CoopAndCondo.com - Addressing the realities of Residential Real Estate

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

The Skinny on Closing Costs

       
The Skinny on Closing Costs

Both buyer and seller incur a number of costs on the way to concluding an apartment transaction. Here's a summary of the costs to be incurred by each party when an apartment is sold:

Purchase Application and Other Managing Agent Related Fees

The gatekeeper for most New York City transactions, is the managing agent for the particular co-op or condominium involved in the sale. Managing agents process the application and forward copies of the application to each board member. Managing agents charge fees to one or both parties in connection with the application and those fees start at $500 for an application and go up from there. There are also fees charged if a purchaser is financing a portion of the transaction, and fees will also be collected as a deposit (sometimes refundable, sometimes not), for moving in and out of the building. For a greater understanding of how managing agents work, see “The Managing Agent.”

The Flip Tax

In some buildings, the sale of an apartment also generates a "flip tax" which is collected by the cooperative corporation or condominium at closing. This cost is usually 1% to 3% of the purchase price and is generally paid by seller. A few buildings, however, do require the purchaser to pay this cost. In any event, who ultimately pays the flip tax is often a point of negotiation, particularly in a stressed out real estate market.

New York City and New York State Transfer Taxes

When purchasing a co-op or condo, transfer taxes are payable to both New York City and New York State. These taxes, which range from 1% to 1.425% for New York City and $2 for each $500 of consideration for New York State, are generally paid by the seller. This point can be negotiated, but transfer taxes are rarely paid by the purchaser unless the purchase is an original sale from a sponsor.

The "Mansion Tax"

If you are fortunate enough to purchase an apartment for $1,000,000 or more, as purchaser, you will be obligated to pay what is affectionately known as the "Mansion Tax." This cost adds 1% of the purchase price to your closing costs (e.g., a $2,000,000 purchase price equals a $20,000 Mansion Tax). Congratulations!

Legal Fees

Legal fees for residential transactions vary widely. Sometimes fees are fixed and sometimes not. In a down economy, downsized attorneys turn to real estate closings to survive, so beware of bottom feeders. Even small transactions (in terms of price) can get complicated very quickly. The quality and experience of an attorney usually falls into the category of “you get what you pay for”. Make sure your attorney is practicing law and not just processing another file on his or her way to something more interesting. Transactions such as estate sales, purchases by unmarried couples requiring co-ownership agreements and foreclosure or bank work-out sales, transactions that require extensive due diligence or contract negotiation, or where higher-end attorneys are involved, may result in higher fees or the rendering of services by the hour.

Bank Fees

If you are financing a part of the purchase price of your apartment, you will also incur fees from the lending bank. These fees may include origination costs (often called "points"), application and credit report fees, appraisal charges, bank attorney fees, escrows for real estate taxes and insurance and various other charges. Your mortgage broker will be able to give you a complete breakdown of these charges when you're shopping for a mortgage loan.

Title Charges

Title insurance rates are set by government regulation in New York and can vary by county. For example, in Manhattan (New York County), a purchase price of $1,000,000.00, with a mortgage of $600,000.00, will generate a fee policy premium of $4,508.00 and a mortgage policy premium of $732.00 (for a total premium cost of $5,240.00, excluding other title charges such as municipal searches and other required title endorsements). When you are purchasing from a sponsor (that is, a developer of a new condominium building), you may get the benefit of discounted title insurance premiums because the same policy is being written for a large number of unit owners. It is always a good idea to ask the title company to generate an estimated title bill as soon as possible, so that the buyer will be apprised of the expected title charges as soon as possible.

Mortgage Recording Tax

A feature unique to New York State, is the mortgage recording tax (that is, a fee charged by the state for the "privilege" of recording a mortgage). This fee, for the moment, applies only to real estate purchases (as opposed to coop purchases), so only condominium transactions are subject to the tax. The fee charged by New York State varies by county, and, of course, New York City has the most complicated fee schedule. In addition, New York City charges a mortgage recording fee as well. The combined total rates for New York City are calculated as follows:

When the principal amount of the loan is less than $500,000, the tax rate is $2.05 for each $100 of the principal amount of the loan. However, if the mortgage is on a one- or two-family house, the tax is reduced by $0.30 for each $100 of the first $10,000 of the principal amount.

For mortgage loan amounts greater than $500,000 the tax rate is $2.175 for each $100, or major fraction thereof, of the principal amount. If the mortgage is on a one- or two-family house, the tax is reduced by $0.30 for each $100 of the first $10,000 of the principal amount.

Where mortgage loan amount is $500,000 or more and the property to be covered is not a one-, two, or three-family house or individual residential condominium unit, the tax rate is $2.80 for each $100, or major fraction thereof, of the principal amount.

The above being said, make sure to include a line item for the mortgage recording tax if you are purchasing a condo and you are financing a portion of the transaction.

Estimated New York State Capital Gains Tax

If you are selling an apartment and you are not a resident of New York State and don’t qualify for certain exemptions, you will be required to make an estimated New York State capital gains tax payment at the closing. The 8% tax is payable on the difference between the tax basis of the original purchase price (adjusted for closing costs, improvements and depreciation, if a rental property) and the sale price of the apartment, less closing costs. If you have owned the apartment for a considerable period of time, there can be a significant gain that will be taxed. Accordingly, your accountant or tax planner should be in the loop when you plan to sell the apartment and you no longer reside in New York.

Architect and Engineering Fees

Although not actually a closing item, if you are planning a renovation of your apartment after purchasing, you will be obligated to sign an "alteration agreement" with the co-op or condo, and in some cases, deposit a sum of money to protect against damages incurred during renovation. This deposit may be refunded if the renovation goes smoothly, depending on the Board's policy in your particular building. This agreement indemnifies the building against anything that might go wrong during construction or at any time thereafter that causes the building to suffer a monetary loss as a result of your renovation. In connection with your request for alterations, the Board may have its architect or engineer review your plans. In most cases, you will be obligated to reimburse the building for the "reasonable" costs they incur in reviewing your alteration application.

Pre-Purchase Inspections

Most brokers would encourage a buyer not to have a pre-purchase inspection of the apartment. In many cases, the inspection isn’t necessary, but it can never hurt to have a professional walk through the apartment. Of course the quality of the inspection depends upon the quality of the inspector. Getting a referral you can depend on is essential. Expect to pay up to $1,000.00 for a pre-purchase inspection, depending upon the experience of the inspector and the size of the apartment.

Insurance Coverage

Although not usually a requirement for a co-op or condo closing (but always required for a house purchase when a bank is involved), a purchaser of an apartment should obtain an insurance policy covering the contents of the apartment (that is furniture and personal property), what’s known as “betterments” (that is, the interior build out of the apartment) and liability coverage for injury to person or property. The cost of insurance can vary significantly depending upon whether a purchaser uses a plain vanilla carrier such as Travelers of a high end company such as Chubb or Fireman’s Fund. No matter which insurance company is selected, make sure the coverage is in place on the day of closing. An apartment is a significant asset for most purchasers. Make sure it’s properly insured.

Residential Reality: Get Out Your Checkbooks

Purchasing an apartment in New York is an expensive proposition and that’s before you get to Williams Sonoma and Pottery Barn. Make sure your attorney and mortgage broker review all of the above costs with you, so nothing comes as a surprise.

For more on how to avoid problems at closing, see "Houston, We've Got a Problem".

 

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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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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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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Q

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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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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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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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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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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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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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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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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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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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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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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