LEGAL/FINANCIAL

Living next door to a fast-food restaurant (that delivers) may seem like a great idea at first. But then reality sets in: the noise, the vermin, the smells… Once the stench of grease constantly wafts into your apartment, the novelty of living next-door to a greasy spoon wears off. Take this co-op in Greenwich Village, for example. They tell Ronda Kaysen in this week's Ask Real Estate column in The New York Times that after a hamburger chain opened shop in the building next door to them, several apartments smell like burned grease. "It's worse in the spring and summer when windows are open. Some of the residents approached the manager of the restaurant, who promised to install a filter on the ventilation. That was two years ago. We have filed complaints with 311, with no results. Do we have any rights?" Kaysen explains that this is a chance for the board to "step up and advocate for its residents…. The board could start by contacting the owner of the neighboring building and pointing out the obvious: There might be a problem with the restaurant's ventilation system. Perhaps the restaurant could (and should) invest in a new one — or at least install that filter the manager suggested two years ago." And if that goes nowhere fast? Well, the board can look into filing a private nuisance claim, points out Kaysen, adding one caveat: "[The board] would have to show that the restaurant's use of its property constitutes an unreasonable, intentional and continuous invasion of the co-op residents' property rights." 

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We want to buy a condo, but our bank says they won’t make a loan for that building. Why?

Banks evaluate loans using guidelines supplied by the Federal National Mortgage Association (better known as Fannie Mae). There are three common reasons a building may not qualify under these guidelines. First is the ratio of investor-owned units to primary residence units. Primary residence units are considered lower-risk, as are apartments owned as second homes. Second homes are often incorrectly lumped into the investor percentage. A building’s property manager can perform an analysis to determine an accurate unit ratio.

Another typical issue is the reserve fund. While Fannie Mae requires a 10 percent reserve fund, many banks are willing to accept a lower percentage. We find a reserve study can help the bank evaluate the reserve based on building age, condition, and so on.

The third common issue is insurance coverage. Within bundled insurance policies, it is difficult to assess the coverage for individual properties. A property manager can often supply additional documentation or clarification to address the lender’s objections.

When a building doesn’t meet these or other Fannie Mae criteria, a waiver from Fannie Mae’s Credit Variance Administration System may be requested. Alternatively, another lender may evaluate the loan differently, so it doesn’t necessarily mean that a loan can’t be obtained from a different bank. You should always shop around, and be sure to talk to the manager and the transfer agent about a bank’s specific concerns. There may be an easy resolution.

Mark Motley is senior managing director, owner occupied cooperatives and condominiums, at Rose Associates.

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I want to buy an apartment directly from the sponsor. Is that a problem?

That depends on who you are talking to. If you are a prospective buyer, the answer is that it is not a problem. In fact it is a much easier way to purchase into a co-op. When selling an apartment, the sponsor is exempt from following the board's guidelines and interview process, so purchasers of sponsor units do not have to go through the co-op's lengthy application packages and review process and do not need a board interview to purchase. This can save considerable time and money for the prospective shareholder.

As long as the sponsor performs due diligence in qualifying the applicant there is usually not a problem; however, many boards feel that the sponsor's only interest is in selling the apartment and therefore is not invested in putting applicants through extensive background checks that cost money.

Many times we hear complaints that purchasers of sponsor units do not even get a copy of the house rules. We recommend to boards that they should invite the new shareholders to an informal welcome meeting to say "hello" and inform them of house rules and other issues. That way, the new shareholders can be informed. This usually leads to a "good neighbor" feeling and also accomplishes the board's goal.

David J. Amster is president of PLI Management.

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There's an "electronic doorman" at the building we are interested in. What's this, and should I be concerned?

Electric, cyber, off-site, or virtual doorman is a person in a location other than your building. The idea is to connect the building's intercom to a call center located somewhere else in the country. The doorman who's located off-site will answer and verify information related to you as an owner and provide the services you need. If a building is worried about the expense of a doorman and what comes with it in terms of payroll and union dues, this could offer a great solution.

Abdullah Fersen is CEO of Newgent Management. 

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Our lawyer has told us that the building's mortgage only has two more years before it needs to be refinanced. Should we care about that?

It's imperative that all associations plan for the future accordingly and the mortgage payment is a part of the overall association plan. As an association comes within two years of the due date, it's important to weigh the prepayment penalties, if any, versus the available interest rates and financing options. It might make sense for a building to pay a prepayment penalty to lock in an interest rate to ensure long-term savings for the association.

The board has a responsibility to try to lower costs while improving the quality of life for its association. You never know what's going to happen in the market and paying a penalty might still lower your obligation in the long run. At the end of the current mortgage period, it's important to lock in with little impact to the annual budget.

Andy Ashwal is executive director at KW Property Management & Consulting.

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In every cooperative and condominium, you can expect there to be some tension between shareholders and unit-owners and those who sublet (in cooperatives) or lease (in condominiums). If you think boards or fellow shareholders/unit-owners unfairly frown on subletting, think again. Here are some reasons why they do:

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Brooklyn is changing a lot. Prices are soaring so high they are starting to reach Manhattan-levels, and now, thanks to new development, the skyline is starting to reflect that change. In its most recent Brooklyn New Development report, CityRealty confirms that the skyline is transforming "as developers add tens of thousands of new rental and condominium apartments to the borough." Anyone who still thinks Brooklyn is synonymous with single-family houses need only check out the number of buildings with 20 or more units currently under construction — many of them, says CityRealty in its report, rising 10 or more stories and dramatically changing the built environment. CityRealty also anticipates the pace of building to outpace the previous decade, with nearly 5,000 new apartments in 2016 and nearly 6,000 in 2017. 

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The building we love has a flip tax. We don't have to pay it now, but if we sell we will. It seems onerous. Can you explain?

To many, it would seem wrong and maybe even unfair to tax the proceeds of a departing shareholder, but consider the following: in many instances, the value of your investment increases over the time of your occupancy.

While most of an apartment's increased value is because of market conditions and improvements within the unit, a good portion is tied into the overall condition of the building. Co-op boards that are diligent in maintaining the assets have added value, too. They have learned to draw capital funds by refinancing their underlying mortgage in a timely manner. The flip tax is another natural revenue stream that allows the cooperative to add to the capital improvement fund without burdening the remaining shareholders.

Peter Lehr is director of management at Kaled Management.

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The thing about living in a co-op or condo building is that you are part of a community. And while the word "community" connotes a positive environment, we all know that tensions can arise for any number of reasons. For one condo dweller, it's a new neighbor. "Someone just bought the unit next to us and is starting construction without permits," he writes in this week's Ask an Expert column in Brickunderground. "What's our recourse?" Brickunderground experts agree that tattling is the way to go. After all, illegal construction work is no joke. But experts also urge caution: "Keep in mind that depending on the work, your neighbor's project may actually be above board." Rather than go in guns-a-blazing and hurling accusations, experts encourage informing the board and perhaps even the managing agent — they will be able to confirm whether the proper permits have been filed. 

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The apartment I want to buy is on the ground floor facing a lovely back garden. I noticed a humming noise, though. Should I be concerned?

I think this is an issue that needs to be looked into and raises a number of questions that need to be answered. What is the noise and has it ever been brought to the attention of anyone from management or the building staff so they can come and hear it? If they have, do they have any idea of what has been causing it and how to fix it? If they do not, then when was the last time the boiler was serviced? Has the boiler service been called to come out and hear the noise? Do they know what is causing it? Is there something wrong with the boiler that can be fixed or adjusted to either make the noise go away or lessen it? Or is this the normal operation sound that the boiler makes when it is on? If this is normal, is there another way to reduce the sound traveling, such as insulating the boiler room or the apartment in question? Is this sound even coming from the boiler? Might there be another source? Has either an engineer or acoustical engineer been consulted on this? If there is a solution, does the building have the funds to address this problem?

Beth Markowitz is president of Merlot Management.

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