The Meter is Running
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Smart steps to take when reviewing a purchase application.
AUTHORTheresa Racht, Theresa Racht Esq.
Look for red flags. Boards need to look at more than the buyer’s financials. Don’t just look at the credit score, the number of credit cards and the amount of debt on the credit report. It will show you a list of prior addresses for the person applying. If this is someone in his or her 50s and in the last 10 years, he or she has lived in eight different places in the same general geographic area and had the same job — that’s a red flag. Why is this person moving so often? I might be a little bit less worried if it’s a 25-year-old who’s moved four times in five years. Also, make sure the numbers listed on the summary of assets and liabilities match the numbers in the tax returns and bank statements that are attached. If they don’t match, you need more information.
Don’t make assumptions. I know about a co-op board that turned down a celebrity because the board was concerned about paparazzi, wild parties, who knows. And then the seller found a new person, and the board approved him — and he turned out to be a nightmare. The board would have better off approving the celebrity, because all he wanted to do was renovate the apartment and live there. So don’t make assumptions that a celebrity — or anybody else — is going to be a bad shareholder.
Read between the lines of the landlord letter. A board I represent recently approved someone who’s turned out to be a nightmare resident. I took a quick look at her application after she was approved, and I immediately noticed that the landlord reference letter she submitted was four years old. That alone would have been a red flag, but the way it was written was also a red flag, because all it basically said was, “This person pays her rent on time.” That’s a tip-off. That’s not giving you much information. The board should have had somebody call and check the references. They should also be asking for the last 10 residences with contact info. They should have somebody calling the management company or the landlord and talking to them to verify that one, they actually did produce the letter, and two, there isn’t something else going on that you can often get from a phone call.
Check references. Call and check personal and business references. A lot of these are actually written by the applicant or the broker. You don’t have to call all of them, but call one or two, and talk to them to be sure they’re legit. Also, use Google, check social media. Google can be your friend.
Ask about acquaintances in the building. Your purchase and sublet applications should ask: “Do you know any current or past residents of the building?” Find out who it is because you might be approving someone on the recommendation of a nightmare resident who you’re in litigation with. You don’t want his best buddy coming in, especially if you’re a small building.
Be a student of litigation history. If you have any reason to believe the applicant might have a history of litigation — maybe there’s a reference to a civil case on the credit report — contact the co-op’s lawyer. Have her do a search for any active litigation. Or just ask the applicant what the litigation’s about, and if there are other cases. Be very specific in your questions. I’m not saying you should turn them down automatically, but you need to ask the questions.
Beware of unusual inquiries. The managing agent should send the board any unusual inquiries that came up during due diligence. Why? Because I’ve had instances where it’s clear that someone buying in may be seeking to do something that the board is not going to approve, and it’s going to lead to conflict. One applicant asked about a condenser for a central air-conditioning system — about putting it on the roof or in the courtyard. You need to know that those requests have come in and been answered. That needs to be part of your package.
Listen to your gut. The main thing I keep telling my boards is, “Listen to your gut.” If it’s telling you something doesn’t feel right, or isn’t adding up, or just doesn’t balance with what you’re reviewing in the application, then you need to ask questions. And even if it’s only one of your board members who’s raising these issues, they should be considered seriously. It’s better to address those concerns and put them to rest than just go along with the majority. It’s way better to at least get everybody on the same page and run it by your lawyer. We have a lot of experience looking at these things and advising on how to get more information to make your decision. If something doesn’t look right and you can’t quite pinpoint it, bring the lawyer in. That’s what we’re here for.