NEW YORK CITY

There are a multitude of reasons why sizable arrears should set off a series of alarms for owners and prospective buyers. Broadly, uncollected arrears signal that the board and management company are not focused on the property's fiscal or physical health.

Arrears may suggest an underlying physical impairment to the building, causing owners to withhold payment. If this is not the issue, uncollected arrears are a clear display of poor management. This also indicates that the board of directors is not fulfilling its fiscal responsibility to shareholders/HOA members by not utilizing all legal means to collect the funds.

Regardless of the reason, arrears undermine the financial stability of a property, potentially jeopardizing its ability to satisfy financial commitments to the mortgage holder and other creditors. Should this condition exist, the board may be forced to dip into the reserve fund to satisfy property debts. Further, banks and appraisers frown upon poor financials, often denying financing for prospective buyers. This makes selling more difficult and lowers the value of the property

Arlene Waye is broker and president of Awaye Realty.

An assessment is a recurring fee that is levied by a co-op or condo usually on a monthly or quarterly basis. As opposed to maintenance fees and carrying charges, which are typically used to cover a building's regular operating costs, an assessment is usually levied as a means to pay for capital improvement items, one-off transactions, extraordinary legal fees, or sometimes to balance an annual budget that is running a deficit. If a board has levied a permanent assessment (instead of increasing maintenance or monthly carrying charges) it may indicate that the monthly carrying charges are already high in relation to other comparable properties or that the property does not have sufficient reserves to cover extraordinary costs

Michael Crespo is president of Citadel Property Management.

We're buying an apartment in a building that allows smoking. Since we smoke, we're worried this could eventually be banned. Thoughts?

When you say the building "allows smoking" I would assume this means it does not have any restrictions regarding smoking in resident apartments or common areas. But there still may be consequences.

Smoking can be a management company nightmare. We get a call from a resident that her child's room smells of smoke. An elderly person complains of being ill from second-hand smoke. A board member wants action. The house rules do not provide a means for the board to act. What can be done? A friendly letter from the management company making the resident aware of the complaints would be a start. Also helpful: a visit from the manager to inspect the premises and determine the legitimacy of the complaints, and perhaps offer suggestions.

These are some of the potential consequences to be expected for a smoker in a building where restrictions on smoking are not imposed. Where restrictions are written the consequences can be even greater. Fines can be imposed, legal notices may follow, and a great deal of management oversight will be needed.

What we would always suggest is that those who choose to smoke get a high-quality smoke purifier or filter system. Perhaps restrict your smoking to the room or rooms where you have such filters. And perhaps simply respect the rights and comfort of your fellow residents by limiting your smoking in your apartment. You do not want to be the catalyst behind a new board resolution restricting smoking or imposing new fines.

Seth Kobay is president of Majestic Property Management. 

We just learned that the building's proprietary lease expires in three years. Our lawyer says that is a problem. How so?

If the proprietary lease expires in less than 30 years, it should be amended to extend the term so that owners can obtain financing. If a proprietary lease's term is shorter than 30 years, banks may not provide a mortgage because their collateral is not protected. To increase the expiration of the lease, the bylaws require that the proprietary lease be amended. The percentage of shares required to amend a lease can be found in the proprietary lease.

It is imperative that a managing agent and/or the co-op attorney check all lease expirations so that a cooperative meets the bank requirements and apartment sales can go forward. A "Notice of Approval of Lease Amendment" must be sent out to all shareholders to obtain written consent to increase the lease by a minimum of 30 years.

With a co-op's lease expiring in three years, buyers — unless they pay cash — will not be able to finance their purchase. The proposed amendment should be drafted by the co-op attorney setting forth the purpose and importance of voting for the amendment.

Ellen Kornfeld is vice president of The Lovett Company

In a cooperative, the use of the premises — which includes subletting — is governed by the corporation's proprietary lease; in a condominium such use is governed by the declaration to the bylaws. The general rule is that an apartment can only be occupied by the unit-owner(s)/shareholder(s), or any immediate family member, but in no event may a guest, or in this case a "roommate," occupy the apartment unless one or more of the permitted residents are in occupancy.

That said, the question posed is much more likely to be a potential scenario at a condominium. In a cooperative, where boards have the right to reject prospective purchasers, boards carefully scrutinize the finances of these would-be buyers and if they are not in a position to afford the apartment without the additional revenue from a roommate, it is unlikely a co-op board will approve them.

The situation described is not ideal for a condominium, as transient traffic is usually discouraged. With the advent of Airbnb and similar services, it has become easier for unit-owners to generate income through short-term rentals. The proposed scenario might be difficult to prevent if the unit-owner remains in residence with the "roommate," as New York City housing laws permit.

It should be made clear to all prospective condominium unit purchasers that they may be entitled to have a roommate, but the roommate must observe all building rules and the unit-owner is responsible for any infractions of building rules by the roommate.

Max G. Freedman is vice president of Maxwell-Kates.

Very often, a board will decide to try to work out a payment plan with a resident who is in arrears. That avoids costly legal action, which will increase the amount that the resident must eventually pay, and maintains an amicable relationship between the board and the resident.

We always try to take this path, unless the circumstances are such that the resident has no plan or options available to pay the amount owed. In those cases, unfortunately, legal action needs to be started to limit the impact on the building. The arrears need to be monitored every month and discussed with the board so that the amount does not get overlooked and become a bigger problem. Most buildings operate on a break-even budget, and that assumes everyone is paying his or her fair share each month. When that doesn’t happen, operating bills cannot get paid in a timely manner.

Donald E. Wilson is president of Blue Woods Management Group.

Do you think it’s a problem if the same person has been the board president for 20 years?

Some buildings prefer reelecting certain board members year after year to preserve the continuity of a co-op/condo’s history and style of oversight.

Shareholders elect a board but the board members then elect their officers. If a board president and treasurer have been in their respective roles for many years, it is often because those people may have the most time and/or experience to handle those roles.

For new shareholders who may find this scenario strange, we recommend they nominate themselves as candidates on the annual meeting proxy/ballot form and/or get involved on subcommittees. Many buildings welcome new shareholders to participate on special projects, provided the involvement is genuine, consistent, and beneficial to the building.

Georgia Lombardo-Barton is president of Barton Management.

We want to buy an apartment in an HDFC co-op, but there is no financing permitted. Why?

HDFCs are unique and quirky properties, and each can have its own set of rules and restrictions. In years past, banks didn't know what to make of HDFCs; now, unfortunately, most lump them all together.

Why the reluctance? First, many HDFCs (that stands for Housing Development Finance Corporation) are not 100 percent sold. Often, a percentage of rent-stabilized apartments are owned by the corporation. Banks don't like this. Also, many (not all) HDFCs are saddled with arrears issues — financial, tax, etc. Where a regular co-op would be acceptable to a lender, a hybrid like the HDFC is overcomplicated.

The HDFC itself may prohibit financing. Prospective purchasers should carefully read the corporate bylaws. Frequently, HDFC shares are not permitted to be used as collateral. In some HDFC proprietary leases, lines of credit or home equity loans are prohibited unless the funds are for improvement of the unit itself; financing a car, second home, or college education are out.

If no bank is willing to grant a loan, the best bet for home buyers is to purchase an HDFC unit with cash. Some HDFCs may be open to self-financing; buyers, in essence, obtain a mortgage from the co-op. More HDFC corporations may want to explore this; it offers significant advantages to both sides.

Buying in an HDFC can be frustrating, to put it mildly, but with patience and persistence, an HDFC remains a great, affordable real estate option in New York City.

Josh Koppel is president of HSC Management.

I live in Europe for half the year. I'm trying to buy an apartment in Queens, but the board is asking for four years of monthly maintenance charges to be escrowed. Why?

Purchasing a cooperative is subject to a board approval process that some prospective purchasers may find burdensome, but which protects all shareholders. Absentee shareholders who may hold foreign bank accounts pose additional obstacles preventing boards from finding easy remedies for outstanding obligations.

Boards will restrict the amount of financing permitted and/or require a maintenance escrow account to be established as an alternate means of receiving payment should someone fall in arrears. This permits the cooperative convenient access to the shareholder's funds to cover arrears, mitigating a potentially lengthy collections process while allowing the cooperative to meet its financial obligations.

Escrow requirements vary based on individual buildings. Boards may be less restrictive, not implementing an escrow requirement, offering less financial protection to the cooperative, and making it more difficult to collect arrears. Or they may require four years of maintenance, which will help indicate the purchaser's desire to reside in the cooperative, confirm his or her financial stability, and lessen the potential for violations of the proprietary lease or house rules. It is advisable for the purchaser's attorney to review the escrow agreement to see the details of where the account will be established, the terms governing the escrowed money, and when it can be disbursed to cover obligations of a shareholder.

Boards establishing escrow requirements must consider the financial implications of the selling price of the apartment compared to the value of four years of maintenance. The latter helps ensure marketability of the apartment while protecting the cooperative.

Robert Ferrara is president of The Ferrara Management Group.

The minutes of the building I'm looking at are incredibly detailed with quoted exchanges from the meetings and a lot of personality. What should I take away from that?

Minutes should record the actions of the board in a very succinct and businesslike manner. They should not go on for pages and they should not get into all of the scuttlebutt of the building. The minutes should be short, to the point, and leave out all the other "colorful" actions that may go on during the decision-making process by the board.

If you are reading minutes where there are quotations and other peripheral items included that says to me that there's a lot going on in that building and the board isn't together on its decision-making processes. Less is more when it comes to taking minutes and the business of the building should be properly recorded in them.

It is important to remember that the minutes become public record when they are read by outside counsel on behalf of prospective buyers. Therefore, it is important for the minutes to reflect business and business decisions only. Boards should also be aware that there is potential liability in "colorful" minutes.

Timothy Grogan is president of Grogan & Associates.