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Residential Realities February 2011

       
Residential Realities February 2011

February 24, 2011: Good Cop Bad Cop Via Case Shiller

In a Sense It's Comic Relief

An article yesterday in the Times by David Streitfeld, reviews the nationwide slide of real estate prices in December. What’s amusing is the breach in perspective by half by the authors of the Case-Shiller index. Robert Shiller, on the one hand, is quoted as saying there is a “substantial risk” of the market continuing to fall by as much as twenty-five percent. His partner, Karl Case, a retired economics professor from Wellesley, is much more upbeat. He thinks things were only at “a rocky bottom with a down trend.” Not exactly, the glass is half full.

It’s a powerful calculation cocktail that’s not so easy to digest: From Fannie and Freddie, to reducing or eliminating the mortgage interest deduction and possible exaggerations by the National Association of Realtors about the actual number of homes sold over the past three years. And don’t forget those hesitant sellers, waiting and waiting for that brighter day.

What Does Hollywood Have In Common with the Real Estate Market?

Many years ago, William Goldman, the author of Marathon Man, Princess Bride, and many other well known books and movie scripts, had a great line about the folks running Hollywood…”nobody knows anything”. And in many ways, the same rule applies to predicting real estate trends. There are so many things in play right now, is it possible to predict where things are going with any degree of certainty? I don’t think so.

February 19, 2011: Doing Deals in the Digital Age

As reported by C. J. Hughes in the Times a couple of days ago, Naldi v. Grunberg, a case appealed to New York’s highest court, will determine whether a disappointed purchaser was wrongfully denied a right of first refusal to purchase two commercial buildings. The right of first refusal was allegedly offered to the purchaser in an E-mail from a real estate broker involved in the transaction. The lower court allowed the case to continue, but the Appellate Division dismissed the complaint because the purchaser never replied to the E-mail in which the right of first refusal was extended. The Court of Appeals will now decide whether the electronic paper trail was sufficient to create a binding agreement in which the purchaser had a right to continue bidding on a property before the seller accepted a higher offer.

Why It’s Important

Although the case could go either way, as it a question of fact as to whether there was a binding agreement, as the article points out, the Appellate Division affirmed that “e-mails are binding in real estate transactions.” Brokers beware: as a matter of law, E-mail appears to have the same binding effect as the written word. So watch what you send, receive and reply to…

February 14, 2011: The Real Estate Economy as Greek Mythology

Jason and the Argonauts

Those of us of a certain age, loved that 1963 film based on the Greek myth of Jason, who searches for the Golden Fleece. Along with his mighty crew (including Hercules), he overcomes many challenges and demons to accomplish his goal. I grant that it's a bit of a stretch, but those in the real estate industry find themselves on such a journey, with new challenges to a recovery presenting themselves daily.

 The Challenge du Jour

This week interest rates ticked above five percent for the first time since last Spring. One of the endearing rationalizations for continuing to buy real estate in a market with a bottomless bottom is that interest rates have been remarkably low for a very long time. So now the jitters begin that the low interest rate party is over and one of the good reasons to buy into this market is going away. At a minimum the refinancing market is about to get wacked. True Story: My client has a 4.5% interest rate and was refinancing into a 4% rate. For various reasons, his rate lock expired, and as you might expect, despite begging and pleading, the bank would not extend the interest rate. About a week later, he was able to lock in to a 4 1/8 interest rate and the "refi" still made sense. Had the new rate increased to 4.25%, my client would have passed on the refi and stuck with his original rate (still a very good one). So extrapolate that nationwide to thousands of borrowers who are already in the 4 percent rate range, and basically, if rates stay above 5 percent, the refi market will shut down.

And Then There's the End of Fannie and Freddie

Many would argue, rightfully so, that there would not be a viable real estate industry without the government run Fannie Mae and Freddie Mac entities. By purchasing most of the home loans that are consummated today and by securitizing those loans in the secondary mortgage market, these agencies have kept residential real estate on life support over the past two years. Although it may not be the right time to pull the plug on this mortgage safety net, by all accounts, the writing is on the wall and significant and painful changes will be made to these programs over the next ten years.

The Thirty-Year Fixed as the Golden Fleece

Let face it, home ownership, particularly for first time buyers, would not be possible without the thirty-year fixed rate loan. Without question, this loan program is the bedrock of the home loan financing industry and has made home ownership possible for many on their Jason-like journey for a piece of what's left of "The American Dream". But some see the 30-year fixed rate loan as a fleece of another kind. For the naysayers, it was a major contributor to the housing bubble, allowing folks to purchase homes, who would otherwise not qualify if a thirty-year product was not available. But the 30-year fixed has become a part of the fabric of the country that has made a better life possible for many. And when you start tearing at the national fabric, proceed with caution, as there will always be unintended consequences. So now the Administration and the Congress, pulling on that fabric in many different directions, will try to figure out what to do with this massive mortgage bureaucracy. Politics aside, few in the residential real estate business would disagree that this government created creature is the real estate economy's life line and is keeping the mortgage industry alive.

Residential Reality: The Journey Continues...

The one-two punch of higher interest rates and the inevitability of changes coming to Fannie and Freddie only further slow the process of the elusive real estate recovery. For those of us on the ground, getting the deals done seems to get more difficult every day. But there are much bigger challenges at stake. As the policy makers poke and prod the creature and try to manage the government's role in the residential real estate market, who gets to own a home appears to be on the table.

February 9, 2011: Bottom Feeders Get Hungry

Here’s a fun fact: According to an article by Mitra Kalita in the Wall Street Journal yesterday, 42% of all deals in Phoenix in 2010 were all cash transactions. It was 50% in the Miami-Fort Lauderdale area, pushing prices up 15% over the previous year. When the cash comes out, that’s usually a good sign that prices are so low, it’s finally time to start buying again. In other words, the bottom has arrived. But has the moment we’ve been waiting for actually occurred?

There’s no question that part of the cash movement is an underlying frustration with the lending industry that not only is ridiculously tight with money, but is also imposing lending conditions that literally make no sense. Exhibit A: I recently received a letter from the buyer’s attorney in a co-op transaction asking for an addendum to the contract to be prepared at the request of the bank because the zip code on the property was incorrect. In short, hurdle after hurdle to jump over before a deal gets to the closing table.

The Market Shifts

Notwithstanding the bank’s bi-polar lending policies that have driven buyers to avoid the underwriting process completely, these cash deals at deeply discounted pricing is a healthy sign for the real estate market in general. We’re not at “the future’s so bright you have to wear sunglasses” stage just yet, but buyers finally breaking out the cash is the first step in the market going in another direction—up.

February 5, 2011: View From London

Congrats. New York is the most “expensive place” in the U.S. So says a February 4th article by Emma Mahony in FT.com. Looking at year-end data prepared by Prudential Douglas Elliman, there has been a significant uptick in the luxury real estate market in New York. From co-ops and condos to commercial properties to hotel residences, things are looking up for those rarified “luxury real estate vendors” (apparently, a new job classification).

And of course, what would an article about luxury New York real estate be without the obligatory mentions of celebrity sightings (P. Diddy, Janet Jackson and Goldie Hawn, to be exact). But as my friend Paul Zweben likes to say, “that’s what it’s all about.”

Those of us on the ground, dealing with day-to-day issues, pushing deals forward against the wind of a slowly recovering real estate economy, don’t spend too much time thinking about Ivanka’s decorating techniques. That being said, it seems clear both from a perspective of optics and from the actual economic reality, New York real estate is doing better locally and globally than most other places on the planet.

Trickle Down New York Style

It wouldn’t be the first time that action at the top of the pyramid spurs economic growth for those below. If movement in the luxury market helps the entire New York economy, at the end of the day, it's a good thing.

February 4, 2011: The End of 421-a for the Time Being

The Expiration of a Key Benefit

As I will discuss in greater detail in a post to be uploaded shortly, the tax abatement program known as "421-a" expired in December 2010. This city and state legislative initiative allowed real estate developers to obtain real estate tax abatement benefits for residential developments that significantly reduced taxes of condo purchasers for as long as 25 years. Thousands of luxury residential units were constructed under this program since 1971, and both developers and purchasers benefited from the program. One of the major goals of the 421-a program, however, to create affordable housing units in addition to upscale apartments, has not been realized in any meaningful way. Taking current economic conditions into consideration, the idea of continuing benefits that help the luxury residential real estate market flourish at the expense of affordable housing is a bitter pill to swallow for those formulating government policy.

Interesting Timing

So it turns out that the rent stabilization program, that covers about 1,000,000 apartments, expires in June 2011. Although many in the real estate community look forward to the sunset of these tenant protections, the timing is not right to deregulate all rent protected apartments. But some see the expiration of the rent stabilization program and the need to renew the 421-a program as an opportunity to insure that rent protections remain.

The Battle Lines are Drawn

As outlined by Eliot Brown in yesterday's Wall Street Journal, Democrats in the State legislature want to tie renewal of the 421-a program to an extension of the rent regulation program. Although many in the real estate lobby are offering tepid objections to linkage between tax benefits to developers and rent protections under stabilization, based upon current economic conditions, it's highly unlikely that developers would be given a tax break, while renters would be subject to complete deregulation of rent.

The Horns of a Dilemma

It certainly isn't a reboot of the 70's in New York, but you could make the argument that there is a need for incentives to keep construction going as the city slowly exits a very scary two-year period in New York's real estate economy. Although some version of 421-a will probably be brought back, look for tenant protections to remain in place long after June 2011.

For more on the New York City's tax abatement program, see my comments in "Tax Abatements Help Out Buyers of New Properties" on NY1 with Jill Urban. 

For a fascinating review of the housing stock of New York City, take a look at the 2010 Housing Supply Report, prepared by the New York City Rent Guidelines Board.

Febuary 3, 2011: Private Transfer Fees

Yesterday, I alerted my facebook readers to a proposed rule of the Federal Housing Finance Agency that would exlude New York from the private transfer fee prohibition that is being considered by that agency. Until yesterday, New York co-op and condo attorneys were concerned that when a "flip tax" had been imposed, Fannie Mae would not purchase a mortgage in that building. Not a good result for the New York real estate market. Initially, I was under the impression that the proposed rule only exluded New York from the ban on private transfer fees. The proposed rule actually exludes all private transfer fees that benefit the property receiving the flip tax proceeds and not the developer. It's nationwide. For more on the proposed rule, visit the website of the Federal Housing Finance Agency.

Be cautious with out-of-state banks and Internet lenders...

Asked and Answered

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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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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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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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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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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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