Residential Realities May 2011
May 23, 2011: The Tricked Out App...
What a trip to the Managing Agent Should Accomplish
We all know the drill once an offer is accepted. The purchaser’s attorney starts the due diligence process by making an appointment with the managing agent to read the minutes. In addition to reviewing the monthly meetings, however, there is another document which every purchaser’s attorney should review carefully: the purchase application. Why?
A Good Place to Hide
Most purchase applications contain the usual stuff: an application document, a balance sheet, profit and loss statement, and a list of required deliverables, such as the last two years’ tax returns and a request for personal and business references. So far, so good. But as one recent transaction demonstrates, purchase applications can also contain disclosures that significantly impact the purchaser’s obligations after closing.
In this case, several rules implemented by the Board, had significantly impacted the purchaser’s impending ownership. First, the Board package had to include a statement by an electrician that the electrical panel in the apartment was up to code. If not, the purchaser would be obligated to bring same up to code after closing. Secondly, the package required a representation letter to be signed by the seller that the fireplace had been upgraded and was in working order. If the fireplace had not been upgraded, the purchaser would be prohibited from using it. Although there was a fleeting reference to the electrical upgrade in the minutes, nothing was said about the fireplace restrictions. Fortunately, both issues were addressed in the contract. Had the contract been silent, the parties would have been faced with major issues to resolve, without any direction from the operative document. Not a good situation for all concerned.
Not Intended as a Gotcha, but…
Boards are not necessarily sneaky, but very concerned about liability. The prevailing wisdom from an attorney representing the co-op Board, therefore, would be to disclose any post-closing obligation on the purchaser in the purchase application. Whether or not the purchaser reviews the application before the contract is signed becomes the purchaser’s problem and not the problem of the Board or the managing agent. It’s the classic “CYA” advice. In many cases, however, the purchase application is not perused until after the parties have signed off on the contract.
Residential Reality: Add Review of the Purchase Application to Your Checklist
So, students, what have we learned? It order to avoid very unpleasant discoveries after the contract has been signed, the purchase application must be reviewed prior to the signing of the contract. Although the application is plain vanilla in most situations, from time to time, there are financial requirements, ownership restrictions or repair obligations stated in the purchase application that have material economic or quality of life consequences for the purchaser after closing. This is a no brainer folks--avoid that one in a hundred major disaster—make sure this document is reviewed before the contract is signed…
May 10, 2011: The Novocaine of Numbers--How much more negativity about housing prices can the country take?
Where We’re At…
Yesterday’s Wall Street Journal continued the never-ending bad news about the housing market nationwide. In a story entitled "Home Market Takes a Tumble", Nick Timiraos and Dawn Wotapka reported that the quarter just ended had the lowest values since late 2008. Here’s a numbing fact extracted from Zillow: prices have fallen in almost all metro areas for 57 consecutive months. The bottom line of all this data is that a bottom in 2011 isn't a realistic possibility as the magnitude of vacant properties held by banks and tighter lending guidelines takes its toll. It’s real estate death by a thousand cuts. That being said, if you put any Manhattan zip code in Zillow, it shows a year-on-year increase. A curious incident as Holmes would say...
The New York Disconnect
So, as the housing market creaks along the bottom and refuses to improve throughout most of the country, New York continues to show signs of life. One deal I’m working on had five offers. That’s the market from the good old days of 2005. Purchasers are cranky, but paper is getting signed. Properties that have been sitting for quite some time finally appear to be moving. But that’s Manhattan. The rest of the nation has a long, long way to go, perhaps years, before a recovery is even in the distant future.