CoopAndCondo.com - Addressing the realities of Residential Real Estate

Serenity Now

       
Serenity Now

 

 

The Simple Has Become Complicated

 

In the old days, invariably I would get a call from a broker claiming to have a "simple" deal that would be easy to get done. Whether it was an all cash transaction between neighbors, a purchaser with superior banking connections or a sponsor deal in a completed building, at least in theory, getting to the finish line would be somewhat seamless. There are still a few transactions that fall into that category, but for the most part, each transaction is now a roller coaster ride, with enough twists and turns to require Dramamine.

 

 

Dangling Contracts

 

In two recent situations, there were extended delays returning the fully-executed contracts. In one case, the sellers did not begin organizing their financing for the purchase of their new home until after the purchaser had signed the contract. As the purchaser reluctantly waited, it took a month for the contract to be returned. In another transaction, the seller's attorney went on holiday at Christmas time and did not return calls or emails for over two weeks. Again, the frustrated purchaser waited for the coveted fully-executed contract. Eventually it showed up, but the timing of completing the closing was delayed a month.

The Elusive Loan

 

Of course, one of the biggest bumps in the bumpy transaction, is clearing the loan for closing. Although the loan salesperson will opine relentlessly that both the purchaser and the co-op or condo have been "pre-approved," sooner or later, the Darth Vader of the loan process, the underwriter, starts waving the loan saber and things grind to a standstill. No matter how hard I try to convince my purchaser clients that there is a loan meat grinder through which all loans must be processed, folks just refuse to believe how difficult loan clearance can be, irrespective of the qualifications of the borrower.

It's All About Me

 

In this world of selfies, it is not surprising that getting a closing date that accommodates the needs of all of the attendees is astonishingly difficult. Considering the many players on the field, one would think that a closing date a few days later than expected would be understandable. Yet purchasers and sellers often freak over a slightly delayed closing. The attorneys and brokers, always the recipients of the complaints, just keep slogging until the big day is finally agreed upon. Sometimes, however, there are significant delays in getting to a closing date that border on breach of contract.

First a Word About Sponsor Closings

 

New construction sponsor transactions are in a separate category. The Offering Plan and sponsor Purchase Agreement, allow the sponsor to delay the closing endlessly, without a real remedy. Contracts may allow the purchaser to cancel if the closing does not take place a year or so after the estimated closing date, but that does not help the purchaser in any meaningful way. If a purchaser has time requirements for a closing, entering into a contract to purchase an apartment not yet completed, is not a great way to go.

Blood Pressure Rising

 

First, let's divide the troublesome closings into two categories: The first being those closings that are significantly delayed, but ultimately close; and the second, those closings that never occur due to refusal or inability of one of the parties to close. In the latter case, when the transaction blows up and the closing never occurs, the outcomes are easier to predict.

When the Seller Breaches

 

If it's the seller who refuses to close, the purchaser must either accept the return of the deposit or pursue an action for specific performance, by which the purchaser asks the court to order the seller to perform and transfer the property. In residential transactions, specific performance can be an effective, but expensive remedy. Ultimately, the purchaser will be successful, but at a significant cost and after many months of litigation. In many cases, the purchaser simply does not have the time or money to invest in a lawsuit, so accepting a return of the deposit and moving on is the rational thing to do. Since almost all residential real estate contracts limit the purchaser's remedy to return of the contract deposit, if the seller is unable or refuses to close, even if the seller willfully defaults, litigating for additional damages suffered by the purchaser is almost always a waste of time and money.

When the Purchaser Breaches

 

And then there's the defaulting purchaser. There are those times when the purchaser's financing evaporates or the purchaser just decides not to go forward. When that happens, the seller will have to decide whether "contract deposit litigation" is cost effective. One of the great misconceptions about a defaulting purchaser is that the seller can automatically keep the deposit once the purchaser is unable to close. Except in those rare situations where the closing date is "time is of the essence," and the purchaser fails or refuses to close, even if the purchaser willfully defaults, the seller will be subject to the escrow provisions of the contract of sale. Those provisions will require the seller to demand the release of the contract deposit. Once that demand is made and the purchaser notifies the escrowee (almost always the seller's attorney), not to release the deposit, the parties are at a stalemate until a settlement is reached or until one of the parties commences an action to determine which party is entitled to the deposit. Since the cost of contract deposit litigation can be the equivalent of throwing cash out a window, unless there is a very large deposit, the parties usually determine that settlement is best. But not always. Sometimes emotions run so high when a purchaser walks away, that more good money gets thrown after bad and litigation ensues. That being said, since a seller can't obtain the deposit without working out a settlement with the purchaser, if the purchaser refuses to cooperate, the seller may have no choice but to commence a lawsuit. It's not pretty. At the end of the day, once the seller is forced to commence a lawsuit to obtain the deposit, the full deposit paid by the purchaser will never be obtained by the seller, as the cost of the litigation will offset even a complete recovery of the deposit.

What About the Reluctant Closer?

 

When a party ultimately intends to close, but delays the closing for an unreasonable period of time, the options are quite limited. In one typical situation, the purchaser will drag his or her feet submitting the Board package. This maneuver can easily delay the closing date by a number of weeks. Slowing down the completion of the loan clearance process is another tool that the remorseful purchaser will use to delay the inevitable. Finally, the purchaser will use all means available to delay agreement on a closing date. After all the ups and downs of a typical closing, when the purchaser plays games over the closing date, the seller is driven to the brink. Particularly if the seller is in the midst of a purchase transaction that is dependent upon the sale of his or her current residence, there can be a cascading pile up of woe waiting for the purchaser to commit to a closing date. At a minimum, the seller is faced with additional carrying costs. Similarly, the seller can be just as frustrating, if the seller has not found a place to live, has a planned vacation, is waiting for the school year to end or just isn't ready to pack up and leave. When the seller delays, the purchaser's schedule can be thrown out of kilter, and worse, he or she may lose a locked in interest rate.

Truth be Told...

 

The truth of the matter is that the residential contract of sale is not really set up to accommodate delays and defaults. Yes, there are many provisions that address a possible breach by one party or the other, and there are cancellation rights under certain circumstances, but at the end of the day, after the screaming, shouting and tears, the parties find themselves at the closing table and the transaction is ultimately completed. In an extremely rare situation, one party might reimburse the other party's costs for the delay, be it additional maintenance and loan expenses for the seller, or loan commitment extension fees for the purchaser. In most cases, however, the delaying party will not reimburse costs incurred for the delay and there is nothing in the contract of sale that requires such reimbursement. Although an attorney might attempt to add a rider provision when the contract is being negotiated that addresses delay by the other party, the other side will not agree to the additional language and the contract will remain silent on unreasonable delays.

The Time Is of the Essence Letter

 

The delaying party might receive a letter from the other side designating a date for closing as "time is of the essence" and actually schedule the closing with the other participants. Unless the letter is the first step in commencing litigation, followed by an adjourned closing where the delaying party is absent, the unilateral time is of the essence letter just ratchets up the emotions and has little impact on getting the deal done.

Residential Reality: A Time to Chill

 

Unless a transaction is doomed to failure, the parties must accept that delays in residential transactions have become commonplace. The best protection against unwarranted delays is to express the need for a range of closing dates at the beginning of the negotiating process and confirm that a closing can and will take place during the requested period (assuming cooperation by the purchaser's bank and the managing agent). If there are blackout periods, including extended travel plans or work obligations, those periods when a closing will not be possible should be disclosed up front. Do not rely on the so-called right to adjourn the closing date for 30 days, as it will wreak havoc on the other side. Remember, almost all closing dates are "on or about dates," meaning that the closing will take place within a reasonable period after the contract date. If you are unable to close on or about the suggested closing date, don't keep it a secret. As long as the parties work together and use best efforts to satisfy contract obligations, things will go as smoothly as can be expected. As they say, do unto others...

Stay ready, so you don't have to get ready...

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

Do I care who the bank attorneys are?

Click for Answer...

Q

Do I have to go to the closing?

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

Can I undertake renovations before the Closing?

Click for Answer...

Q

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

Click for Answer...

Q

Should I let the broker do the walk through?

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

Does my dog have to be interviewed by the Board?

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

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?

Click for Answer...

Q

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?

Click for Answer...

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

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?

Click for Answer...

Q

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?

Click for Answer...

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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?

Click for Answer...

Q

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

Click for Answer...

Q

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?

Click for Answer...