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Can co-op owners successfully apply for a reverse mortgage?

That's the question put forth to Ronda Kaysen in her latest Ask Real Estate column. A reader writes, "I know people who have [reverse mortgages], but I was recently told they are unavailable on co-ops." What's a shareholder to do? Kaysen explains what a reverse mortgage is and talks to two professionals, giving the submitter a firm -- if perhaps unhappy -- answer to their query. 

We represented a co-op where a shareholder engaged in repeated violations of the co-op’s house rules and proprietary lease provisions. The violations included noise issues; odors; leaving the gas of the stove on; and leaving food cooking in the oven unattended on multiple occasions, which caused a fire and smoke to fill the hallways. Because the incidents were spaced apart over months and even years, we recommended that the board seek to terminate the shareholder’s proprietary lease because of his “objectionable conduct.” Legally, the board could do so if the shareholder or occupants of the apartment repeatedly violated the house rules or the shareholder was deemed a person of dissolute, loose, or immoral character.
 
In this particular co-op’s proprietary lease, the board was allowed to terminate the lease based on the shareholder’s objectionable conduct, as opposed to other leases that require a vote of the shareholders. This did, however, require strict compliance by the board with the terms of the proprietary lease and the bylaws. Ultimately, a special meeting of the board of directors was called, at which the shareholder was given an opportunity to be heard and respond to each allegation of objectionable conduct. At the end of the meeting, the board voted on whether to terminate the proprietary lease. Ultimately, the shareholder agreed to sell the apartment and if it was not sold by a prescribed date, the shareholder agreed to leave and never return. The shareholder also agreed to and did repay the co-op for all legal fees expended.
 
Takeaway
 
When a shareholder repeatedly violates the co-op’s house rules and other governing documents (provided they are significant violations), boards should consider taking an aggressive approach by availing themselves of the provision entitling the co-op to terminate the lease. This approach will force the shareholder to resolve the matter or face eviction.

Your board is planning to refinance your building's underlying mortgage after the first of the year, and you want to make sure that you have everything prepared so the process runs smoothly. What should you be doing?

The first step is to convene a meeting of your co-op's attorney, accountant, and managing agent to discuss your plan and enlist their aid in collecting all of the crucial information. Refinancing an underlying mortgage is the most important decision that your board will make during its tenure. It will affect not only the monthly maintenance of every shareholder but also the market value of every apartment. It is not something to undertake alone. You should have the best advice available.

Happy (early) Thanksgiving! Although the actual holiday isn't until tomorrow, most people are probably in the thick of planning -- and probably wondering where they're going to put everyone. Luckily, Brick Underground has you covered.

With advice spanning from "Have your liquor and snacks delivered" to "use mood lighting to make your space look cozy," BrickU's suggestions are not only practical and inexpensive, but worth exploring for the rest of the year as well. Pass the turkey, please!

This year, we faced a number of issues relating to annual meeting elections and specifically the use and delivery of proxies.

In one case, a board of managers of a large downtown condominium building faced a hotly contested election between two factions. Both factions sought and obtained numerous proxies from the unit-owners in an effort to have their slate elected. The problem, however, was that when one faction realized that its slate seemed like it would lose the election, it opted to withhold the proxies and not deliver them to the meeting so that there would not be a quorum. Without a quorum, there could be no vote and that particular faction would remain on the board.

In a second case, a cooperative corporation with a seven-member board of directors was also facing a hotly contested election. For many years, the same four board members consistently had outvoted the other three. After the election was held and the majority faction was re-elected, a board member in the board’s minority faction challenged the results. The challenging board member claimed that one of the board members in the majority faction failed to deliver a proxy to the election. The challenging board member further claimed that, had the board member who received the proxy actually delivered it, a new board member would have been elected and the minority faction, along with the new board member, would have controlled the board.

Takeaway

In both cases, we first needed to determine the duty, if any, of a board member proxy-holder to deliver a proxy to a meeting. We concluded that where a board member solicits a proxy or merely receives a proxy, that board member is legally bound to deliver any and all proxies he or she is holding to the election. Board members of both cooperatives and condominiums owe a fiduciary duty to the shareholders/unit-owners, and to the cooperatives and condominiums themselves. Moreover, when a proxy is given to a board member, the person giving the proxy has a clear expectation that the proxy-holding board member will, in fact, deliver it as he or she was entrusted to do. It is now part of our standard practice to remind and advise our board member clients of their obligation to deliver proxies received by them, and that failure to do so may create unwanted liability.

The new officers of a longtime cooperative corporation client recently contacted us to advise that the past president (a former board member who had not run for re-election to the board) had failed to turn over records to the new president and board. The new president and board made several requests that the former board president turn over records. The former president was unresponsive. Eventually, the current board members asked our firm to get involved. We determined which records were missing. The corporation’s principal financial records remained in the custody of the managing agent, while the minutes of the corporation’s board and annual meetings remained intact and available for inspection in the corporation’s offices. Eventually, we were able to narrow the list of specific items that the board sought to obtain from the former president, who in turn was responsive to an inquiry from counsel seeking specific items. The former president delivered two of the three missing items, while duplicate copies of the third item (which the former president did not have) were obtained from a vendor. All in all, a happy ending for all concerned.

Takeaway

While the situation described above was resolved without resorting to litigation, there are two key lessons for cooperative corporations and condominium associations. First, every board should establish “best practices” standards for its operations. The organization and maintenance of corporate records within the board’s control is only one step toward “best practices” standards. As counsel, we also recommend several other key actions for boards, including training procedures for new board members, adoption of a code of ethics, written guidelines for bidding and contracting, and procedures for proper ratification of informal board actions.
Second, following the annual meeting, every board should have an annual “transition” meeting with its key professionals – counsel, management, accountants, and other key advisers. Even if there are no new board members, this is still a useful drill to ensure that everyone is on the same page and has established the same priorities entering into a new year. The most important takeaway, however, is to make sure these lessons are not just written down – boards need to ensure that “best practices” governance becomes a reality.

It's no surprise to see New York City real estate media tripping over themselves to report on the latest new super tall buildings every week – we're guilty of it, too. In a constantly-changing city, residents want to know what's going on in their neighborhood. Now, even National Geographic is getting in on it.

The national publication released an interactive map showcasing the "New New York City Skyline" on their website. "Before 2004, Manhattan was home to 28 skyscrapers 700 feet and taller. Since then, an additional 13 have been built, 15 are under construction, and 19 are proposed—47 more in all. These additions are rapidly—and radically—changing the skyline," explains the introduction. Readers then have the opportunity to view a 3-D map that shows how downtown and midtown Manhattan skylines will change in the not-to-distant future.

In a lien foreclosure lawsuit, Lasser Law Group successfully collected more than $140,000 in unpaid condominium common charges, late fees, and legal fees from a commercial condominium unit-owner who had not paid common charges for several years. Lasser Law Group was retained by the board of this small condominium building in the middle of 2014 to take over the lien foreclosure lawsuit, which was originally begun by a different law firm in 2013. We quickly made a motion for summary judgment, which prompted a settlement payment from the commercial unit-owner, including late fees and legal fees. Because the commercial condominium unit was large in size, its monthly common charges were also sizable, resulting in a significant budget deficit for this small building during the course of the foreclosure lawsuit. The settlement payment provided a much-needed cash infusion to the small building.

Takeaway

Common charge arrears continue to be a problem for condominium boards and property managers. It is important for boards and managers to promptly start legal action to prevent unpaid common charge balances from ballooning out of control. It is also important to retain experienced condominium collections legal counsel as there are usually a variety of legal approaches that can be taken in each case, and a lien foreclosure by itself is often not the most cost-effective approach.
Condominium boards should also review their bylaws with legal counsel to make sure they contain strong language, which ensures that the condominium can properly collect late fees and obtain reimbursement of legal fees spent suing unit-owners who fail to pay on time. Without the appropriate language in their bylaws, condominiums may have a difficult time recovering such late fees and legal fees, and this may embolden some irresponsible unit-owners to delay or withhold payment of their common charges.

Another day, another reason to look sideways at the booming luxury buildings in Manhattan. Advocacy group Climate Works for All released a report showing that New York's most expensive buildings are its least energy-efficient.

Curbed reports that the group "looked at the Forbes Billionaire List, then Business Insider's 20 Most Expensive Buildings in New York City list, and cross-referenced this information with the city's Energy Benchmarking data. They came up with a list of ten buildings, all of which scored an F in terms of energy efficiency." According to the group, buildings produce seventy percent of the city's emissions. But have no fear! The group also "provides suggestions for reducing these emissions, such as implementing zero net energy standards and passive house technologies."

This year, we have worked on two different files that concerned crime policies and fidelity bonds. In one instance, a board member of a self-managed co-op absconded with hundreds of thousands of dollars. The client advised that the co-op did have a fidelity bond and, therefore, thought that it would be at least partially covered for such a loss. A review of the fidelity bond quickly showed that to qualify for recovery, the person who committed the theft had to be “tried and convicted” in court. While the hope is that the authorities will vigorously pursue the perpetrator, it is the authorities who determine whether they will pursue the case and bring it to trial. Therefore, even though our client would be able to prove a case in civil court, it is not enough for the bond to pay out.

Additionally, there was other restrictive language in the fidelity bond: that only an officer of the co-op who received compensation would be covered. With this type of language, the fidelity bond offered no protection if a board member stole money (a bad recipe in a co-op that is self-managed). In another instance, a managing agent absconded with more than $100,000 of co-op funds. In this instance, the co-op had a crime policy in place. However, the insurance company disclaimed on the grounds that the principal and/or employees of the management company were not “employees” of the co-op. The carrier argued that, even though the management company was employed by the co-op, it is not an “employee,” since it is not a person. We are currently in litigation with the carrier over this interpretation.

Takeaway

Just because a co-op has a crime policy or fidelity bond in place does not mean it is affording the co-op coverage if there is a defalcation. The self-managed building had a fidelity bond for the purposes of protecting it in the event funds were stolen. The board had no managing agent and the board members had unchecked access to funds. However, the fidelity bond they purchased would never have covered theft by directors and officers coverage because they do not receive compensation.

Additionally, the prerequisite that a conviction has to occur before the policy could be paid out is a high bar to recovery. In short, because of the restrictions, this policy was of very little value to the co-op. In the other case discussed, the co-op had crime policy coverage. Since the managing agent has access to co-op funds, it is imperative that a crime policy cover theft perpetrated by an agent. This policy did not unequivocally state that it covers theft by a managing agent. Many policies have the managing agent covered through an additional rider to the policy. The takeaway for our boards is to use an insurance broker who is well versed in insuring co-op and condo communities and can understand the nuances of how your community is structured. Once insurance is placed, have the crime policy or fidelity bond reviewed either by the insurance expert with your managing agent or attorneys.