Self-Managed Buildings: Tips for Brokers, Bankers, and Clients from a New York Real Estate Lawyer

For clients buying into a Condominium or Cooperative, often their broker or attorney will provide them with a massive tome called the “Offering Plan.”

When faced with approx. 500 pages of potential homework, clients often ask: what is this, why is it important, and do I really need to read the whole thing?

Here’s what you need to know:

What is it?

The Offering Plan is presented to the initial buyers purchasing directly from the Sponsor/Developer. It represents what the Sponsor committed to constructing prior to the building being built or converted to a condominium or cooperative. The Offering Plan is then passed from seller to buyer like an heirloom tied to the unit.

Why is it important?

If buying a new construction unit, the Offering Plan (with any amendments) may be your sole source of diligence. If the building is not yet constructed, it will tell you what you are putting your money towards. Sponsors will need to deliver a unit in accordance with both the Offering Plan and the Purchase Agreement.

For resale transactions, the information becomes increasingly dated and may no longer be relevant. These buyers should be careful not to rely solely on the initial Offering Plan with respect to their individual unit or the overall condition of the building, but all unit owners still need to keep the Offering Plan in a safe place to pass on to their future buyers.

What should I focus on if reading the Offering Plan?

Diligence is conducted until a purchaser is happy and comfortable proceeding, so the level to delve into any of these documents is self-determined. For buyers hoping to personally review the Offering Plan, finding the table of contents or index in the first few pages is crucial for helping locate the following key sections:

1. “Schedule A” – this is a snapshot of the building showing a list of units at the time of the offering, original percentage of common interest/shares, the original purchase price, number of rooms, projected common charges/maintenance, and initial treatment of any storage, parking spots, terraces – to the extent these exist in the building.
2. “Special Risks” – this section expands on the additional risks associated with the project. Cautious buyers may review this section for things ranging from how to care for the wooden flooring and limited warranties for the unit and/or building to the existence of lot line windows (windows that may need to be boarded up in the future).
3. “Floor Plans” – floor plans are rare finds in the offering plans of cooperatives and older buildings. When found, they are helpful to compare against the current configuration of the unit for any alterations to the unit that may have been done by the current or prior owner.
4. “Description of Property” and any Architects Report – these sections may contain projected structural information about the building, materials used, appliances installed, building amenities, and systems. Sometimes this can be helpful identifying materials used in the past that are no longer acceptable in the present (e.g., asbestos and lead paint).
5. “By-Laws” and other governance documents – initial by-laws, documents for board governance, and initial ownership documents are typically towards the back of the Offering Plan. For purchasers into a cooperative, a copy of the Proprietary Lease is generally included with the original house rules.

Lastly, please note that the Offering Plan may have been continually amended by the Sponsor/Developer, so it’s important to check that the information you are reviewing has not been overridden by a later amendment.

Of course, you should always let your attorney know if any questions!

 

As reported by the New York Times, Governer Cuomo has called off a planned shutdown of the L subway track, which would have lasted 15 months. The shutdown, which was intended to repair structural damage caused by Hurricane Sandy in 2012, will be replaced by a program of gradual repairs, and will accommodate full weekday service with some partial weekend closures.

The cancellation of the long-awaited (and dreaded) track closure is a cause for cautious celebration in neighborhoods such as Greenpoint and Williamsburg in Brooklyn, which rely on the L train for convenient access to and from Manhattan. While the future of the track will be fully revealed in time, as work continues assess and repair the remaining structural damage, the new plan is likely to be a boon to those looking to buy or sell near the L train’s route.

In an effort to combat discriminatory practices by coop boards, Legislators in Westchester have amended the county’s Fair Housing Law (Article II of Chapter 700), effective immediately. 

This new amendment attempts to close a loophole by which coop boards could potentially discriminate against prospective purchasers by delaying action on their application beyond a reasonable time frame, or by failing to notify an applicant if their application was incomplete, rather than rejecting them outright. 

Upon receipt of an application, coop boards must now inform the applicant within fifteen days as to whether the application is complete or incomplete. If incomplete, the same time frame applies to the re-submitted application. 

In addition, the board now must provide a written notice of acceptance or rejection to the applicant within sixty days after receipt of a completed application. If rejected, a copy of the notice must be sent to the Human Rights Commission no more than fifteen days after it has been sent to the applicant. 

The new law, which has been decades in the making according to County Executive George Latimer, has not yet been taken up outside of Westchester County, though it is possible that such a measure may be discussed in the future. For more info, please see the full text of the law here.

This is one question that we hear frequently from our former clients, and the short answer is — no.

Once closing is complete, the title company is responsible for ensuring that the deed becomes public record by sending it to the county clerk for recording. Once the deed is recorded, the county clerk’s office generally mails the deed to the Purchaser’s attorney. Receipt of the original, recorded deed prompts our office to check the online records for further verification. We then send a copy of the deed to the client for free, as part of their final closing package.

New condo and house owners may receive official-looking letters advising them to pay for their original deeds. The letters offer to have the recorded deeds printed and sent to the new homeowners for a fee. These letters can look eerily like official government correspondence, but – as our savvy blog readers will know – they are not.

The important thing for NY condo and house owners to remember is that, even if they lose their copy of the deed, the deed is a public record. For New York City residents at least, recorded documents can be accessed any time for free through the Automated City Register Information System (ACRIS).

If you have further questions about how to access your deed, or about unusual correspondence received after closing, feel free to reach out to us.

 

By Keith Furer, Guardhill Financial

Be a smarter investor by understanding how lender approvals on buildings work.

Whenever someone gets a mortgage on a unit within a coop or condo, a lender must not only approve the borrower, but separately approve the building. Like the borrower, a coop or condo must also meet certain requirements in order for a lender to place a mortgage on a building unit.

Specific lender requirements on buildings vary not only between lenders themselves, but also between condos and coops.

Examples of Lender Requirements on Coop and Condos:

– stable financial standing
– acceptable owner occupancy rates
– valid and up-to-date building insurance
– maximum commercial square footage
– absence of major litigation

But what’s actually involved in the approval process of a coop and condo by a lender?

Sometimes a lot, and sometimes very little.

To help demystify the process, the following are the main steps typically carried out by a mortgage professional like myself:

1. Check the Systems, Get Management Contact Info

My first step is to do a check of the building address in various online systems to see if the project has been approved or declined in the past by any lenders. Depending on how up-to-date the information is, that could determine whether it is wise to proceed with the purchase or not.

If a coop or condo shows up as approved with most lenders, including recently updated financial information, etc., that may be all the information that’s needed, depending on which lender will make the mortgage. However, this is rare, as there is usually at least one supporting document in need of updating.

The contact information of the building’s management is always required, regardless of whether it is professionally managed or self-managed. The real estate agent representing the property and your attorney will typically have this information. Most management companies today charge at least a nominal fee for coop and condo documents.

2. Getting & Submitting the Core Information

Assuming a coop or condo needs updated documents, my team will then contact the management entity to get the standard information, including two years financials, a building questionnaire, and underlying project insurance. These can offer a fairly complete picture of a building’s status, but sometimes other documents are required, like a recent budget and offering plan.

The financials show the overall financial health of a condo or coop, the budgeting, the reserves, etc. Two years are required so a building can demonstrate a more complete snapshot of its most recent results.

The coop or condo questionnaire contains all the basic information about the building, including everything from information on occupancy levels to initial sponsor information, to the underlying mortgage, and much more. The questionnaires typically run two to three pages.

Once we have the required documents, my team submits them to the applicable underwriting department along with the borrower documents. Quite often we are able to have the project approved or re-approved prior to the buyer signing the contract.

3. Proactive & Precision Follow-up Required

Whenever anyone gets a mortgage on any type of property, there are a lot of moving parts that have to be in place in a timely manner for that mortgage to close. My team and I move quickly across all the channels of the process, particularly when it comes to coop and condo approvals.

It is vital to be proactive with these approvals, because in some cases, they can drag out, and that can push back closing dates, which nobody likes or wants. Whether it’s coop or condo documents that are in the midst of being updated, or extended turnaround times for receiving documents, I’ve witnessed a lot of unforeseen delays.

In the cases when we come across any potential red flags for a coop or condo, like low occupancy rates or upcoming assessments, we communicate them with our clients and their attorneys and address each one head-on with the underwriters. Just because there’s a red flag doesn’t necessarily mean that there’s a problem, it just means there’s a matter to be resolved. The earlier red flags are identified and addressed, the smoother the whole process goes, and increases the likelihood of closing without delay.

Sometimes the coop and condo approval processes can be quick and sometimes they can drag on. Make sure you have the right team working for you to be proactive and help insure that you close on time.

 

Guest blog entries are for the benefit of the real estate community and do not necessarily reflect the views of this law firm.