Financial Qualification: Boards' Role in Screening Prospective Purchasers

It’s up to boards to verify that prospective purchasers are financially qualified. Having a process in place — and following it consistently — is the best way to operate.

Laura Endres
Partner, Taylor, Eldridge & Endres 

Step by step. The first things a board should be looking at are the applicant’s debt-to-income ratio and their credit score. References matter as well because sometimes people look good financially but there may be other factors that would not make them a good neighbor, and you won’t know that unless you speak to people and ask questions. Co-ops should have a standard application that sets forth the requirements for a purchase, and they should also give notice of how the applicant can access information on fair housing and anti-discrimination laws. 

Face to face. Meeting with prospective purchasers before making a decision can be a good way to see if their applications are truthful. I’ve had boards reject people because they gave different answers in person than what was on their application. Some boards are leery to meet because they’re afraid they might be accused of discrimination. It’s up to each building, but if you do meet with people, you want at least two directors there, who can then make their recommendation to the full board.

The go-ahead. Once you approve an applicant, I suggest informing your attorney right away, who can then contact the attorneys for the buyer and the seller. We give them a standard transfer procedure sheet with all the set fees. For boards that don’t want their attorneys to handle transfers, I still recommend getting them involved when the purchaser is a trust. These are cropping up more often, and you want your attorney to review the trust documents and prepare guarantees and other legal papers that would go with a nonstandard transfer. The bottom line when it comes to new purchasers is that boards shouldn’t be winging it.