CoopAndCondo.com - Addressing the realities of Residential Real Estate

From the Law Office of Ronald H. Gitter, Esq.

Obtaining Financing

       
Obtaining Financing

Getting Financing Isn’t What it Used to Be…

 After a fully-executed copy of the contract is returned to the buyer's attorney, and if you intend to finance a portion of the purchase price of your apartment, the standard contract requires that you apply to a "lending institution" for a mortgage loan within 7 business days if you're buying a co-op and "promptly" if you're buying a condo. Remember, a number of buildings have restrictions on the amount of financing that you can secure using your co-op shares or your condo as collateral. A few so-called “exclusive buildings” do not allow any financing. If financing is permitted and you plan to obtain financing, unless you have a relationship established with a bank, you will need to find a lending source or use the services of a mortgage broker to find an apartment loan. After the carnage of the financial meltdown, the number of mortgage brokers still in business has diminished dramatically. Purchasers often go directly to banks these days, as that's where the money is (with thanks to Willie Sutton). The right mortgage broker can make the process significantly easier, while an incompetent broker can cause deals to blow up and underwriting of a loan not to happen. Stating the obvious, check mortgage broker references very carefully.

Things Have Changed

 The process by which apartment loans are underwritten by lenders has changed significantly. “No Doc” loans and loans with no income verification (affectionately called “liar loans”) have fallen by the wayside for the most part. Banks are now interested in the financial condition of the co-ops and condos. Many questions get asked and documents actually get reviewed. Some buildings will not qualify because of physical or financial issues. Buyers must factor the financial well being of the proposed co-op or condo into consideration at the very early stages of seeking financing, so that problems don’t arise after the contract is signed. Your proposed lender should be queried as to whether it has made loans in your building before and whether the building’s “owner occupancy” ratio satisfies the bank's underwriting requirements.

Beware of Out of State Banks and the Internet

Be extremely cautious about using out of state banks unfamiliar with the zaniness of co-op and condo transactions in Manhattan and stay away from Internet lenders with no physical offices in New York.

Timing

Give yourself at least 30 days to obtain a commitment letter and another 30 days to complete the underwriting process and schedule a closing. Unless you have a strong banking relationship that can deliver on turning things around quickly, give yourself plenty of time to complete your financing.

 Collateral For the Loan

Due to the legal distinctions between coops and condos, the collateral for each differs:

  •  with coops, the bank will record a "security interest" or a lien against the shares and the proprietary lease by the filing of a form called a "UCC-1" in the county where the apartment is located. The bank will actually hold the stock certificate evidencing the shares allocated to your apartment and the originally executed copy of the proprietary lease, until the loan is paid in full.

  • with condos, the bank will obtain a "first mortgage lien" against the condo apartment and will record the mortgage in the county where the apartment is located.

Make Sure the Application is Submitted Promptly

If you do use a mortgage broker, make sure he or she complies with the time constraints discussed above. Although, as a general rule, submission of the loan application to the mortgage broker will constitute submission to the lending institution, that issue should be expressly stated in the contract. Compliance with the application requirements will become very important if the bank should reject your application. Even if you have complied with the contract by delivering the loan application to the mortgage broker on time, if the mortgage broker failed to deliver the application to the bank until several weeks thereafter, a disgruntled seller could claim that you materially breached the contract by not submitting the application directly to the bank in a timely manner. A contract deposit dispute could ensue requiring litigation to determine which party is entitled to the escrow held by the seller's attorney. No one wants that to happen.

Residential Reality

Here's the bottom line when you apply for a mortgage loan: keep in close touch with your mortgage broker or banker. He or she is your new close personal friend.

 

 

Simplifying the complexities of Cooperative and Condominium transactions in New York City

Asked and Answered

Q

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

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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?

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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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My mortgage lender has informed me that the cooperative in which I am purchasing an apartment has inadequate insurance coverage and has requested that the co-op increase its coverage to meet the bank’s new minimum requirements. Can the bank withdraw its underwriting due to a lack of insurance coverage by the co-op?

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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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Q

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

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Q

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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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?

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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?

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Q

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

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Q

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

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Q

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

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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?

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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?

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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?

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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?

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Q

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

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Q

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

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Q

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

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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?

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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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Q

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

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Q

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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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?

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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?

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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?

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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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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?

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Q

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

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Q

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

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Q

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

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Q

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

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Q

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

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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?

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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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Q

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

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Q

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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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?

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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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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?

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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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Q

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

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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?

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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?

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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?

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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?

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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?

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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?

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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?

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Q

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

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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?

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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?

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Q

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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Q

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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Q

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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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?

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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?

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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?

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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?

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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?

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Q

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

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Q

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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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?

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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?

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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?

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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?

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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?

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Q

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

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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?

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Q

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

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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?

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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?

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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?

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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?

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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?

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Q

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

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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?

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Q

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

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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?

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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?

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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?

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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?

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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?

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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?

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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?

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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?

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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?

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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?

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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?

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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?

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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?

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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?

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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?

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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?

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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?

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Contact Ron Gitter

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