An Attorney Says: Co-ops Refinancing Mortgages Need to Lawyer Up Quickly
Oct. 11, 2012 — Historically low rates, capital needs and maturing mortgages led many co-op boards to refinance their co-ops' underlying mortgages this past year. A few areas came to light where involving general counsel at the beginning of the refinance process could save a co-op money and affect the timing for locking the interest rate — specifically, requiring closing to occur within 30 days of rate lock. Just what are those areas, and how do they affect you in practical terms?
The first and most important: Prepayment premiums. Beyond obtaining an estimated calculation, a co-op board should have existing loan documents eviewed to determine (i) if you have a prepayment window with no penalty on the horizon, and (ii) if there are any additional costs or timing concerns connected with the particular premium due, such as with a defeasance calculation.
Commercial leases. If a co-op has any commercial leases of any kind, lenders require that tenant estoppel certificates confirming certain lease information be delivered at closing. In some cases, a non-disturbance and subordination agreement will have to be negotiated with the tenant. Additional time is needed for these documents to be reviewed, negotiated, and revised by counsel for the tenant, the co-op, and lender.
Requesting payoff and/or assignment from existing lender. While most loans require giving the existing lender only 30 days’ notice of intent to refinance, general counsel will need to review the existing loan to determine what are the specific requirements. Some loans permit refinancing only on the first or last day of the month, some require more than 30 days’ notice, while others have a specific form the notice to refinance must take.
Legal Lesson
Involving general counsel from the earliest discussions about refinancing the existing mortgage allows counsel to troubleshoot the process, while assuring everyone is fully informed of cost and timing issues affecting signing a commitment, locking the interest rate and closing within 30 days.
If this isn’t worked out properly, the co-op can, for example, find itself (a) obligated to close a month before the prepayment premium expires, (b) unable to close because the existing lender won’t provide a payoff letter or assignment before the rate lock expires or (c) losing a low rate because a major commercial tenant needs more time to deliver an estoppel certificate or non-disturbance agreement.
Theresa Racht is a partner in the law firm of Racht & Taffae.
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