Coop Posts

Purchasing a cooperative apartment-Due Diligence

When purchasing a cooperative apartment it is important that you (and your attorney) perform some research about your new home and investment. As you may already know, ownership of a cooperative apartment consists of owning shares of stock in the corporation that owns the building accompanied with a proprietary lease permitting occupancy and typically laying the ground rules concerning the use of the apartment and living in building where it is located.

When I represent purchasers of coop apartments I will review the offering plan, all amendments and the last two years worth of financials of the cooperative corporation. An offering plan is the required disclosure filed with the New York State Attorney General’s Office and contains information about the building, apartment and the cooperative corporation. The offering plan and amendments should be examined which contain the corporate by-laws and other important documents (including the proprietary lease) and any changes that have been made to them over the years.  These documents contain the obligations and rights that affect ownership. As shares of stock to a corporation are being bought, it is important to determine the financial health of the corporation and any evidence of potential liabilities (including pending litigation) that may result in increases in maintenance or imposition of assessments. I feel the review of financial statements are so important (audited statements are preferred), that it is my practice to request a client’s accountant also review the financials as a second set of eyes.

Attorneys shouldn’t have all the fun. I will suggest that a purchaser of a cooperative apartment review the minutes of the meetings of the board of directors. This may be difficult if the corporation keeps very poor or no minutes of such meetings. I will give clients a list of things to look for in the minutes that may reveal the physical condition of the building and evidence how the coop conducts business. It is important that the purchaser review the minutes because they will be the occupant and each person is different. One person may think a certain condition at the building is perfectly fine. That same condition may cause another not to purchase an apartment in a particular building. Another good idea, depending on how shy a person is, is to travel to the building and ask people who look like they live there, how they like being in the building. If there are problems, you will hear about them. Try to speak to a few people to get a good cross section of opinion.

As contracts of sale typically are not contingent on performing due diligence, it is important that the financial and physical conditions affecting a cooperative apartment and the building be explored prior to going into contract. It is usually done at the same time the attorney is reviewing and negotiating the contract of sale. Doing so will increase the likelihood that the investment being made in your new home is a wise one. 

Advertisements

Selling a cooperative apartment-quick tip

Soon after entering into a contract for the sale of a cooperative apartment, order a payoff letter for the underlying loan being secured by the stock certificate and proprietary lease. By ordering a payoff letter, the lender holding your stock certificate and proprietary lease as collateral for the loan will start to the search; assign an attorney to receive the documents who will deliver them to the closing. Upon locating the stock certificate and proprietary lease the lender will send it to this law firm who will hold it until closing. Although the payoff letter can be ordered and updated on relatively short notice, locating the stock and lease may take some time. Ordering the payoff letter early assures the Seller that the stock certificate and proprietary lease will have them when needed. Ordering a payoff letter late in the transaction, may cause delays in closing while the bank locates these documents which will be needed in order to close. Be aware, sometimes lenders may lose your stock certificate and proprietary lease. The lender will issue an affidavit attesting to the misplacement of the stock and lease and indemnify the Seller and the managing agent from any liability resulting from the loss.