Residential Realities February 2012
February 23, 2012--Avoiding Offering Plan Tricks and Traps
Welcome to “Gotchaville”
As the Manhattan market continues its thaw, deal activity is increasing and sponsors are moving units. Once again, it’s time to talk about the sales delivery system known as the offering plan. As those who read this blog are aware, once approved by the AG’s office in Manhattan, the offering plan is the disclosure document by which sponsors are permitted to sell apartments to the public. It is a complicated and often troublesome document that is more likely to shield the developer from liability than to protect the consumer from making a problematic investment. I sat down recently with Jill Urban of NY1, to discuss the impact of several important disclosures that are always present in new construction offering plans, with a view towards understanding not just what the disclosure says, but what it actually means…
February 13, 2012--Show Me the Money: Sellers Double Down to Get Deals Done…
Taking Selling Seriously
Almost two months into the new year, one thing remains constant: uncertainty rules the residential loan underwriting process. When a transaction has financing involved, parties often don’t know whether the deal will close until the bank is actually at the closing table with the checks. A bit of an exaggeration, perhaps, but not by much. Like it’s predecessor, the “pre-approval letter”, the condition laden “commitment letter”, is better used for kindling. Enter the preferred lender.
Going to School on the Sponsor
As pointed in a Real Deal piece on February 1st by Vanessa Weiman, entitled “Lender Liaisons”, some sellers (with help from mortgage brokers) are now seeking out lenders who will finance the sale of their property and are contractually requiring buyers to use those lenders to insure that transactions close. By pre-screening lenders, sellers are removing the biggest hurdle from completing the deal--finicky lenders who keep the loan in a constant state of underwriting review, imposing conditions up to the time that the file is released to the bank’s attorney. This option makes great sense, particularly in co-ops and condos that may have trouble satisfying Fannie Mae lending guidelines. Getting the lender lined up in advance, significantly reduces the time it takes to underwrite the loan and greatly increases the likelihood that the loan will actually be funded. With an ever increasing set of banking regulations to contend with, seller proactivity will go a long way to removing uncertainty from the process. Sponsors have been relying on preferred lenders to jump start sales since the Lehman crash, when things were bleak. Now the preferred lender appears to be standard operating procedure for many developers. There’s no reason why the same technique should not be used by individual sellers.
By the Way, Don’t Forget Cash is King
The above being said, there is nothing as comforting to a seller in today’s real estate environment as an all cash buyer. Removing the lending component insures the highest degree of certainty that the deal will close. Even if a buyer is willing to sign an “all cash” contract, but will be obtaining financing, the underwriting risks abound, and the deal could go south at any time before closing if the bank changes its mind. Sellers are well advised to look to the all cash buyer, even if that means a somewhat reduced purchase price. Those worried about losing a few bucks of purchase price should apply the Twenty Year Rule: will whatever you’re fighting about today make any difference twenty years from now…
February 5, 2012--We're Getting There: AG quietly rolls out digitization of offering plans…
What’s the Big Secret?
In the past two months, I’ve attended two large gatherings of co-op and condo lawyers, at which representatives of the Real Estate Division of the New York Attorney General’s Office made lengthy presentations on various matters. At neither of those meetings, however, did anyone bother to mention a significant improvement in the distribution of offering plans by sponsors. As Sherlock Holmes would say, a puzzlement…
Digital Disclosure
As reported in the Times on January 27, 2012 by Alison Gregor, offering plans, at the purchaser’s request, will now be available on “CD-ROM, DVD and other media deemed acceptable by the attorney general.” On January 30th, a statement from Eric Schneiderman’s office was released announcing the new “Cooperative Policy Statement 10”, but the new regulations actually became effective on November 1, 2011.
Why This Development is Important
As I have been suggesting lately, it’s just as important for the purchaser to review the offering plan as it is for the purchaser’s attorney. It’s hard to convey the limit of the sponsor’s liability that is presented in that document, without experiencing those protections first hand. Asking clients to purchase an additional copy of the plan at a cost of several hundred dollars, was not met enthusiastically. Making the document available in digital format should reduce the cost significantly and improve disclosure to the consumer. Since very few folks under age 30 obtain information in non-digital formats, asking a young purchaser to read a phone book size offering plan is a non-starter. Consider this new policy is major step forward…
As Long as We’re Talking
The bigger question is when and how the existing library of offering plans will be digitized and available to the public without the pointless and time consuming exercise of a Freedom of Information Law request. Digital libraries are propping up, but the task is just beginning. If there are any plans underway by the AG to make this huge catelog of material available, it would be nice to hear about it...
