Lending rules in small coops--re: the 10% rule

alanhart: about 9 months ago

Re: coop-to-condo conversion ... I thought the big issue is that the IRS considers it a sale of the coop shares, thus subject to capital gains. For shareholders who bought long ago, at insider prices, that can be very unappealing. Has that changed?

KeithB: about 9 months ago

You will be able to get competitive rates from portfolio lenders as this 10% rule does not apply to them.There are a number of buildings in the city that fail to meet the new banking requirements, Park West Village is one. Another thing to discuss with a mortgage broker/banker would be whether an owner/occupant owning more than 10% of the shares is treated the same as a non-occupant investor (such as the former sponsor which is usually the case in these scenarios).

Keith Burkhardt
TBG

lad: about 9 months ago

ljr, seems low risk for # of shares.

I would recommend talking to an attorney about allowing two separate people to each own half of a combined unit. Seems like there could be some potential risk to the co-op. Not as much risk as if there were debt on the unit, but still.

deanc: about 9 months ago

I dont know why anyone suggested changing the co-op to a condo....thats dumb and just makes the lawyers money.

Firstly having gone through this recently here is some actual real world feedback......

In 2008 we purchased 2 units in an 8 units brownstone, the bank gave us a form that said please list anyone in the building who owns more than 10%..... I replied this is dumb....everyone owns more than 10% (eg 12.5%) and our purchase is going to take us to 25% (eg 2 units of the 8), the bank said oh yeh....lets ignore that part...and they moved on.

its irrelevant how much the co-op owns in the underlying mortgage or what the LTV ratio is, just get your bank to waive it and no one will care.

ljr: about 9 months ago

lad: the combination unit would own 20% of the shares...actually one unit will be owned by the wife and one by the husband separately, so each of them would have 10%....converting to condo would not make any difference because the 10% thing also applies to condos...

sjtmd: about 9 months ago

Looked at a coop building in Brooklyn - a single sponsor owns 67 of 205 shares (32.7%) - 18 of 59 apartments. Was very uneasy about this and walked away from a deal. Was I over anxious?

rb345: about 9 months ago

lad:

1. you can convert to condo using exact same % allocation

lad: about 9 months ago

What % of the shares would the seller own?

I'm in a building of seven units with shares of 18%, 17%, 17%, 16%, 13%, 9.5%, and 9.5%. We have never had problems with anyone getting share loans or with qualifying for an underlying mortgage.

That said, I think we would probably reject any combination that left one shareholder with more than 33% of the shares, as it then gives that one shareholder veto power over everything requiring a shareholder vote.

NWT: about 9 months ago

Oops, the new condo is lots 1401-1423.

NWT: about 9 months ago

The building that's now the http://streeteasy.com/nyc/building/m-at-beekman condo used to be a co-op.

The shareholders decided to sell out to a developer. To do that, they did this:

-- They formed a condo in 2004, with the co-op as Declarant. (Block 1343, lots 1201-1234.)
-- The co-op deeded each apartment to its occupant.

That was simple, since the co-op had no mortgage and the shareholders had no share loans. Then,

-- Each occupant sold her apartment to the developer. (Those the sales you see for $327,250 each.)

Once the developer owned every unit, he dissolved the condo, formed a new one (lots 1401-1434) and proceeded to rebuild the building.

I don't know why the co-op didn't just sell the whole thing to the developer, skipping the condo stage, and then divvy up the proceeds among its shareholders. Maybe some tax issues.

rb345: about 9 months ago

marco:

1. I spoke to AG's office about this issue some years ago
2. there is no logical reason its policy should have changed since then
3. the office which administers coops/condos is Real Estate Finannce Bureau
4. its direct line is 212-416-8123
5. when we spoke all that was required to change from Coop to Condo
6. was to send the REFB a letter stating that a particular Coop had changed into a Condo

7. but there are other non-filing requirements
8. you will need an architect to create and file tax plats for each apartment
9. you will also need to issue Deeds to replace Stock Certificates and Proprietary Leases

10. the real issue is debt

11. you will need to pay off your Coop Underlying Mortgasge unless your lender agrees to
accept the Condo's Common Elements, i.e., hallways, roof, elevator, as collateral for
its loan instead of rhe whole building

12. if Underlying Mortgage is relatively small its holder might
13. or a different lender might finance payoff of tghe Underlying

14. shareholder apartment loans will also have to be adjusted
15. there willbe a paperowrk/attorney's fee expense for each apartment
16. but that should be readily doable because condos are worth more than coops

Hope this helps

marco_m: about 9 months ago

whats involved with coop to condo conversion ? we have a small mortgage. definitely under 20% LTV.

rb345: about 9 months ago

ljr:

1. do you have a large mortgage on your Coop
2. if you dont you should consider converting to condo
3. the NYS Attorney General lets small coops do so very cheaply
4. call 212-416-8123 for nore information about its procedure

ljr: about 9 months ago

We are a 10-unit coop and one of our longtime shareholders wishes to buy a second apartment and create a duplex for his growing family. We are concerned about the lending guideline that states that no more than 10% of shares are to be held by "one entity." In this case, the husband will own one unit and the wife the other. Will this be a problem for banks lending to owners/prospective owners in the future? (This shareholder will be buying for cash and will not need financing.) I have been told that the 10% guideline mostly is aimed at instances of investors snapping up a lot of apartments--that sort of thing. Not a resident shareholder owning more than one living space. Advice is urgently needed on this since if we do not approve this plan, the shareholder needs to move to a larger apartment before baby #3 arrives.