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Mopping Up 2010 and What to Expect in 2011

       
Mopping Up 2010 and What to Expect in 2011

December 11, 2010

Looking Back at the Good, the Bad and the Ugly...

2010 has been a challenging year for the residential real estate market in New York City, to say the least. As the year comes to an end, here's a look at a few of the significant developments that have impacted buying, selling or owning a co-op or condo in Gotham.

Definitive Data is the Biggest Innovation of the Year

A convergence of sorts has occurred between the Internet and the availability of data to track contract signings, closings, comparable quarterly data and national trends. To use a fairly beat-up expression at this point, the playing field has definitely been leveled when it comes to knowing what the brokers know behind the firewall of the industry-driven RLS system. Data collection and analysis sites such as matrix, New York City's ACRIS system, streeteasy, urbandigs, and a host of other online services, give you the opportunity to track sales data, review statistics and create your own metrics for following trends. The consumer has never been in a better position to view transactional data as it is occurring and make decisions about a particular property based on the consumer 's own analysis. If you don't take advantage of the availability of these resources, as a client of mine likes to say, "shame on you."

ILSA: Not the Name of a Hurricane

One of most intriguing developments this year is the battle between struggling condo developers and the unhappy purchasers who want out of their deals. Thanks to The Interstate Land Sales Full Disclosure Act, a Federal statute enacted in 1968, known as "ILSA", lawyers have been able to persuade the lower federal courts that failure to comply with certain arcane disclosure obligations should give rise to a right of rescission on the part of the purchaser seeking redress. Although the parties are waiting for the lower court decisions to work their way up to a final appeal and a definitive decision, many contract deposits will be at risk if the courts finally decide in favor of the disgruntled purchasers. As the new construction condo market is starting to emerge from meltdown, any action by the courts that forces developers to return deposits won't be helpful to the housing recovery. For more on this, see my post "More Ill From ILSA".

Caution: Dual Agency Ahead

Effective next month, various changes to the "dual agency law" in New York will come into effect with significant ramifications for brokers and their clients. Particularly for first time home buyers, it can be unclear and confusing as to exactly which party the broker represents. As crazy as it sounds, if the buyer and the seller agree, the same broker can represent both parties in a real estate transaction. The broker just gives less "loyalty" to each party. At least the dual agency relationship now has to be consented to in writing by both parties, which will help inform the parties and clarify who's representing whom. What is a significant improvement is the ability of brokers to obtain advance consent to a type of dual agency, called "dual agency with a designated agent," which occurs when agents from the same brokerage firm are on different sides of the same transaction. Since large brokerage firms often find themselves in this situation, this advance consent to dual agency makes practical sense and will be helpful to both brokers and to consumers. Memo to File: unless there is a very compelling reason to have the same person represent both sides in a real estate negotiation, avoid having the broker act as dual agent.

They Attack!

When Isabella Rossellini saw fit to make a David Lynch-like public service announcement about the mating habits of bedbugs, you knew that this critter's time had arrived. And arrive they have. According to the Post, there have been over 28,000 bedbug complaints made to 311 this year. Lawyers have modified their contract riders to add representations about the bugs and managing agents get queried to make sure a buyer isn't walking into an infested apartment or an infested building. Further, the newly enacted New York State "Bedbug Disclosure Act," which appears to apply to co-ops and to condo rentals, will improve disclosure by requiring a one-year history of bedbug activity. But let's face it, these guys can show up anywhere, anytime, and with no notice. Without question, the publication of record for all things bedbug is brickunderground (e.g, how to check your holiday visitors for... you guessed it). There are also many other online services such as bedbugger.com to help educate and eradicate. We might debate how they got here, but we can agree that eliminating the problem is going to take many, many years. Memo to File: If the problem gets much worse, buyers will have to seriously consider a pre-purchase apartment inspection for this issue alone.

No More Short-Term Leases

As a hallmark card to the hotel industry, the New York State legislature enacted a prohibition against leases for less than thirty days which was signed into law by Governor Paterson in July of this year. As I indicated in "What's the Big?," since most co-ops don't allow subleases, let alone short-term leasing, and since most condos require a lease of no less than one year, the only folks really impacted by this new law appear to be landlords illegally running short-term rental facilities and tenants who are illegally subletting anyway. In the world we live in today, inadequate background checks on tenants or allowing someone you don't know, who you connected with on Craigslist, to occupy your apartment, makes no sense...

Lenders Have Issues

Those of us who address financing issues every day know how difficult and unpredictable banks have been during this past year. In one recent $800,000 co-op transaction, the underwriter insisted that the flat screen included in the sale, valued at about $500, be removed from the contract, as it was "impacting" the loan to value ratio. And the refrain from the mortgage broker or loan officer relative to the Dr. Evil request from underwriting is always the same: "just do what they want!" To say that the pendulum has swung in the other direction away from undocumented loan applications doesn't quite capture the change in mindset that pervades the lending industry these days and for the foreseeable future. Except for the folks at top of the pyramid, where the lending window is always open and funding is fun and available, be prepared for the standard underwriting process to take 30 to 60 days, and perhaps longer, no matter how qualified you are for a co-op or condo loan. For more on navigating the chopping waters of residential financing, see "Banks Get Funky."

Residential Reality: Looking for the New, New Normal in 2011

There's that motor oil commercial running right how, where the car is dragging an anchor down the road and can barely make any forward progress. The New York City real estate market is not in the same position; there clearly seems to be forward movement, it's just not at the pace we would all like. All eyes now turn to Wall Street, as bonus season will define the success of the real estate market in the first quarter of the new year and perhaps for many months thereafter. But there are only so many "starchitecture" apartments and a small number of available buyers for those unique and pricey units. The rest of the real estate industry needs the job market to improve dramatically and for interest rates to remain low for most of next year to facilitate a real estate market that approaches something we once called normal. Many in the real estate business I talk to are holding their breath and crossing their fingers in hopes for a robust 2011. And a healthy real estate economy next year will be good for all of us. Keep the Twitter feed positive... it can't hurt.

"Slam Dunk" is no longer in the real estate lexicon...

Asked and Answered

Q

I don’t smoke, but the smell of smoke is wafting into my apartment from my neighbor. Is there anything that can be done to remedy this condition?

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I’m selling my co-op tomorrow and my bank attorney has not yet received the stock certificate and proprietary lease from my bank. Will the closing have to be adjourned?

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The seller has indicated that there was a leak in the bathroom from the apartment above that has been repaired in all respects? Can I rely on seller’s representation to that effect in the contact?

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Can I insist on closing on the date stated in the contract?

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The commitment letter included a condition that my loan was subject to a “second review” by the investor to whom the loan will be sold. Has my commitment letter been issued?

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Can I purchase my co-op in the name of a trust?

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Can I allow the seller to remain in possession after closing?

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There’s a repair needed in the apartment that the Seller promises to remedy after the closing. Is that a good idea?

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Do I care who the bank attorneys are?

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Do I have to go to the closing?

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One of the conditions in my loan commitment states that the monthly maintenance cannot increase by more than five percent? Is that a problem?

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Can I have a roommate after I purchase my co-op apartment?

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Can I undertake renovations before the Closing?

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Do I need a home owner’s insurance policy for my apartment at the time of my closing?

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Should I let the broker do the walk through?

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Once I get a loan commitment, is my loan approved?

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When it comes to purchasing an apartment, what exactly is due diligence?

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Do I have to let the maintenance people in to fix a building system?

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Does my dog have to be interviewed by the Board?

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Is buying an apartment in a small building a good idea or a bad idea?

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Can I fudge on my numbers in my financial package to the Board?

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Should I use a mortgage broker or should I go direct to a bank?

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Should I have the apartment inspected before I sign the contract?

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Do I Really Have to Give the Board My Tax Returns?

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I am purchasing an apartment with extensive landscaping on the terrace. Can the co-op or condo make me remove landscaping that was existing at the time of my purchase?

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I have an opportunity to buy a garage space, but the sponsor is calling the arrangement a “license” rather than a “purchase”. Does that matter?

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We are considering an apartment that will require us to move the bathroom to another location in the apartment. Is such a move possible?

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The seller’s bank can’t locate the stock and lease for the co-op closing. Can we still close?

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The broker told me that I can adjourn the closing for 30 days? Is that correct?

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The Offering Plan for my condo indicates that the apartment has a “lot line” window. Is that a problem?

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My dog bit someone in the lobby and I have been notified that if it happens again, my dog will have to go. Does the Board have the power to restrict me from having a pet?

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There is an unobstructed view from the apartment I am considering, but there is a vacant lot directly in front of that side of the building. Is that reason for concern?

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The Managing Agent called and it looks like my finances will not be sufficient to get Board approval. Is there anything I can do?

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The managing agent has had our application to purchase a cooperative apartment for three weeks and nothing has happened. Is there anything we can do to move things forward?

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We are considering an apartment in a co-op where the sponsor still owns units. Is that a problem?

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The seller’s apartment presently has a storage unit. Does the storage unit transfer with the apartment?

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We’re closing in three weeks, but our lease is up next week. Can we move in before the closing?

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I just did the walk through on the purchase of a sponsor unit and we have an extensive punch list. Will the punch list be completed by the time of closing?

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I’m buying an apartment from a sponsor and the Offering Plan requires me to pay the sponsor’s transfer taxes and attorneys fees. Do I have to?

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The purchase price of my apartment is over $1,000,000.00. Is the transaction subject to the “mansion tax"?

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I’m selling my apartment, but I’m not a resident of New York State. Are there any special closing costs?

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We did the walk through and the apartment was filthy. The contract required the apartment to be “broom clean”. Can we complain at the closing?

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I have to sell my apartment in order to afford the new one I’d like to buy. Can the contract be contingent on the sale of my existing apartment?

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I’m a famous person (no, I really am) and I really don’t want my financial information given to eight strangers on a co-op Board. Is there a way to avoid that?

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I’m the executor of the estate of a deceased shareholder. Do I have to go to the closing?

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I just graduated law school and have a job with a large law firm. I have a significant salary, but no liquidity or significant assets. Will I be able to buy a co-op?

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The listing indicates that the apartment has “roof rights”. How can I be sure?

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When buying a condo, is it worth the time and effort to get an assignment of the seller’s mortgage?

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The Seller removed an expensive chandelier right before Closing. Is that permitted?

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My husband and I found an apartment we love, but there’s a bidding war. Should we participate?

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We love the apartment, but the building has bad financials. Should we go ahead?

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My closing is in December, but the lease for my apartment does not expire until the following March. What do I do with my lease?

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We are buying a condo, but we have a delayed closing as the seller has a tenant in place for the next six months. We will be able to retain our loan commitment for an extended period of time?

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Should my husband and I take title as tenants by the entirety, tenants in common or as joint tenants?

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When a gay couple buys the shares of a cooperative or buys a condominium apartment, what is the best way to hold title?

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I have not been able to make my co-op mortgage payment for the past three months. If the bank declares my loan in default, how long will it take before the bank forecloses on my apartment?

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A co-op owner asks: I have found that maintenance is usually higher in coops than in condos because of the contribution by the shareholders to the building's underlying mortgage payments. In condos, the unit owners only pay for real estate taxes and common charges for common areas. Will the monthly maintenance be reduced after the underlying mortgage has been fully amortized?

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Can a corporation or other business entity own the shares of a cooperative apartment?

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I’m buying an apartment in a building designated as a “landmark.” Should I be concerned?

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I am buying a co-op that needs major renovations. The super has offered to do the work at a significant discount. Is that a good idea?

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We just submitted the Board package and we realize that we neglected to disclose a lawsuit against my husband’s company, in which my husband is named as a defendant? The lawsuit is covered by insurance and my husband is indemnified from liability by his employer. Should we notify the managing agent and amend the purchase application?

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We are negotiating the contract and we just found out that there is a substantial assessment that will go into effect the month that we close on the purchase. Should the assessment be deducted from the purchase price at closing?

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The bank attorney was two hours late to the closing. Was that my attorney’s fault?

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I’m buying a cooperative apartment in Manhattan, but I move out to the Hamptons from June to the end of September each year. Will I be able to sublet the apartment each year when I’m away?

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I just got the purchase application package and it's twenty pages long. Should my broker be helping me with organizing the required documents?

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It’s the day before the closing and I just found out that the maintenance for the apartment is higher than the maintenance stated in the contract. Is that grounds to terminate the contract?

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The financials for the condo are more than a year out of date and there is a delay issuing the new financials. Should I be concerned?

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The contract requires “official bank funds” in the form of certified or official bank checks. Can I bring “official" checks from my brokerage account?

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My parents want to buy me an apartment while I’m in graduate school in Manhattan. Will a co-op allow me to purchase the apartment, if my parents are co-owners?

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I obtained sole ownership of my condo in my divorce, but the deed for the apartment is still in both of our names. Will my ex-spouse’s cooperation be required when I’m ready to sell the apartment?

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I just found out I have to pay a fee to have my mortgage recorded. Is that right?

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I am buying an apartment in a small building and I just found out that the elevator is being renovated and will be out of service for three months. Do I have to close if the elevators will not be operational on the closing date?

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My husband and I own a co-op and we would like to transfer the shares to an irrevocable trust that we recently created for estate planning purposes. Will our cooperative allow us to make that transfer?

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The seller is a foreign citizen and does not have a social security number. Does that prevent the seller from selling the apartment?

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An “assessment” was imposed by the co-op Board after the contract was signed. Is payment of the assessment the seller’s responsibility?

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There is a leak in my apartment and the Resident Manager is not being responsive. Should I call the Board president?

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I just bought an apartment and I am only refinishing the floors and repainting. Do I need the consent of the Board before I get started?

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The co-op I’m interested in is pet friendly and I have a dog. Is there any chance the Board could approve my application without approving my pet?

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We purchased our apartment in January, but our first mortgage payment is not due until March 1st. Why isn't the first payment due February 1st?

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I’m buying an apartment from a sponsor and the contract does not provide for a “mortgage contingency”. Is that a provision that I can negotiate into the contract?

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I am buying an apartment from a sponsor and the contract provides for the buyer to pay the sponsor’s transfer taxes and legal fees? Is that normal?

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I'm buying a condo and my attorney just ordered the "title report". What's a title report?

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There is a leak in my apartment and the Resident Manager is not being responsive. Should I call the Board president?

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My boyfriend and I are interested in buying our first apartment in a new construction condominium. Our mortgage broker tells us we should qualify for a 90% loan, but it will be a close call for the bank. The sponsor wants us to sign a “no contingency” contract. Is that a good idea?

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We are considering a condo purchase in a new development that is only 25 percent sold. There is a bank that has approved the project and will make the loan, but should we be concerned about the number of units that the sponsor still has to sell?

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We are buying an apartment that has been extensively renovated. Among other things, the size of the master bath was significantly increased. Can we rely on a representation in the contract that all required approvals were obtained from both the Cooperative Corporation and from the New York City Department of Buildings?

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We received a draft of the contract of sale for the cooperative apartment we are buying and our social security numbers are on the front page! Our attorney told us that we will have to provide our identification numbers to the managing agent for a credit check as a part of the Board package, so it’s not a big deal. Do we have to list our socials on the contract?

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The listing stated that the apartment was 1,100 square feet, but the appraisal measured the apartment at 900 square feet. Can we cancel the contract and get our money back?

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Q

I'm about to pay off my co-op loan. What evidence will I have from the bank that the loan has actually been paid off?

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I am considering an apartment in a new construction condominium. There is park under development by New York City that will greatly enhance the value of the condominium when it’s completed. Although the sponsor’s salesperson indicated that the first phase of the park will be completed in the next year or so, the Offering Plan contains a “Special Risk” that states that the sponsor gives no assurance as to when, if ever, the park will be completed. Who and what should I believe?

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Q

We are in negotiations to purchase a co-op apartment on the Upper East Side. Our lawyer reviewed the minutes and discovered that the building has a bedbug infestation. Should we go forward with our purchase?

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My purchase application was approved by the co-op Board, but it is conditioned upon my providing a maintenance deposit and guaranty by my parents. Do I have to comply with the conditions?

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At my closing, I had to reimburse the Seller for his New York State “STAR” rebate that appeared on the maintenance statement for the month following the Closing. What exactly is the STAR rebate and will I be able to obtain the rebate as well?

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I'm selling my co-op next month and my attorney aked me to "freeze" the line of credit I have with my bank. What exactly do I have to do?

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I just found out that the seller will be unable to close for an additional two weeks. As a result, I will have to extend my rate lock, at a cost of $1,200.00. Is the seller obligated to reimburse this cost?

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I am buying a new construction condo and the Offering Plan is over 400 pages. Do I need to read the entire Offering Plan?

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Q

We ran across a co-op that has a few “sponsor owned” apartments for sale. Is there any advantage in buying one of the remaining sponsor apartments?

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I am about to make an offer on an apartment, but I have not been provided with the current financial statements for the co-op. Am I entitled to review the financials before I make my offer?

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Q

We are selling our apartment to our neighbor, but our neighbor can’t afford to purchase our apartment unless she sells her apartment. Her lawyer wants the contract to provide that the purchase of our apartment is contingent upon the sale of her apartment. Our lawyer is advising us against including a provision that makes the transaction contingent on the sale of the buyer’s apartment. Should we go along with the contingency?

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We are selling our co-op and the buyer is not obtaining a mortgage in connection with the purchase. The contract required the Board package to be submitted within 10 business days after the fully-executed contract was returned to the buyer. The buyer is two weeks late in submitting the package. Is the buyer in default?

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I’m selling my condo and I have not been able to pay my common charges for the past six months (I lost my job). I have a buyer for the apartment, but the Board of Managers will not release the Waiver of the Right of First Refusal, unless I pay the outstanding balance of the common charges. I’m between a rock and a hard place, as I don’t have the money. What should I do?

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I am combining two adjacent apartments that I own and I want the co-op to issue one stock certificate for both apartments. There is an outstanding UCC lien against one of the apartments. The other apartment is owned free of any liens. Can the co-op object to the combination?

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My attorney asked me to contact the managing agent to verify the maintenance and assessment information that's disclosed in the contract for the apartment I intend to purchase. Isn't that my attorney's job?

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Our application to purchase a co-op was turned down by the Board without an interview. Although our attorney asked the managing agent to disclose the reasons for the Board’s decision, none were given. Can the Board just turn our application down without any explanation?

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My bank issued a loan commitment, but then withdrew its underwriting because private mortgage insurance was not available. Will I have a problem canceling the contract and getting my deposit back?

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The seller has a storage bin, but the contract indicates that the apartment does not come with a storage bin. If I buy the apartment, can I be sure that a storage bin be avaialable?

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I’ve been asked to serve on the Board of my co-op. Could I be held liable if the co-op is a party to a law suit?

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I am buying a co-op in Manhattan. The managing agent is located in Brooklyn and refuses to send a closing representative to the attorney’s office for the buyer or seller located in Manhattan. Will everyone have to go to Brooklyn for the closing?

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We are purchasing a condo that was occupied by a tenant at the time the contract was executed. We just did the walk through and there is damage to a portion of the floor that was hidden by the tenant’s furniture. Are we entitled to a repair credit at Closing?

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A loan commitment was issued, but the bank requested an explanation for a $14.00 missed credit card payment that occurred nine years ago. Could the bank withdraw its commitment as a result of this missed payment?

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I'm selling my co-op, which I own with my mother and father. Is it okay to have the closing checks made out to the three of us?

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A leaking pipe inside the wall of my co-op was recently replaced. The following month, my maintenance account was charged $1,000.00 on the theory that the pipe only serviced my apartment. Am I responsible for this repair?

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A condo buyer has a mortgage contingency, but the closing will not take place for six months as the seller has a tenant in the apartment. When should the purchaser apply for financing?

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We submitted our Board package a month ago, but the Board has not scheduled an interview or asked for any additional information. To make matters worse, the managing agent won’t give us any indication as to what’s going on. Is there anything we can do?

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My co-op contract included the seller’s flat screen, but the bank underwriter required that it be removed from the contract as it was “impacting” loan to value. Can the bank do that?

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I am buying an apartment in a small co-op that is self managed. How does the bank obtain the required “co-op questionnaire” in order to complete its underwriting?

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I'm selling my apartment. When can I cancel my insurance coverage?

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My condo has requested access to my apartment in order to make repairs to the plumbing lines located in the ceiling. Am I obligated to give the super access to make the repairs?

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