What is a Co-op Apartment in New York City

Presentation on coops in NYC

1. What is a coop Everything you need to know about a coop

2. What is a cooperative? A cooperative (also known as co-operative, co-op, or coop) is "an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise Roughly 75 percent of the Manhattan  housing  inventory is comprised of co-ops. Unlike a condo, co-ops are are owned by a corporation. This means, when you buy an apartment  that is in a  co-op building , you are not actually buying real property (like you would in a condo). What is The definition of a coop apartment?

3. Is Buying a Coop in NYC a Good Idea? T hey are generally 10% to 40% less expensive than condos of comparable size and quality There are significantly more co-ops than condos in NYC. Greater supply equates to lower prices, all else equal . Co-ops are not generally purchased by investors and foreign buyers due to subletting restrictions which makes them harder to rent. Less demand equates to lower prices, all else equal . Buyer closing costs for co-ops (1% to 2%) are less than half of what you’d pay for a comparably priced condo (around 4 %). Generally speaking Coops are larger than Condos. T he board of directors enforces strict   rules and regulations  that touch every aspect of life within a cooperative building.  These rules can hamper your ability to sublet the apartment and impact whether or not you can   renovate your apartment before selling . Coop boards typically exercise dictatorial power versus comparable condo boards, though these days there are many stories of condo boards who think they are coop boards in terms of power overreach. T he co-op board can derail your future sale by rejecting your buyer, in some cases multiple times. Furthermore, many co-ops charge sellers an extra closing cost called a  flip tax . Pros Cons

4. If you are Buying or selling a coop what do you need to know? You know things about the Coop? Name of the Co-op Corp Name and number of the managing agent Total Units Monthly Maintenance Assessments? Deductibility (RE Taxes/Interest) Flip Tax Allowable Financing [20%/25%] Sublet Policy Storage Financials Available Parking

5. Definitions What is a Propietary Lease? A proprietary lease is a lease given by a cooperative corporation that provides the share owner with the right to live in a particular unit or apartment. In a cooperative apartment building, the lease that the corporation provides to the shareowners allows them to use their apartment unit in accordance with the terms and rules specified. Proprietary leases give the cooperative corporation many rights and powers.  These powers include the right to cancel or terminate a shareholder's proprietary lease under certain circumstances.  Usually, such termination can occur when a shareholder violates an important aspect of the lease such as failure to pay monthly maintenance or other rules of the cooperative . In recent years, courts have allowed cooperative corporations to use this authority to cancel leases and, essentially, evict the apartment owner.  These issues are very complex and it is advisable to obtain an attorney to assist you on any occasion when termination of a proprietary lease is involved .

6. Definitions What is the Recognition Agreement? It is a form that must be signed by the borrower, lender and the coop.  (The form gets its name from the company that produces it) It is the document that the bank draws up to give its lien the first priority over the co-op's lien in case the shareholder defaults. Also, the co-op corporation promises to notify the lender if the owner fails to pay maintenance or other fees to the co-op. The co-op corporation is prohibited from permitting additional financing or canceling the shares/lease without the lender’s permission. This protects the security interest of the lender. The co-op, on the other hand, is given a superior lien on the equity. In the event of a default, a co-op’s lien is automatically prioritized over that of the lender. Only a few lenders will do Home Equity Loans (HELO's) in coops since they will be third lien. Procedures for the lender and co-op to take in the event of a default are also established. The co-op agrees to inform the lender if the borrower’s monthly maintenance payments fall into arrears (3 months). This functions as an early warning system of a borrower’s financial difficulty to the lender. In return, the lender agrees to make payments on behalf of the delinquent shareholder/borrower in order to prevent the co-op from foreclosing. The lender also recognizes the co-op board’s right to review the transfer of shares in the event of a foreclosure. The terms of the Recognition Agreement must be mutually agreed upon by the co-op and lender before a loan can close. Some co-ops require the use of their own recognition agreement and will not accept the lender’s version. As part of this agreement the mortgage holder will pay maintenance and repossess the apartment. If shareholders don't pay their maintenance, the mortgage lender will pay after a while. A co-op foreclosure has to be initiated by the co-op board. Because co-op units are not considered real property, co-op foreclosures do not have to go through the court, and instead will go to auction. The coop building is safe financially (as opposed to condos with owners in arrears) as long as shareholder/owners have a mortgage. The Aztech protects the coop. For this reason many coops prefer buyers to have a mortgage (even a small mortgage) with assets left over rather than an all cash purchase.

7. Definitions What is the Prospectus or Offering Plan? The basic content and format of the  By-Laws ,  Proprietary Lease  and  House Rules   . Over the years, there will be a number of amendments to the Offering Plan. You should have received a complete copy of the Offering Plan (including attachments and amendments) from the person who sold you your shares in the co-op . If you didn’t get it or have lost it since, you may purchase another copy of the complete package from the managing agent for $100.

8. Definitions What is the Title or Lien Search? A  title search , on the other hand, includes a  lien search and identifies owners and property history, looking for liens  against those people and against the property whose  title  you are transferring. Thus, a  lien search against a given property would need to start with a  title search  to  find  out the names of the  liens . A  title search will  determine the legal owner of the property;  reveal  any mortgages, liens, judgments, or unpaid taxes that  will  have to be cleared before the property  can be sold; and detail any existing easements, restrictions, or leases affecting the property.

9. Buyer Makes the Offer Counter Offer Contract Signed Offer Accepted Agent Arranges for Property Inspection [If inspection is requested the engineer will want to check the roof, basement mechanicals and the apartment.] Price can be renegotiated based on inspections. Email Deal Sheet to Broker/ Atty Y or N Contract should be sign within 1-2 weeks Time for the Attorney The Negotiation The Buying & Selling Process Attorneys Negotiate Contract of Sale Buyer applies for Mortgage

10. Attorney’s Job & Due Diligence Bank Loan approved Walkthrough Closing Email Commission Invoice 1-2 weeks before closing Go to Closing Bank Appraisal Completed If Appraisal comes in low then Renegotiate Price? Y or N Complete and Submit Board Application to management company or board if self managed Arrange for Board Interview Did the Coop Board approve buyer? Y or N Buyer receives a UCC Doc and/or Recognition agreement? Also known as an Aztec form. A good real estate lawyer will conduct thorough contract, legal and financial due diligence on behalf of their buyer. Whether you’re  buying a condo  or co-op in NYC, that means they will  review: The   buildings financial statements.. The board minutes. The original offering plan. They will review and negotiate the  contract of sale. Order and review a title report or  coop lien search.   Obtain Board application from management co. Make sure to check all information received from the buyer. Board application should be reviewed by the Sales Manager Closing Date arranged with bank, attorney, management co.

11. Let’s Pass the Board Interview! The board interview is the board’s opportunity to ask questions about the application which must be perfectly organized and already reviewed by you the agent and the management company . Dress appropriately Prepare for a lack of privacy Know the application Don’t sell yourself Never volunteer information or ask questions A short interview is better than a long one. Couples should decided in advance who will answer what type of questions. Do not expect an answer at the end of the meeting.

12. You have just spent 3 – 4 months managing the coop process. You should be happy! Celebrate!