The co-op board package is a rite of passage for anyone wanting to buy into a cooperative building. Slightly more intrusive than a visit to the dentist, this yearbook of personal and financial history can make or break your chances at owning your dream home. However, with a competent broker and some basic guidelines, putting together a board package doesn’t have to be any more complicated than a routine checkup.
Straight Up, Now Tell Me? Do You Really Want To Do This?
Especially for first time buyers in NYC, it’s better to know ahead of time what the co-op approval process will require before getting in over your head. As we discussed earlier, this is because you’re not actually buying property?you’re buying shares of a corporation that owns property, and just like every business, every co-op board is different. Some require all cash purchases on top of 10 times the purchase price in the bank, and some require nothing more than a complete financial statement and a vouch from the current owner. Therefore, with the completion of a board package, they want to make sure you are a solid investment just as much as you want to make your purchase in the best building possible.
Above all, remember: Buying a co-op apartment in NYC may be the most difficult application process of your life- unless you’re running for President of the United States. It’s invasive and frustrating… but worth it in the end if you’re committed to living in the city. NYC living is a sacrifice in many ways? no backyards, shared laundry rooms, and waiting lists for kindergartens? but it’s also a privilege. So? if all of this sounds like a walk in the (Central) Park to you, then make your mantra, “Really, it’s worth it.”
It’s All About The Financials, Baby
Your number one objective is to present the best financial package possible – without this, a board might not even look at your reference letters to find out what a great person you are. Let’s just say Mother Teresa couldn’t have passed a co-op board in NYC. The first thing the board looks at is your bottom line, and in this economy, boards often want substantial liquid assets (i.e. cold, hard cash,) a debt-to-income ratio below 30 percent, and at least enough cash left after closing to cover your maintenance and mortgage expenses for a year.
Make things as easy for the board as possible?don’t make them work for it. You must provide documentation for everything you write on the financial statement included with the board package?and every bank statement, every school loan, must match up perfectly (to the cent) with whatever you write down on your financial statement. If something is confusing, explain it!
You Oughta Know to Stick By Your Due Date
From the date you sign a contract, you technically have 10 days to deliver a perfect picture of your financial history to the managing agent. Sticking by this date is important (even though not always followed) because it presents a more positive view of your board package as a whole, and might mean that you are included in an earlier board meeting. Before you sign the contract, start getting your basic financials together!
Whether on Park Avenue or near Battery Park, you’ll definitely need:
· two years of signed income tax returns and W2 forms
· business and personal reference letters, so ask at least 3 people for each ahead of time
· the last three pay stubs from your job and a letter confirming your employment
· statements for ALL accounts, both assets and liabilities
· if financing, a loan application, commitment letter, and recognition agreements (ask your lender ahead of time to figure out the deadlines?they’ll work better with you if they know exactly what you’re up against.)
Remember, it’s your broker’s job to put all the information together, but helping the process along will work out the best for you in the end. Your broker will
· type up your board package
· copy it (usually one copy for each board member), and
· organize it with colored inserts or some sort of dividers to make it easier to read and find information.
Set deadlines with your broker: know the exact date when you should have everything in. There are always exceptions, but if you feel like your broker is pushing you too hard, it’s just because they want to put together the best chance for you to have a successful package and therefore get an interview as quickly as possible. It’s a win-win for everyone. And about that interview…
Passing the the Board Interview
You’ve sucked up your pride and released your tax returns to a group of strangers?now it’s time to put on some slacks and defend your honor. As mentioned before, all co-op boards have different standards for entry, and their interviews can range from a simple formality with a few friendly board members to an all-out Spanish inquisition… so expect the crazy.
After your real estate agent makes copies and sends your completed board package off to the managing agent, the closing agent in charge of that property will check the whole board package to make sure nothing was forgotten. Heaven help you if you forgot to hand in your most recent bank statements. Once everything is accounted for, the management forwards the sometimes shockingly heavy box to the board members, where they decide if they want to call the applicant for an interview.
The day of your board interview, make sure you have a conservative and classy outfit laid out on your bed?but definitely nothing that will make the board think you’re showing off. Always err on the side of pearls rather than diamonds.
Zip it. You don’t have to be buddies with the board members now or after you get into the building. They are looking for a financially and mentally stable new addition to their home, not a comedian or a know-it-all. So don’t bring up the ugly wallpaper in the hallways. Be pleasant and accommodating.
Co-op boards basically have the supreme power in the building. In the interview, they can ask you anything from specific questions about your financials to exactly what renovations you’re planning. Your real estate agent should prepare you with anything you might have to worry about if there’s a ticking time bomb in your board package that might require a further explanation. For example, they can ask you why your income dropped in the past year or perhaps why you filed your tax returns as single last year but tied the knot within the past months. There’s a definite possibility that the interview could be uncomfortable, but just keep repeating your mantra… “it’s worth it, it’s worth it.”
If they do ask about your renovations, the rule of thumb is to remain tight-lipped. Co-op boards will undoubtedly expect some sort of renovation, but it’s usually wise not to elaborate. Co-op boards don’t want to make it known, but once you get in, you can do pretty much whatever you want, as long as you’re not blatantly disregarding the House Rules. You’re allowed to renovate. You may be allowed to sublet, either right away or after 2 years. Some co-op boards might not even make a big deal out of having your dog with you in your apartment even if the rules say otherwise! Just don’t incriminate yourself without reason at your interview.
It’s usually not a good idea for a dog to have any sort of interaction with a board interview. (BrickUnderground.com has a couple interesting resources oncanine relationships to co-op boards.) Though we love them, Man’s Best Friend might not get along with the board. Also, co-op boards tends to discriminate against dogs of larger breeds because of their… larger effect on the building. (Is anyone really going to complain about a dumpy little Welsh Corgi in the elevator? Now how about a Great Dane?)
Finally, don’t expect the board to give you an answer right away. They could take a couple days or even a couple weeks to let you know your fate. Best case scenario: your future neighbors will let you know right at the meeting. Worst case: they’ll finally let you know much later through a chain of fools that includes the managing agent and your real estate agent. Good luck, friends?and knock on wood that your future elevator buddies will be courteous and friendly. Because if they’re not… you don’t want to live there anyway. Right?
Is the Co-op Board All Powerful?
In a word, yes. Co-op boards are basically all powerful, just as a board of directors at a large corporation would be. They can make you reach into your pockets by assessing fees for projects (1970’s lobby renovation, anyone?) and raising maintenance costs. They can enforce rules that affect you big time?like whether you can sublet your apartment or get that parking space?and most importantly, they get to decide who will eventually be your neighbor. There have been court decisions that basically say, “As long as the board isn’t doing anything insane… don’t bother us.”
The landmark case of Levandusky vs. One Fifth Avenue Apartment Corp. laid the smackdown on Levandusky (the board president… uh oh) when he tried to move a steam riser in a kitchen renovation. The board approved his plans, but after they learned about the riser, they said no way. Years later, the courts came up with the decision that the “business judgement” rule not only made it OK for the board to protect their company by disallowing shifty renovations, but it also shifted the burden of proof from the board to the shareholder.
The board can pass rules involving every aspect of your home life?setting renovation guidelines, banning washer/dryers, allowing or disallowing sublets, etc. These are known as the “House Rules” and to get into the building, any prospective buyers must sign a copy saying that they’ve read them. If the board passes a rule, it’s pretty much untouchable by courts unless it infringes on your rights such that you are willing to take them to court. (Not advisable, by the way, as has been proved many times.) However, if something (say, the right to sublet your apartment) is spelled out in the proprietary lease, the board can’t just say no. They’re not above the law. But they are the law when it comes to making rules in the first place.
More money, more problems. Boards can put assessments on your pocketbook by finally constructing that roof deck or re-wallpapering the hallways. According to 740 Park Avenue, Michael Gross’s epic history of the building, the average amount paid by a shareholder to fix the building’s facade in 1990 was $250,000. This might come to a vote, so if you feel strongly about something, speak up before plans are made. Reading the board’s meeting minutes is a good way to keep up to date on what is happening in the building.
Co-op board members are usually volunteers who may or may not have any experience running a building. Comforting, right? The New York Co-op Biblefocuses many chapters on the responsibilities of the board. According to them and the “Corporation Law” which bestows its power to the boards, the only requirement to be on a board is that you are over 18 years old. Very comforting. But they still can tell you what to do?they just can’t abuse it. Board members often have to deal with conflicts of interest. What if a board member wants to purchase an apartment in the building. Do they get first dibs? Or the architect board member who is hired to redecorate the lobby for a fee? These are all grey areas that can be unethical in the eyes of the shareholders, and sometimes that power is revoked from the board. If the shareholders decide to mutiny, it can be a tricky process, but usually, a board member can be ousted with a majority vote, though each building has its own rules for a changing of the guard. The only thing the board absolutely cannot do is discriminate against you.
Reasons for a Board Turndown (Legal and Not)
Co-op boards can be the pinnacle of secrecy. They decide if and when they will meet with you, and then if and when they will accept you into their club. Ahem, your new home. They also don’t have to give you a reason for flat-out rejecting you. Maybe it was your financial situation, or maybe it was your shoes. As long as it wasn’t your “race, creed, color, national origin, sex, age, disability, sexual orientation, marital status, citizenship, occupation, or the existence of children” of course, according to the Human Rights Law. Because even though boards want to retain their power, they don’t want to blatantly step into a potential lawsuit.
Here are a couple reasons for rejection:
1) You don’t have enough money. This is the big one. If you don’t meet the financial requirements for the co-op, which can include liquid assets in a certain percentage over your purchase price, this can be cause for rejection. Perhaps your income is too low or you have awful credit. These are things that you should have known before applying to the co-op (or your broker should have told you, so poor finances could be dealt with way beforehand). Sometimes boards might accept a year or two’s worth of maintenance put in an escrow account as a compromise. Some might just say goodbye.
2) You lied! Maybe your finances don’t look consistent. Maybe you hid those tax returns. Just like a corporation doesn’t want to do business with shady people, the co-op won’t want to associate itself with you. Don’t stretch the truth when it comes to your application, especially with your finances.
3) You got a good deal?too good. Congrats, you got a great deal! But don’t pat yourself on the back quite yet. Remember, the board is looking out for their finances too. An apartment that a seller reallllly needs to unload for a low price is not going to look great from the board’s perspective because it brings down property values in the building. However, Jonathan Miller interjects, “During this downturn what has become apparent is that boards cannot control the market. In other words, when a co-op board turns down a sale for being “too low”, if they do it often enough, they may actually depress prices in their building. Agents will be less likely to bring buyers to a building with an irrational board. Lower sales activity results in lower prices. This is the opposite of the intended effect.”
4) Job History or Security. You’ve been bouncing around from job to job every couple of years. Who’s to say you won’t bounce from apartment to apartment?
5) The apartment is your second residence. Even though some boards allowpied-à-terres, they might think the apartment will act more like a hotel than your weekend residence.
6) You’re famous or really “out there.” Lots of celebrities have had difficulty getting into co-ops (Madonna, Barbara, and Mariah, just to name a few). Co-ops are private places and don’t want to have to deal with paparazzi or rubber-necks. On the other hand, maybe you’re not famous at all, but foolishly revealed to the board that you’re a champion accordion player. Think about it.
7) You’re going to be working from home. If you’re a writer, OK. If you’re a psychiatrist with patients, that might not be working for the board.
8) You really messed up your interview. Your broker should have prepared you for this, but maybe you were having an off day and insulted the flowers in the lobby, which happened to be designed by the board president’s wife.
Finally, do you want to fight and risk the next co-op board finding out about it (and therefore considering you a potential lawsuit-loving purchaser eager to take them to court) or swallow your pride, cut your losses, and move on? If you have a strong case, (perhaps you were asked very inappropriate questions at your interview), talk to a lawyer. The New York Co-op Bible has a chapter all about dealing with rejection, including many court cases lost and won by co-op applicants. For example, in Broome v. Biondi in 1997, an African-American prospective subleaser at Beekman Hill House was awarded over a million dollars in damages after it came out that a board member had scribbled “black man” on a paper during the interview. That’ll get ya every time.
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