Jan. 25, 2010 — Three years ago, the co-op community was feeling abused by the so-called full disclosure bill proposed by then city-councilman Hiram Monserrate, the state senator infamously convicted last year of misdemeanor assault for abusing his girlfriend. Monserrate's bill would have required that co-op boards give applicants a list of reasons for denial within five days of rejection, identifying specifically how the applicant failed to meet standards. Failing to do so would result in fines ranging from $1,000 to $15,000 for a first offense.
About two-thirds of the City Council initially signed on to the bill, with proponents saying it would protect applicants from arbitrary rejection by co-op boards. Critics contended it would encourage litigation and scare off prospective board members. At about the same time, a state bill was introduced that would have gone even further than the city legislation. In addition to a list of reasons for rejection, this proposal would have required the co-op board to either reject or approve an applicant within 45 days. The penalty for noncompliance? The applicant would automatically be granted acceptance.
Neither bill became law, but what was defeated in New York City has come to pass with a new law in bellwether Suffolk County — the first in the area to ban smoking in restaurants and talking on cell phones while driving.
The Long Island country now requires cooperative apartment boards to reveal in writing their reasons for turning down potential residents. Board members could be brought to account more easily in discrimination lawsuits, and be held personally liable. Entitled "A Local Law Requiring Fairness in Cooperative Home Ownership" (Intro. Resolution Number 1763-2009, Local Law Number 36-2009), it also requires that co-op boards provide the same application to all applicants, along with information on the relevant Fair Housing and anti-discrimination laws. Once an applicant turns in an application, the board must acknowledge within 10 days that it has received it, and must inform the applicant whether the application is complete or not. The board must come to its decision to approve or deny the completed application within 45 days.
Groups such as the New York State Association of Realtors have supported similar legislation for years. Other county legislatures and the New York State Assembly are now considering enacting such a law, according to local real estate experts, although past proposals have been defeated after lobbying by the Real Estate Board of New York (REBNY) and the Council of New York Cooperatives & Condominiums.
Area of Agreement
Even opponents of disclosure legislation, like REBNY, agree that co-op boards should be required to come to a decision about an application in a timely manner. But as Marolyn Davenport, senior vice president of REBNY, says, "We've opposed any legislation that would require co-op boards to disclose their reason for refusal."
Opponents argue that the board's confidential process creates stable communities and weeds out financially risky prospective owners, helping to protect co-ops from the crash felt in other parts of the real estate market. Since co-ops feel free to demand stronger finances from their applicants than do mortgage lenders, co-op apartment buildings can be more resilient in the face of falling property values or other real estate shocks.
Opponents also fear that co-op board members would be vulnerable to lawsuits that could make them personally liable — especially the co-op board president, who is the likely person to sign a refusal letter. "It's a bull's eye on his or her back," says Geoffrey Mazel, a partner with the law firm Hankin & Mazel. Some opponents even defend the freedom of co-op boards to refuse financially sound applicants. For example, in the 1980s, the San Remo, home to such stars as Steven Spielberg and Demi Moore, famously refused an application from Madonna for unstated reasons, although probably not because of the superstar's finances.
"There's a lot to be said for the special atmosphere," says Matthew Leeds, a partner with the law firm Ganfer & Shore. "Part of the value of a building can be its exclusivity." Some exclusive co-ops not only impose severe financial requirements, but also may favor applicants with membership in visible organizations and a history of charitable work, he adds.
What Supporters Say
Supporters of disclosure legislation say that the secrecy of the co-op board's process makes it possible for boards to illegally discriminate. "As long as co-ops are not accountable and operate in secrecy, discrimination will continue in spite of New York City's Fair Housing Laws," Corcoran Group broker Mitchell Hall writes on his blog.
Counters Leeds: "There are tools in place to redress discrimination." Even though co-op boards throughout New York State use the New York State Business Corporation Law to keep their deliberations secret on the grounds that their decision to accept or reject potential residents is a confidential business decision, they are still subject to local and federal anti-discrimination laws. Applicants who feel discriminated against can contact the city's Commission on Human Rights, which will investigate the claim. Rejected applicants that want to move more quickly can hire a lawyer to pursue their claim.
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