Tom Sinclair and Liz Roberts, a married couple who owned a co-op on the Upper West Side of Manhattan, felt like they’ve been sandbagged. They brought a buyer for their apartment to the board and expected an easy approval. “She had submitted what seemed like pounds of paperwork, showing how strong her financial picture was, along with sterling character references,” Sinclair recalls. “I had heard how tough some co-op boards were, but neither Liz nor I expected any trouble. After all, my wife had been a long-time model resident [in the years before our marriage] and our potential buyer seemed perfect.”
They waited … and waited … and waited for the board’s decision. Finally, some four months later, they were told that their buyer had been rejected. “No further explanation was forthcoming, and neither the head of the co-op board nor the managing agent had the courtesy to return our calls. My wife tried everything to get in touch with the board president – calling, writing, putting a message in the co-op board complaint box, even going to her door. But she received no answer or communication from her whatsoever.”
Sinclair’s story is not uncommon, and what that board may have needed was a schedule, or a timeline, to keep them on track.
The Buyer Gets the Package
The admissions process seems like it should be a straightforward affair. The seller gives the admission package to the buyer, the buyer completes it, management vets it, the board reviews it, and then says “yea” or “nay.” Yet even the simplest procedure can become complicated where co-op boards are concerned. (Condo admissions are another story, since condo boards have little power to reject new buyers, short of buying the unit for the association.) That’s why boards may want to follow a schedule.
The first point on any admissions timeline is, in fact, the least important to the board – and in which it has very little involvement. That is getting the package out to the buyer. The seller or broker will present the building’s admissions package to the would-be buyer. Depending on the contract between the buyer and the seller, the buyer can have anywhere from three weeks to three months to complete it. The applicant fills out the forms, provides financial statements and reference letters, and offers financing documents from a lender, including the essential commitment letter.
Vanda Jamison, president of a two-building, 44-unit cooperative in Harlem, says that her board won’t even review a package without a commitment letter. “We’ve learned not to act prematurely,” she says. “When we did in the past, we wasted a lot of time [because the loan fell through].”
According to Annaise Valerio, a transfer agent in the closing department of Rudd Realty, a management firm, this material is then reviewed by the manager. That should take a week, she says. If that review finds that the package needs more – tax returns are missing, financial statements have gaps in them, references are obviously form letters – add more time. The manager returns the package and requests it be returned within another week to ten days.
Until this point, the board has very little involvement in the timeline, although if you hope to encourage sales within your building, you may want to review the status of sales applications with your manager.
One broker says that such a review might reveal that some processing delays are being caused by your agent. If your co-op has a great number of shareholders who are refinancing, then your manager – who usually acts as the transfer agent in refinancings as well as sales – could get backed up, warns broker Bruce Robertson, a senior associate with the Corcoran Group who has also been a board member at his co-op. “Those refinancings are clogging up the system,” Robertson observes. “A broker can put together the loan package and get it to the manager. But then they wait. As a broker, I may send an e-mail to the manager, reminding him of the deadline. But he usually says, ‘I’ll get to it later. I’ll get it back to you next week.’ That’s where the bottleneck is. You rush it to the board and it’s really ‘hurry up and wait.’”
Delays are where boards get bad reputations in the broker community, says broker Jerry Minsky, a senior vice president at Douglas Elliman Real Estate. Ideally, the manager should turn the package around – from buyer to manager to the board within two weeks (nonetheless, many managers include a disclaimer with their package, saying that the review may take up to 30 days).
Once the package has been greenlighted by the manager’s transfer department, it is delivered to the co-op admissions committee and, absent that, the board itself. (In self-managed buildings, it is up to the seller to manage all the logistics, including hiring a lawyer as transfer agent.) A copy of each package is distributed to every board member, with confidential information, such as the social security number, redacted. Some distribute this data electronically. The admissions committee should spend a week to ten days before giving their recommendation to the board.
The board review, says broker Miriam Sirota, a senior vice president with Brown Harris Stevens, should take about two weeks; however, some take up to three-and-a-half weeks. “I don’t think boards are being malicious [in delaying],” she notes. “They are, after all, volunteers and very busy. But board members need to understand that these are people’s lives they are dealing with, and some of the sellers are selling because of financial need, or buyers have to be out of their apartment by a certain day, or a loan commitment will expire. Boards don’t always think about these things, but they’ve got to make the review of the package a priority.”
“We try to make it clear to boards that delays can be fatal to a deal,” explains Fred Rudd, president of Rudd Realty. Boards should understand this and try to be reasonably accommodating to the buyer.
Such accommodation can lead to challenge, however. Robertson cites an example. “We had a closing yesterday in my building,” Robertson recalls. “We had a buyer who had to be out of his rental by December 31. It was rough, and we really had a lot of obstacles to overcome. We lost two weeks because of [Hurricane] Sandy – the managing agent had lost power for two weeks, so they were out of commission. Then there was Christmas and the holidays, which caused more delays. But we got some board members together and managed to pull it off. We approved them and they could move in on time and not have to pay two months extra rent on the apartment they were leaving.”
For all that, however, some boards don’t like to be rushed, saying that it is their duty to move with deliberate speed, insisting that would-be buyers get their applications in within a week of the regularly scheduled board meeting, so that the directors have time to review it and then discuss it. If the buyer misses that deadline, he or she has to wait – possibly a full month (or two, if it is the summer when meetings are less frequent) for the next meeting.
Whatever procedure they follow, boards can keep on track by creating a schedule and remembering what the whole process is about. At the end of the day, says broker Minsky, the savvy board understands that it should be conscientious but accommodating, and remember that this is, after all, about finding the right neighbor – and making a sale.
“Boards have to follow the rules,” he concludes. “They should be considerate of their buyers and remember that, through their actions, a real estate deal can fall apart at any time.”
Rating Your Questions
Attorney Arthur Weinstein gives a thumbs-up or thumbs-down on the potential problems that innocent questions can cause.
You’re on the admissions committee, asking questions of a prospective purchaser. But be warned: those questions can be like sticks of dynamite, waiting to explode in your face. “There are New York State, New York City, and federal laws against various types of discrimination that could be quite fatal for a co-op board of directors,” explains attorney Arthur Weinstein. “There are 16 kinds of discrimination that the laws describe, and it is very easy for a board to get into a discussion with a prospective shareholder where the board will learn that the candidate falls within one of the protective categories and now the board could be accused of discrimination if the candidate is rejected.”
Do you speak any other languages?
Probable intention: To make small talk.
Supposed subtext: “You’re a foreigner come to pollute our building, aren’t you?”
Weinstein’s warning: “If the person says, ‘I speak Czechoslovakian,’ and you reject him, he can say that you rejected him because he was from a Balkan country. I had one case where a gentleman came before the board with a brogue and somebody on the board said, ‘Is that a Scottish or Irish accent?’ They rejected that candidate because he had no banking records whatsoever – his application stated that he was in a cash business and didn’t keep records – but he went to the city Human Rights Commission, and they found probable cause for discrimination because he was asked in effect what his nationality was.”
Do you intend to see patients/clients in our building?
Probable intention: To find out if you will be operating a home business that will increase commercial traffic in the property.
Supposed subtext: “You’re a shrink. You’re going to inundate us with crazy people, aren’t you?”
Weinstein’s approval: “That’s a fair question. If somebody is a psychiatrist, you’re entitled to say, ‘Do you intend to see patients in our building?’ because that is a commercial use of the property and that commercial use is properly regulated by the board of directors. I know of one building where a psychiatrist believed in primal scream therapy. The therapy scared the heck out of the neighboring apartments.”
Are you a smoker?
Probable intention: To find out if you smoke.
Supposed subtext: “You’re a smoker and will pollute our building.”
Weinstein’s approval: “So far, the courts have not said that smoking is a protected addiction or handicap, and many of my buildings are now trying to exclude applicants who are smokers. You may ask the question, ‘Are you a smoker?’ And even reject on those grounds and say the rejection was based on an accommodation to your residents who may have asthma or other sensitivity to secondhand smoke.”
Why are you limping?
Probable intention: Simple curiosity.
Supposed subtext: “You’re handicapped. Now we’ll have to spend tons of money to make the building accessible to the disabled.”
Weinstein’s warning: A limping man can be a very sympathetic plaintiff in a lawsuit.
Do you have a studio in which you practice? Do you intend to practice your instrument in the apartment?
Probable intention: To find out if you will be practicing loud music and disturbing the peace.
Supposed subtext: “You’re a rock ’n’ roll musician and we hate you.”
Weinstein’s approval: “You can’t discriminate against a musician just because he is a musician, but you can say, ‘Do you have a studio in which you practice? Do you intend to practice your instrument in the apartment? Can you show us what your practice schedules are and where you do your practice? We’ve had tremendous problems with opera singers or even pianists who practice, practice, practice sufficiently to drive their neighbors nuts.’”
What are your musical tastes?
Probable intention: To find out if the potential buyer likes heavy metal or classical.
Supposed subtext: “Are you going to be loud? Will you disturb your neighbors?”
Weinstein’s approval: “That’s a legitimate question. You should follow it up with, ‘Tell us about your sound system.’ I think you are entitled to know if they have a 300-watt woofer and multiple tweeters that can penetrate the walls of your building and those are not grounds for discrimination claims. Perhaps somebody could argue that he is hard of hearing and therefore requires 300 watts of power, but I don’t think that’s very likely.”
Is that salary sufficient to pay your maintenance and your bank loan?
Probable intention: The board is concerned about the applicant retiring and not being able to afford the maintenance.
Supposed subtext: “We are concerned about your age; you may be retiring and not be able to afford the maintenance.”
Weinstein’s warning: “I just was involved in a building two weeks ago where my client was rejected, I believe improperly, because of her age. The board did not ask the prohibited question, ‘Do you plan to retire soon?’ but they came very close and they were asking about retirement income: ‘Is that sufficient to pay your maintenance and your bank loan?’ I seriously considered filing a complaint with the Human Rights Commission, because you cannot inquire as to retirement status of the applicant. That’s age discrimination.”
Do you think you’re going to be getting a storeroom?
Probable intention: To find out if the potential buyer has been misinformed.
Supposed subtext: “You know nothing.”
Weinstein’s approval: “It’s critical to try and find out what the buyer thinks he is getting in the building. We find all too frequently the contract between the buyer and seller includes stuff that is just not true. ‘Do you think you’re going to be getting a storeroom? Do you know that there is a storeroom application list or waiting list of 40 names?’ If you flush out and correct those misrepresentations early in the game, that can be helpful. The admissions interview has several functions. One is for the board to find out about the prospective shareholder, and another is to inform the prospective shareholder about building issues and policies that he or she should be aware of. You’re finding out about the shareholder and you’re letting the shareholder find out about the building.”