True Gotham

Yet another saga to report on the absolutely ridiculous behavior that some co-op boards exhibit.  In May of last year, my team and I brought a property on the market that wasn't without it's challenges as far as procuring a buyer.  Some of those challenges were directly related to current Board policies:

• NO SUBLETTING ALLOWED under any circumstance (a bit unusual for this type of building)
• NO PIED A TERRE ALLOWED (also unusual for this particular building)
• FLIP TAX (10% of profit and not uncommon these days)

These three factors played a very large part in turning away a multitude of qualified candidates who weren't interested in these policies.  Many in fact considered making offers but chose to continue their search for a less "oppressive" building.  Those who did make offers within the 6 month marketing period were not financially qualified to pass the Board's stringent requirements (the current owner, a banker, was asked to put 3 years of maintenance in escrow).

In November, 2006 a contract was signed for the purchase of this property and fully executed by all parties.  The Board application including all financial documentation and mortgage commitment letter was submitted to the Board of Directors in December.  So imagine our surprise when we only found out on March 5th that the Board would APPROVE these applicants if they agreed to put 2 years of maintenance in escrow to be held for 5 years and to have monthly maintenance payments automatically deducted from their bank accounts.  I should also add that the purchasers are financing less than 30% of the purchase price.  The purchasers agreed to the Board's requests and they were GRANTED FORMAL WRITTEN BOARD APPROVAL.

In the meantime, the seller has been compiling receipts for renovations and the like to offset profit in calculating the flip tax.  Those receipts were submitted yesterday.  I had totally thought that the closing would have been set while I was on vacation last week but I received this email from the purchaser's agent upon my return on Sunday (forwarded from the managing agent of the building):

I just got off the phone with a few Board members and they want the following form Mr. & Mrs. "Purchaser". 

Updated financial statement with verification (recent statements)

Update monthly cash flow statement (same format as the other one)

And 2006 income tax returns with W-2s

This is not an unusual request, particularly when the Board took so long to review, interview and approve.  However, it is HIGHLY UNUSUAL when formal Board approval has already been granted as it has in this case.  In my 15 years, I have never encountered this from a Board.  None of my colleagues have either, some of whom have been doing this much longer than I.   Having said that, the purchasers did change their mortgage provider and their mortgage product to a more conservative one just two weeks ago after Board approval was received.  Becuase of this, the Board asked the following questions (answers from purchaser follow):

1) Why the last minute change (in mortgage)? Citimortgage Commitment expired and getting extension was lengthy process (they want to close and contract was signed in November).

2) Why didn't the purchaser’s inform the board of the change prior to the board meeting? We were told that the getting the commitment extended was a simple process. It turned out that all the original information had to be resubmitted and reprocessed as if it were a new application.

3) Why is the board hearing about this now? Because we are now trying to get closing as soon as possible. The new commitment with Countrywide was only received on 3/16/07 well after we were approved by the Board.

4) What happened with the loan at Citimortgage? The Citimortgage Commitment expired and since it had to be extended we were required to submit all new documentation. We decided to review all of the options available to us. The Countrywide Mortgage is a 30 year fixed loan which we felt more comfortable with than the interest only loan with Citimortgage. With Countrywide we will be paying down the principal starting with the first payment. The Citimortgage was going to be interest only for 10 years,

5) Is the old mortgage payment and rate available, if not what happened? Citimortgage’s mortgage rate was floating until the closing date when it would be fixed. There was no 'old rate" on the Citimortgage.

6) Why didn't the purchaser’s try to extend the rate lock extension (if this was available to them)? See answer to question 5 above

7) What made the purchaser’s decide to change from Citimortgage to Countrywide? Suggested by our mortgage broker, The mortgage broker worked for Home mortgage acceptance Corp this was taken over buy Countrywide mortgage. and we are more comfortable with a traditional 30 year fixed rate loan.

The moral of the story:  Co-op Boards are sometimes made up of people who don't wholly understand the processes in which they are involved.  These purchasers changed their lender which happens all the time and they are actually getting a better rate and better terms that should be more favorable to the Board.  I suspect that some Board members are reading way too much about the sub prime mortgage market implosion (which doesn't apply at all to this situation) and are reacting to the fact that they are familiar with Citimortgage and perhaps not so with Countrywide?  Again...pure speculation on my part as a real estate professional and former board member.  Who really knows what they are thinking?

Advice to purchasers:   Keep your prospective co-op Board in the loop regarding all changes to financial documentation and lending institutions and/or mortgage products.  If the board feels that you are open with them and not trying to "sneak" something by them, they will be more likely, in my opinion, to cooperate (after all you are buying a "co-operative") making the process more efficient and less painful for all involved.

Stay tuned for the update to see if these purchasers ever move in to their new home???

Co-op boards are merely vehicles for power-hungry, egotistical humans to feel justified in judging their fellow humans.

Its also a valid excuse for nosey neighbors to get into information that by all accounts is PRIVATE (what ever happened to the right to privacy??).

Co-ops are ridiculous. The people on them are ridiculous. The behavior is boorish and ridiculous (of course, THEY don't think so - THEY think they are 'cultured') hahaha

Anyone who buys into this mode of living is simply BRAINWASHED.

Wait and buy a condo. Have some pride.

Sincerely,
Obviously someone who is objective.

Thanks for commenting Louise. I must say that sometimes I feel exactly the same about the co-op situation and process. Having said that, there are indeed more reasonable co-op boards than not and the behavior displayed in this story is not uncommon but also not the norm. Many who purchase co-ops do so because of the lack of anonymity: many want to know who their neighbors are. I live in a 300+ unit condo with no approval process whatsoever. One of the biggest Exctasy dealers in the world was living in my building as well as internet porn producers and prostitutes (of course I heard this from the doormen). I have 2 small children and felt much more comfortable as a father in my last building which was a co-op. Of course there are huge and obvious benefits to condo ownership, but this is just one of the downsides.

Those same people could be standing right outside your doorway, on your sidewalk or at the children's school.

Unless we determine Manhattan to be a "gated community" with background checks for everyone who enters, this is NYC and those types of people exist literally everywhere.

Our desire as humans to 'separate' ourselves from those we deem 'undesirable', and our willing to subject ourselves to this invasion of privacy and abuse of power in the name of ego just to feel a little less threatened by those undesirables (since they won't be 'in' our building) and perhaps give ourselves a feeling of being 'exclusive' is ridiculous.

Besides, you didn't even know they were there - you needed the doorman to tell you. AND that could have been simply gossip - like hearing J Lo is your neighbor.

Like I said, BRAINWASHED.

I'm getting a chuckle from your "objectivity." Suggesting that having a wackadoo on the street versus one living right next door to you are one in the same is ludicrous. I don't know if you have children, but I make every effort to protect mine and I think the extensive background checks and the like that co-ops require are more likely to weed out pedophiles (at least those who have been convicted) and other "undesirables" like prostitutes and drug dealers, not to mention just those who may become a financial burden for a building when they default on their maintenance payments. Difficult for these types to get past a co-op board for obvious reasons, one being disclosure of income and its source. As ludicrous as I often feel the co-op process is, I still believe that this gross invasion of privacy (and I have experienced it first hand) does add to the security of the building and its community. The problem obviously lies in the members of the Board acting in ways that go beyond simply protecting the interests of shareholders.

Lastly, as far as the "gossip," there is no doubt that a lot of that exists in all buildings. The drug dealer in our building was arrested and made a huge news story. The internet porn producer is quite open about what she does and the handymen in the buiding have seen her operation first hand. The prostitutes are obviously "seeing clients."

"Co-op Boards are sometimes made up of people who don't wholly understand the processes in which they are involved."

...so true! And I think key to all of this. Being a board member is very time consuming and as a result the folks who are best at understanding these issues don't have the time to sit on the board.

Coops make sense in theory, and I believe many are reasonable, but unfortunately it's these types of stories that stand out.

Great point newbie! That said, I have served on a Board (I had lots of time on my hands :-) and know many who sit on Boards who are partners at banks or law firms and still seem to lose perspective when the power card can be played. But I agree with you that the "man bites dog" theory applies here as this and stories like it are not the norm.

By 'objective' I meant I am not a NY'er -- Coops are 'status quo' for NY'ers, but seem strange and unconventional -- at least they way they play out in NYC -- to someone like me who is not here long enough to buy into status quo -- not to mention, one who refuses to. Poor behavior towards our fellow man is simply accepted here. To an outsider, it appears outrageous and ridiculous.

NY'ers tend to revel in this game (among others)-- and actually discuss ad nauseum how to win it -- rather than step outside of the game and call it for what it is. Perhaps if we simply called a spade "a spade" something might change.

The longer people lay down like sheep and simply accept status quo, the longer change is delayed. A bully on the playground is only a bully UNTIL someone has the nerve to call him/her on it and refuses to accept the behavior.

As a former attorney myself, I've reviewed Condo documents, and there are usually plenty of provisions and procedures for addressing illegal/immoral/unacceptable behavior of residents. I also remember there being some sort of application process for a condo -- albeit much less invasive; so I don't see how a drug dealer, prostitute and porn producer all wound up in your building unless it was a free for all selling spree on the part of the developer/broker.

I've also represented a well known Emmy winning reporter and her family in a coop purchase where they were refused 4 times FOR NO LOGICAL REASON before I finally got them approved. I did not give up because they were behaving ridiculously, and I told them as much.

Perhaps in its truest form, Coop ownership would be ideal -- but certainly not in the way it is carried out in this city today.

As is written in The Science of Getting Rich "Nothing is so pleasant to the unformed or partially developed mind as the exercise of power or dominion over others."

I believe change will be in the air soon -- young, successful, monied, evolved people won't subject themselves based on principle alone, not because they have anything to hide. NY is fast, but slow in evolving at the same time. After all, I hear dishwashers are just now becoming standard.

Point well taken Louise. I think we share "some" of the same feelings about co-op boards and the buildings they "police." Love the quote that you shared too.

I'm also not a NY'er but I also don't feel much like a sheep. I hope that change is in the air but agree with you that as progressive as this city likes to think it is, it often lags (certainly the West Coast) in many ways. Can't wait for the attcks from all of my NY clients, friends and readers :-)

Co-ops often deny purchases for NO LOGICAL REASON and hopefully new legislation will be passed to stop this behavior. But like you, I don't suspect that we will see quick changes to the process.

I do think that more people who have negative experiences with co-op boards should be more aggressive with legal action if only to deter ridiculous behavior by Boards in the future.

By the way, we have an application for purchase in our building and the drug dealer lived here many years ago before we moved in. The internet porn producer and the prostitute are current residents, I'm told.

I thought I smelled 'change' in the air...legislation would be just the thing.

...thank you for this forum for all of us to share and contemplate ideas and the state of NYC real estate. I just found it, and I thoroughly enjoy it.

...as for me, I'm stuck ruminating on your neighbors ----- on the idea (call me smalltown) that a prostitute can actually AFFORD to buy a CONDO here!!!?

Maybe SHE didn't buy the place. About 12 years ago I represented a guy who was "helping" his "friends" buy a condo. These 2 gorgeous female "friends" were Eastern Eurpoean, spoke very little English, and were about 50 or 60 years younger than this gentleman. I later found out that they set up the apartment as a brothel. I was a bit naive at the time having only been in the biz for 3 years, but this stuff happens all the time I'm sure.

As a prospective co-op buyer, I am in the process of filling out the coop board application. While I have heard horror stories about boards on power trips, I don't believe the comments regarding how one chooses a mode of living is fair. There is a price differential between co-ops and condos. Not all buyers can afford or have the ability to live in a condo or single-family home, for financial reasons, or simply because the inventory doesn't exist. What is gratingly annoying about people who belittle other people's choices, is that they are not even participants in the market. Being an outsider does not equate to being objective. NY is not "normal" by any stretch of the imagination - nowhere else does real estate prices climb while the rest of the housing market slows down. It is interesting that Louise is simultaneously outraged by a practice that doesn't apply to her lifestyle and yet fascinated enough to continuously make comments about how wacky we are.

The argument that Coops are safer because of the draconian admissions policies is just BS.

Most of the large Coops in NY are still owned by the landlords who converted them. They converted to skirt the rent laws. They sold only the legally required number of units to be "legal" and then NEVER leave the building. They continue to rent their unsold units to who ever they want to and in most cases it's people who would NOT pass a board interview.

They also usually own their managing agency and have "planted" residents who serve on the board in perpetuity. These managing agencies and planted board members act in the interest of the landlord. The shareholder does not stand a chance in any sort of conflict.

The one thing that scares the pants off of a Coop board and their sleazy lawyers is the possibility of being sued by someone that they cannot steal from. (aka someone who is not yet a shareholder) Coops are unafraid of lawsuits brought on by shareholders because they know - win, loose or draw, - at the end of the day they have the ability to steal the shareholders apartment. Either by perpetual rejections or worse yet they manufacture a case against the shareholder and evict them on the grounds of being "undesirable" as was the case with David Pullman. The courts will not even intervene to see if the boards claims are fact or fiction. It's insane.

Coops need to be reformed so they are legislated and governed for what they are: "HOUSING"! A persons most personal and valuable asset.

I own a unit in a NJ co-op and after 6 years moved out. I now need to sub-lease while trying to sell the unit. I had a prospective tenant that met all of the so-called requirements he was rejected after a month of fullfilling their ridiculous requests. I asked the board for specific criteria such as credit score, income, ext so the next person I find meets all of that. They don't have any written guidlines. I was only allowd one question at the meeting and was cut of while asking it by a very rude board member. They definatly have to much power, because of this bogus ruling I lost my tenant and in this market have to find another one. They can turn down anyone for any reason and there is nothing I can do about it. Does anyone know if there are any laws against this type of behavior?

My Parent passed away last year and left a COOP Apartment and no will. The COOP Attorney and COOP Board has changed. The previous Attorney had all the documentation to make the name change. The new Board terminated his services, and he wasn't compliant in forwarding my paperwork to the new Attorney. I did speak to the new Board President who was very curt with me. This Board President wanted to know if I got approval from the previous Board, and I did. I have since forwarded additional paperwork to the new Attorney and have been calling trying to find out why it's taking so long. The Attorney's Office is avoiding me. I wrote the Management Company and have heard NOTHING!! What can I do to get this COOP put in my name? I have paid over a year in Maint-Fees and can't take ownership. Can these people do this? Can these people just take this COOP from me?

will a co-op board deny approval if i lost my job 1-2 weeks before going to closing?