CoopAndCondo.com - Addressing the realities of Residential Real Estate

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

Love Hurts

       
Love Hurts

Neil Sedaka Was Right

Ending a relationship with a spouse or a significant other is always difficult at best. When the relationship is complicated by the ownership of valuable joint assets, the parties have to go through the process of either (i) selling the asset and dividing the proceeds; or (ii) making the necessary arrangements for transferring one party's interest to the other if that kind of settlement is possible. There are many spokes to the wheel of this topic.

 

Tenants By the Entirety

In New York, when a married couple takes title to a co-op or condo as husband and wife, the nature of that ownership is known as a "tenancy by the entirety". This type of ownership is unique to married people and protects married couples from attack by the creditors of one of the parties. In other words, a creditor can't try to attach one party's interest in an effort to satisfy an outstanding obligation. This protection would not be available if the parties had taken title either as "tenants in common" or as "joint tenants". As a result in most cases, unless there is an estate planning reason, a married couple will always take title as tenants by the entirety because of the protection from creditors. Since non-married or gay couples can't take title in that manner, other forms of ownership will be discussed a little later. In a funny way, one advantage of marriage is that there is a set of laws available to both parties when the marriage is coming to an end. The termination of the marriage is governed by the New York Domestic Relations Law, which allows the parties to settle their financial and family differences in accordance with those laws. Most parties do not enter into an agreement prior to marriage to deal with financial issues that may arise in the event the marriage does not work out. That type of agreement is known as a "prenuptial agreement". A prenuptial agreement is usually entered into where one party, by inheritance or earnings, has significant assets that have been accumulated prior to the marriage. Parties often want those assets segregated in the event of divorce or want to negotiate what each party will receive from those assets in the event of divorce. When a party has big bucks, money conversations often take place and a pre-nuptial agreement negotiated and entered into. In any event, when a marriage goes south and the parties can't agree on the division of assets, such as who will reside in and/or own the coop or condo after the relationship terminates, the Domestic Relations Law is available to guide the parties through a divorce proceeding. Eventually (and eventually can be a very, very long time), a settlement is reached and the real estate owned by the couple will be sold or transferred.

What Happens if You're Not Married?

Unmarried couples have two choices as to how they can hold title to an apartment.

Tenants in Common

When ownership of an apartment is held as "tenants in common", the interest of each party is theoretically transferable by either party. More importantly, upon the death of either party, the deceased party's interest in the apartment does not automatically transfer to the survivor. If the deceased owner did not make provision in his or her will for the transfer of his or her interest in the apartment to the survivor, the interest in the apartment would transfer through the estate of the deceased party and ownership would vest as provided in the party's will, or if the party did not have a will, then pursuant to New York's laws of intestacy (that is, the laws that apply when someone dies without a will). Obviously, this could be a major problem if someone's failure to provide for his or her partner was an oversight (more on that issue later). Married couples often use this form of ownership for estate planning purposes, in order to equalize the size of each spouse's estate.

Joint Tenancy with Rights of Survivorship

The other way for unmarried couples to take title is as "Joint Tenants With Right of Survivorship". When title is held is this manner, the interest of the deceased party will transfer to the surviving apartment owner by "operation of of law". In essence, that means automatically. Although the legal representative of the deceased party will need to provide the purchaser's attorney, managing agent and title company (in the case of a condo) with the IRS and New York State estate tax lien release documentation relative to the property being transferred, the property will transfer to the surviving apartment owner without the need for the estate of the deceased apartment owner to be probated.

Which Way is Best?

The answer to this question will depend upon the facts of each relationship. Each party's tax and legal advisors should be consulted to make sure that all relevant issues are explored before a decision is made. If the parties intend that the other person is to own the apartment if one party dies, it is essential that title be held as joint tenants with rights of survivorship. If the parties want others to benefit post mortem, then a tenancy in common is the better choice. Again, each situation is different and should be reviewed thoroughly before a decision is made.

A Reason to Get Married

As mentioned above, there is an unexpected benefit of marriage. When title to an apartment is held as a tenancy by the entirety, the creditors of one party cannot seek to place a lien on the other party's interest in the unit. Other forms of ownership are subject to attack by creditors. Accordingly, unless there is a strong estate or tax reason why a married couple would not want to hold title as tenants by the entirety, that form of ownership should be used for married couples.

Things Don't Always Work Out

Married or not, many relationships just don't pan out. As mentioned above, married couples have the protection (at least in theory) of the Domestic Relations Law to work things out if the parties can't cooperate. What happens to unmarried couples and their jointly-owned real estate? In short, it's a mess. As joint-owners of a co-op or condo, if the parties could not agree to the sale of the apartment or to some other arrangement by which one party purchased the other party's interest, the couple could find themselves in suspended animation. Neither party could be forced to sell the apartment, so a war of attrition would begin until one person caved in and just did what the other party wanted. Things could get worse if the parties were sharing expenses and one of the parties decided that he or she did not want to incur any more costs. What's the solution?

The Owner Occupancy Agreement

Although it's never easy separating parties from their real estate, there is one protective measure that can help out. Unmarried couples who are purchasing real estate together should consider entering into an "owner occupancy" agreement, to provide for all facets of ownership of the apartment. Here's a partial list of issues that should be addressed in such an agreement:

  • A description of each party's ownership interest in the apartment (50-50, 60-40, etc.)

  • A description of how the parties will share expenses and tax benefits.

  • A description of how the parties will share repairs and capital improvements to the apartment.

  • A description of what will happen in the event of a party's death or incapacitating disability.

  • The rights, if any, of others to use or occupy the apartment.

  • The rights of either party to demand the sale of the apartment or the buy-out of such party's interest in the apartment.

  • How the parties will resolve disputes (litigation, arbitration or mediation).

  • Any other issues that are particular to a couple's ownership of the apartment.

If the above document is properly prepared, the parties will at least have a road map if things start to get a little shaky or if things break down completely. Of course, if a party refuses to abide the terms of the agreement, chaos will prevail until the parties are forced to resolve their differences the hard way (litigation, arbitration or mediation.).

A Word About Disability

It's not fun to talk about, but bad things can happen to good people. Both married and unmarried couples should make provision for the disability of one of the parties. If a person cannot act for him or herself because of a serious disability, the person's partner has to be authorized to act for such person, or someone will need to be appointed by the court to do so. To avoid this terrible result, the parties should consider executing mutual "durable powers of attorney", that will be effective when a party becomes disabled. This "power of attorney" designates someone as the other person's "attorney-in-fact" and allows the designated person to perform enumerated acts for the person granting the power (sign checks, transfer property, or execute documents, just to name a few powers that can be granted). The circumstances of each relationship can differ, so the execution of a power of attorney should be reviewed carefully with your legal and financial advisors. The above being said, the form of "power of attorney" is in a state of flux at the moment, as recent amendments have made the use of the power more complicated for various technical reasons that I won't go into here. As designating someone your "attorney-in-fact" has significant and serious legal consequences, a power of attorney should not be executed without consulting your attorney.

Estate Planning

The parties must also consider preparation of wills and other estate planning documentation, so that the transfer of a party's interest flows naturally at a very difficult time. Poor estate planning can leave your loved ones scurrying about trying to figure out a deceased partner's previously undisclosed financial situation. It can get complicated and ugly. Again, consult your financial and legal advisors to make sure you understand and anticipate your estate planning needs.

Residential Reality: Unmarried Couples Should Consider the "What-if's"

Unmarried couples who own co-ops or condos together should seriously consider entering into an owner-occupancy agreement in order to protect each party's interest in case of the unthinkable. When things sour in a relationship, cooperation is a rare occurrence. Dealing with these issues in advance can avoid a lot of unnecessary pain and suffering when you're dividing up the pad and the pooch.

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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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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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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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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