an employer reference letter and a bank reference letter, bank statements and other statements to support the financial statement, and various other items depending on the co-op.

All of this has to be done within ten days of the contract signing, or within a given time period after a co-op loan commitment letter has been issued by your lender.  (This is specified in the contract.)

When the board package is ready and the seller's broker has seen it and is happy with it, your broker will send it to the managing agent. 

Now you and your broker wait for a while.  If you're buying a condo, the next step is for the managing agent to obtain the signatures of the condo's board of managers on a waiver of the right of first refusal, after which a closing can be scheduled.

If it's a co-op....   

NEXT:  The board interview.  

Any questions?  e-mail me at or call 917-991-9549.  I'll be happy to answer them.

*I was about to say novocaine, but it turns out dentists haven't actually used novocaine in more than thirty years, as per "Directions in Dentistry," a blog by Dennis Calcaterra, DDS, of Orange, CT.

** See "Condos Steal a Page (or 20) From Co-ops"

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