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Tell a SH - or not?Sep 19, 2007


One of our SHs bought his apt from the sponsor a year ago, so we never saw his sale pkg or financial info. He wants to re-fi his mortgage + get a LOC. All we got is a letter verifying his annual income. We got a credit report and he owes A LOT (I mean, A LOT) on another mortgage, loans etc. It looks like he keeps getting loans to pay down loans and is overextending himself. He's self-employed for 2 yrs. '06 Income was good, almost double of '05, but self-employed people know income can vary widely from yr to yr. The board decided to not approve his re-fi/LOC request.

Three BMs want to tell him why we didn't approve him bec he's "already a SH and entitled to know." The others don't want to give him reasons, as you don't for rejecting a sale or sublet. They say BM's statements will conflict, the SH will misinterpret things, we'll get pulled into disclosing details and too much discussion, etc.

Anyone denied a re-fi for a SH? Should we tell him the reasons for denial or not?

Join the Conversation Comments (3)
Who handles refinances - AdC Sep 19, 2007


How is the process of admissions dealt with in your co-op? Attorney or manager as transfer agent?

(1) What is the reason for the re-fi... more debt, lower interest, fixed interest v. variable or other exotic type of re-fi, new auto, a wedding, vacations, etc.

The problem is knowing WHY prior to denying.

Your SH may be lowering his interest rate or obtaining a fixed interest mortgage on the shares, which will have a good benefit for his finances. In any case verify his documentation.

(2) If max'ed out, you may say NO to acquiring more debt, using it to get married or vacations.

AdC



AdC

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> Join the conversation Comments (1)
Reply to AdC - BP Sep 20, 2007


To answer your questions -

First, admissions/sale packages go thru the managing agent.

Second, the SH says the re-fi is "to lower monthly costs." But it's the same interest rate and monthly payment would be only $50 less. He also wants a LOC "for emergencies" with a monthly payment of $600-700.

He has a lot of other debt (per the credit report) and the only financial info he gave us is his gross income amount. The board already decided to deny his re-fi and LOC. The dispute is: a) should the managing agent's letter just say his request is denied or give the reasons? and b) should BMs be allowed to discuss the reasons with him if the letter doesn't give them and he wants a verbal explanation?

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> Join the conversation Comments (1)
BM's are out - AdC Sep 20, 2007


I agree with AR and the fact that BM's should never discuss anything with shareholders.

My statement is always the same when we turn down a potential buyer and if the shareholder calls me directly: Discuss this issue with the co-op counsel who is our transfer agent. The counsel knows how to discuss the issues without putting the BM's in a bind.

Unfortunately, humans have feelings and memories; in some cases, if the person does not get his/her way, may become vindictive. This is WHY you want to avoid involving BM's into discussing all kinds of "bad news" or "corrective action."

I personally think that shareholders forget that BM's are residents of the building and neighbors in the same communicty. As such, BM's are entitled to ENJOY their apartments. The function they do for the co-op as BMs do not make them targets of questions from individual shareholders or ATTITUDES.

AdC




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Not the BM Job - AR Sep 19, 2007


Have the managing agent, never a BM, inform the SH in writing. I would write something on the following order...

Dear XXX:

After careful review and consideration of your refinance application, and the particulars relating to your specific refinance request, the following final determination has been made:

A refinance is permitted providing that no additional debt is incurred, or reserved in the process. The loan to debt ratio shall not increase by principle, or in interest. The total debt service payment amount must be equal to, or lower than the present payment.

Kindly understand that all determinations are final.
Thank you for submitting your application.

Sincerely
XXXX
Managing Agent

the BM should never place themselves in the line of fire, at any time. that is one of the resons you pay a monthly fee to the management co.


~AR

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> Join the conversation Comments (1)
Totally Agree with you - AdC Sep 19, 2007


Let professionals be the people who handle all sorts of notifications with shareholders. The board should only be able to review the application and make the determination.

AdC

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Why deny? - board treas Sep 28, 2007


A similar situation once came up in our co-op. We asked our attorney for advice. He told us that the co-op has no risk in the HELOC, only the bank(s). So there's no reason to deny it.

If the shareholder is going to go broke, he'll do it with or without your help. Perhaps that wouldn't be so bad for your co-op because a bank will foreclose, getting rid of a shareholder who probably won't be able to pay his maintenance in a few years. Which will lead to foreclosure at that time.

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Re: Why deny? - GK Sep 29, 2007


Except that...it seems to me that if the bank forecloses, there's a good chance that the apartment will be sold off quickly and for a below-market price, which would not be a good situation for the co-op. The only winner in a foreclosure scenario imho is a lucky buyer who gets a good deal.

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bank sales - board treas Sep 29, 2007


It's true that the apt could be sold off quickly, such as at an auction, at a below-market price. I see your point there. It's also possible that the bank will choose to sell the apt through a broker, with open houses and all the trimmings, in hopes of making more profit. Of course, it's hard to say which direction they'll go.

The bottom line, however, is granting or denying the shareholder's HELOC. I'm no financial expert by any means, but I would expect that even if the board says no, the shareholder will find another way to borrow the money. And incur the shareholder's wrath toward the board.

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Why deny? - AdC Sep 29, 2007


You have read the problems in which many banks find themselves today for easy credit. The corporation needs to ensure that your shareholders have the means to cover, not only their maintenance but any other charges passed to shareholders as additional rent (asssessments) and eventually maintenance increases.

I think it is rather sad to see shareholders fail in a co-op. Also, is rather wearing for a board to deal with chronic late payers, letters by attorneys and half-recovered late fees and attorney fees. Our co-op had two of these chronic late payers that only paid at the doors of foreclosure. It was a "no win" situation for the co-op.

A co-op basically depends on the maintenances and additional rents (assessments) of its shareholders. If you were to spend half of your time trying to collect from 10 - 20% of your shareholder, I'm sure you will be going out of your mind and you will be rather late yourself in paying your vendors.

So... as difficult as it may be to tell people they don't have the minimum dough, DO IT for the sake of the co-op if you are sufficiently convinced that the person is not able to make it.

AdC

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