Margery N. Weinstein and Jeffrey Lederman in Co-op/Condo Buyers on April 28, 2020
The sale of co-op apartments has been hit hard by the coronavirus shutdown and orders of social distancing. But creative boards, brokers, lawyers, lenders, buyers and sellers are still closing deals without face-to-face contact. And as the warm-weather selling season unfolds, these deals promise to proliferate.
These transactions will culminate in one place: the remote closing. Unheard-of before the pandemic for co-ops, these virtual events require five key elements:
Willingness of all participants. If any party is unwilling to proceed – for example, if the purchaser refuses to close until he can actually move in – it may be unwise to attempt a remote closing.
Availability of technology. All parties and their attorneys must be able to send emails, scans and faxes from their remote locations. FaceTime, Zoom or another platform for remote interfacing must be available for all parties whose signatures require notarization, as well as for the notaries. Lastly, the parties should verify that they have access to reliable means of transmitting documents, such as Fed Ex, and the ability to wire funds through remote authorization.
Diligent planning. The parties should agree in advance on all computations and the funding mechanisms. They should obtain and verify all wiring instructions, both in writing and over the telephone, a technique to counteract potential wire fraud. They should determine if any party requires original signatures and whether counterpart signature pages are acceptable.
Appoint an escrow agent. The cooperative housing corporation, with the parties’ agreement, should designate an escrow agent, who will distribute funds, including those that pass from purchaser to seller. If the purchase is being financed, the lender may require that its attorney serve as escrow agent. If there is a choice in the matter, we recommend that the co-op select a title company to act as escrow agent. The key factors in selecting the escrow agent are that the person is trusted by all participants and competent to do the job.
And now the final piece of the puzzle:
The escrow direction letter. One or more escrow direction letters, signed by all parties, embody the terms and conditions by which each parties’ obligations will be deemed satisfied. The details of the needed protections may differ in each transaction, based on the parties’ comfort level with each other and whether the closing is all-cash or financed.
For instance, a pay-off bank might be comfortable delivering the seller’s current stock and lease to a title company in advance of the seller’s loan being paid off, but it may not be comfortable delivering them to a law firm involved in the transaction. Similarly, a co-op board may trust only certain third parties to hold the new stock certificate and duplicate proprietary leases in escrow, or it may be reluctant to release such original documents until it has received all payments due to the co-op and its managing agent. This, of course, could complicate the remote closing.
The escrow direction letter should specify, in detail, each document to be delivered, the party making the delivery, the place and timing of delivery, the funds to be delivered, all wiring and check instructions for the funds to be paid out, when funds and documents may be disbursed, and which parties are to confirm – and how they are to confirm – that the closing has occurred. Also, in the event matters do not proceed as planned, the escrow direction letter should include language as to how and when to “undo” the transaction – a specific deadline determining when and where to return all documents and funds.
Even the most organized attorneys, managing agents, and co-op boards can run into unexpected issues when closing a transaction remotely. Accordingly, building in an extra day (or two) so as to ensure the smooth flow of funds and the delivery of all documents is a necessary component to completing a successful remote closing.
Margery N. Weinstein is a partner and Jeffrey Lederman is an associate at the law firm Ganfer Shore Leeds & Zauderer.
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