Bill Morris in Legal/Financial on October 9, 2015
After bruising negotiations with officers from Marine Midland, a solution was reached and disaster avoided. The term of the mortgage was extended; the sponsor agreed to auction off his apartments, and any that failed to sell would become the property of the co-op; the sponsor gave up his seats on the board and his role as managing agent; the sponsor paid the mortgage arrears and agreed to contribute $300,000 to the co-op's reserve fund. A new management company was brought in and new board elections were held. Some of the sponsor's apartments sold. Shareholders were hopeful that a new day had dawned.
Then, some time later, Williams got "the call" — again. It was a vice president from Marine Midland and what he told Williams this time was tantamount to a sentence of death for the troubled co-op. Many of the former sponsor-held units had gone into serious arrears, forcing the board to foreclose on a large number of apartments with unpaid maintenance. That had swelled the corporation's holdings to 63 mostly unsalable units. A co-op has the right to rent foreclosed apartments — which generates much-needed income — but that doesn't advance the campaign to become a building with a majority of owner-occupied apartments.
The bank, claiming the building had too much debt and too few resident-shareholders to pay it off, had decided to sell the co-op's underlying mortgage to a new "sponsor" — actually an investor — who was buying it with the intention of eventually turning the property into rental apartments. That was a nightmare on a par with foreclosure — the end for any co-op.
How the building got into this fix — and how it got out — is an object lesson in what happens when a board becomes complacent, a sponsor has too much power, and circumstances work against you. How do you find your way out? Is it even possible?
Photo by Jennifer Wu
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