New York's Cooperative and Condominium Community
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Refinancing is not for amateurs.
Asking the professionals on your board to help with your refinancing may seem money-savvy, but is it really the best decision for your building?
Closing Is Not for Amateurs
Our co-op just received a commitment for a new underlying mortgage. Should we call our regular attorney to handle the closing, or should we call someone special?
We are planning to refinance our existing underlying mortgage with a new loan of the same amount. Do we need our attorney for such a simple transaction? Her rates are very expensive.
One of our board members is an attorney. Is it OK to use him to close our new underlying mortgage? It would save us some money, but someone suggested that it might be a conflict of interest.
I receive questions like these several times each year, as well as similar ones about accountants and managing agents. It always surprises me that board members, who have a fiduciary responsibility to protect the interests of their fellow shareholders, would undertake the most important transaction of their tenure without the involvement of all of their cooperative’s professional advisers. Refinancing an underlying mortgage affects not only the monthly maintenance but also the market value of every shareholder’s apartment. The ramifications of making a mistake when refinancing are long-lasting and can be very expensive. Whether your new loan is big or small, short-term or long-, simple or complex, I strongly urge you to consult all of your cooperative’s professional advisers, including your attorney.
That said, I always like to draw a distinction between credentials and experience. Not all attorneys are well versed in the refinancing process. Some have never closed a loan of any type, some have never closed an underlying mortgage loan, and others have not closed an underlying loan in years. A lack of recent and specific experience does not automatically mean that your attorney cannot close your loan. However, there is a strong possibility that an attorney who has closed many underlying loans will give you better advice, will close your new loan faster, and will encounter fewer “hiccups.” That experience might come at a higher cost than your regular attorney would charge but, I assure you, it will be money well spent.
So, if you are contemplating a refinancing of your cooperative’s underlying mortgage, by all means, contact your regular attorney. He or she will tell you whether the terms of your existing loan allow you to refinance and, if so, what the prepayment terms (if any) might be. He or she can also give you a list of issues to consider as you formulate the type of new loan you want. You also should have a frank discussion with your regular attorney regarding his or her experience in closing underlying loans. If you decide to use a different attorney to handle your refinancing, your regular attorney can be very helpful in identifying and evaluating candidates. The overarching goal is for your cooperative to have the best legal representation for this very important transaction.
Some cooperatives do not have a regular attorney, either hiring someone different as each individual transaction presents itself or handling such issues on their own. When confronted with an underlying loan commitment, though, the boards of many of these cooperatives come to the (correct) conclusion that they need some professional help. Searching the Yellow Pages or online listings might turn up a few names to call, but a much better way to find a skilled attorney would be to ask friends, neighbors, and work colleagues for recommendations.
Should a board member perform any professional service for his or her cooperative beyond his or her board duties? It depends. Board members come from all walks of life and every profession. That diversity of knowledge and experience can be a great benefit to any board. Unfortunately, it sometimes can be a hindrance to effective administration and timely action. In those cases, it might be best to retain the expertise of an independent third party. However, there is no legal or ethical reason that a board member who is trained and licensed as an attorney could not close your cooperative’s new underlying loan. Likewise, there would be no conflict of interest, unless that attorney board member did something to his or her benefit at the expense of the cooperative or its other shareholders.
Closing a new underlying mortgage loan is not a terribly complicated process, but it does have many steps. Each of those must be completed to the satisfaction of the lender’s attorney before a closing can be scheduled. The cooperative’s attorney is responsible for satisfying most of those requirements. That is where past experience in closing loans comes into play.
Finally, unless there is some special situation to be addressed or complicated problem to be resolved, most new loans should close within 45 days of commitment acceptance. The majority of my clients close in about three weeks, and one closed in three (very long and hectic) days! I hope that all of your closings go smoothly.
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