CoopAndCondo.com - Addressing the realities of Residential Real Estate

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

The Great Co-op Secret

       
The Great Co-op Secret

Why Are You Doing This?

At some point in the process of buying a cooperative apartment in New York City, the average co-op buyer will have one of those cartoon bubbles above his or her head that asks: "why am I doing this?" Co-op boards seem to be more impossible than ever to deal with and the process, from board application--to approval--to setting a mutually convenient closing date with the managing agent--just takes too long. The conclusion, therefore, would appear to be that buying a condo is preferred because of the streamlined purchase process (condo Boards only have a right of first refusal). That being said, there is one advantage to owning a co-op that I think is extremely important, but doesn't get a lot of coverage: the relationship between the cooperative corporation and the shareholder of a co-op (that is, the co-op unit owner) is that of landlord and tenant.

How the Landlord-Tenant Relationship Arises

To review briefly: when you purchase a co-op you are actually purchasing shares in a cooperative corporation; you are not purchasing real estate as in condo ownership. Connected to your share ownership is the right to occupy a particular apartment in the building which is owned by the cooperative corporation pursuant to the terms of a document called a proprietary lease. This document, which governs all aspects of your occupancy and, in most cases, your ownership of your cooperative apartment, is a residential lease like any other residential lease. As a result, your leasehold is governed by the laws applicable to residential leases in New York. Now here's the big difference between coops and condos: the landlord-tenant law of New York applies to co-ops but does not apply to condos. Why is that fact so important?

Significance of the Landlord-Tenant Relationship

To begin with, residential landlord-tenant law, to a great extent, exists to protect the tenant from landlord abuses. Accordingly, the tenant-shareholder of a co-op finds him or herself looking to a set of laws and rules that tend to favor the tenant. Here’s a rule to keep in mind about apartment ownership: The Rule of One. Simply stated, when you own an apartment (whether co-op or condo) and you have a problem that only affects your apartment, no one cares but you. In those situations where it's you against the indifference of the co-op board, the managing agent and/or the other tenant-shareholders, you can look to the tenant protection laws as a sword (and as a shield) to make the board pay attention to, and act on, your particular situation. Although a condo Board of Managers has a fiduciary obligation to its unit owners to maintain the common areas of the condominium, the law affords less protection to condo owners. In essence, the rule of one has a greater negative impact on a condo owner than on a co-op owner.

Keeping the Interest of the Co-op Board

The security blanket of the landlord-tenant laws has another benefit for co-op owners. In many instances, the cooperative corporation (through its Board of Directors) must remain a party to disputes between individual lessee unit owners. The cooperative corporation, as lessor, can have a contractual obligation pursuant to the proprietary lease, to resolve conflicts between unit owners.

An example: Let's say that one unit owner likes to play his or her stereo at unreasonably high volume levels in the wee small hours. Despite numerous requests from the unit owner next door, the other unit owner refuses to lower the stereo volume or to play music at reasonable times. A Unit owner, as provided in most proprietary leases, is entitled to a right of "quiet enjoyment", which means if you pay your maintenance on time and aren't otherwise in default under the terms of your proprietary lease, you're entitled to occupancy of your unit without interference form the landlord or anyone else. Accordingly, the cooperative corporation would have to get involved in the dispute if you claimed your right of quiet enjoyment was being disturbed by your neighbor. It's the co-op's obligation to make sure that your right of quiet enjoyment is not diminished by a selfish neighbor. Although a condo board would probably intervene in an attempt to resolve the problem, the condo board does not have the same obligation to resolve disputes of this nature between unit owners. Now, let's say that you bring the noise problem to the attention of the co-op board and the board (forgive me) turns a deaf ear. Then what happens? This is where the Great Co-op Secret kicks in.

The Warranty of Habitability

Implied into every residential lease is a warranty on the part of the landlord known as the warranty of habitability. This warranty is set forth in Section 235-b of the Real Property Law of New York and provides, in pertinent part, as follows:

"1. In every written or oral lease or rental agreement for residential premises the landlord or lessor shall be deemed to covenant and warrant that the premises so leased or rented and all areas used in connection therewith in common with other tenants or residents are fit for human habitation and for the uses reasonably intended by the parties and that the occupants of such premises shall not be subjected to any conditions which would be dangerous, hazardous, detrimental to their life, health or safety. When any such condition has been caused by the misconduct of the tenant or lessee or persons under his direction or control, it shall not constitute a breach of such covenants and warranties..." (subparagraphs 2. and 3. omitted)

Background

When the warranty statute was enacted many years ago, the intent of the law was to protect tenants from deleterious living conditions such as a lack of heat or hot water, a threat to physical safety, rodent infestation and other serious threats to "human habitation". If a breach of the warranty was identified by a court, the court had the power to abate the rent to compensate the tenant for the lack of services complained of. New York, as many of you know, is a complex place with complex scenarios. Over the years, the warranty has been applied to a myriad of unpleasant conditions such as cases involving noise, water damage, fire damage, toxic conditions such as mold and a new resident of New York City apartments: bedbugs. Loss of personal property (like a water-soaked Persian rug) is not recoverable under the statute. Not all tenant complaints will necessarily result in an abatement of rent or maintenance. The failure to provide luxury services will not constitute a breach of the warranty of habitability (but may constitute a breach of the lease on other grounds).

The Warranty's Significance to Co-ops: An antidote for the "Rule of One".

The warranty is important to co-op owners as a co-op unit owner could seek an abatement of his or her maintenance if the co-op failed to provide the services stated in the proprietary lease or failed to cure a condition or make a repair that threatens the co-op unit owner's health or safety. Should you assert a breach of the warranty of habitability if you cannot resolve a dispute with your co-op Board which relates to the failure to provide services or cure a dangerous or bothersome condition? Obviously, there is no "yes" or "no" answer to this question. Each situation must be evaluated in light of the particular facts and circumstances and an owner should always consult his or her attorney when a serious dispute arises. Some co-op boards deal with unit owner complaints expeditiously, other boards need to be prodded into action. If a co-op board or its managing agent is ignoring a serious problem (such as lack of heat or hot water, water infiltration or excessive noise conditions) and litigation can not be avoided to resolve matters, the co-op unit owner should take comfort in the fact that the warranty is there to protect the tenant-shareholder's rights.

How do Warranty of Habitability Claims Come to a Head?

In most cases, disputes between the co-op board and the co-op unit owner come to a head when the tenant withholds maintenance as a result of the co-op's alleged failure to provide services or cure a particular condition. When the co-op board deems the situation incapable of resolution without litigation, it will generally commence a non-payment proceeding in the landlord-tenant part of the New York City Civil Court. In many cases, the tenant will assert as an affirmative defense to the co-op's petition that the co-op breached the warranty of habitability by failing to provide services or make necessary repairs. The co-op unit owner will ask the court for an abatement of the withheld maintenance and the co-op will ask the court for a money judgment equal to the maintenance owed, plus interest and costs. Should a co-op unit owner withhold maintenance if the board is ignoring the co-op unit owner's specific problem? My very strong opinion is as follows: a co-op unit owner should never withhold maintenance or take any other action which may result in the commencement of litigation without first consulting with counsel. Litigation is always more costly and time consuming than you are anticipating--don't go there unless there's no other choice.

Residential Reality: The Warranty of Habitability is a Real Protection for the Co-op Owner

As mentioned, the warranty is only available to co-op unit owners. Condo unit owners must seek out other remedies, such as breach of fiduciary duty by the Board of Managers to deal with a building-wide problem. In my opinion, the condo owner does not have a remedy with the same fire power as that of the warranty of habitability. I call the warranty of habitability the great co-op secret because very few coop unit owners think of themselves as tenants akin to their brothers and sisters in rental buildings. I would bet that an even smaller percentage of co-op unit owners have ever heard of the warranty. Whenever a tenant-shareholder legitimately raises the sword of the warranty, the co-op board, through its managing agent or counsel, almost always will attempt to address the unit owner's concerns. Managing Agents and attorneys understand that if the co-op board does not deal fairly with the coop unit owner, when the co-op owner legitimately asserts a breach of the warranty of habitability, a court may award a maintenance abatement as a result of the failure of the co-op to provide services or make repairs. As co-op Boards live in fear of setting the dreaded "bad precedent" which could impact other residents in the building, most boards will try in good faith to resolve a dispute before a third party gets involved.

I consider the warranty of habitability to be the number one tool in the co-op unit owner's remedy tool box.

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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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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