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Find the apartment of choice only to discover that the financial demands of the Coop require 2X purchase price (liquid) post closing in a 50% down building. Here's the rub, It's all good for me except I'm about 700K short in the liquid department. I've heard tale of endless possibilities of crafting plans for an end run around these requiements. For instance, could one loan 700K from a family member, stick it the bank and effectivly fib true liquid value with the intention of returning the 700K post closing?
Any ideas or thoughts?
It isn't really a "50% down building" if the board has such onerous requirements. It's more like a "you must already have 2.5 times the purchase price in cash in order to buy" kind of building.
Really, 2x the purchase price? Even 2x the annual maintenance is high. What could possibly be forcing them to have such a requirement?
You would have to "age" the loan for sufficient time in your acocunts that it didn't appear as a temporary transfer. Since most coop boards do not require more than the last 3 months of bank statements, aging the funds for 6 months should be fine. There is always the risk that one is asked where the funds came from and having to concoct a lie to cover what is essentially the fraud of the funds being yours. Then the coop could ask for proof of the facts you assert in the lie to cover the fraud. Another consideration is that the funds transfer is techinically a loan and as such subject to tax laws involving imputed interest to the lender and/or imputed income to you if the interest on the loan is forgiven. So your taxes will have to account for the transfer or you will have to also lie to the IRS.
But this is general and more what I'd expect in an average type purchase where some liquidity is required by a board. In the coop you describe, the building is obviously extremely strict (e.g., Park Ave or Fifth Ave exclusive building). They aren't stupid. They are obviously serious about the entry requirements and may be expected to demand more documentation than an ordinary coop in terms of source for funds you claim support your liquidity. That may include bank statements from a year prior or even two or more.
A final consideration is this: if the board rejects you based on not being satisfied about your liquidity, and you attempted to fake your liquidity with the loan you propose, the seller (if she were to learn of what you did to scuttle the deal) could decide you acted in bad faith and then refuse to return your escrow deposit. Voila: litigation. And all the while you are out the escrow funds while they are tied up.
My advice: act honestly in all one's dealing.
all kyle said applies--but these loan situations are done all the time--and definitely season the money so you can provide stmts showing it as having been there all along--and try to time the purchase so you have repaid said loan prior to that year's end, if you want to keep the tax situation simple
this bldg is strange--i have never heard of a 50% bldg requiring liquid in excess of 2 times the face val of the apt
i owned in a 50% bldg (b UES pre-war), but all they required in liquid in excess of down pmt was 48 time the monthly mtge pmt mntnce
not sure why this isnt just one of the many all cash bldg's which then requires add'l liquid equal to face value of apt
you sure youve got this right?
$700K in the bank account of someone who couldn't reasonably have saved it himself is always a red flag, whether you've "aged" the funds as kylewest has suggested or not.
And what would you do about your tax liability? Tossing nearly a million bucks in your bank account will not go unnoticed by the IRS, I assure you -- banks have a responsibility to report all deposits over $5,000 to the federal government. How will you explain to the IRS where that money came from ... and even more importantly, will that family member be willing to part with $300K or so of it to feed the federal coffers just for your little charade?
YOU CANNOT AFFORD THIS APARTMENT.
It's been done, though, as KW points out, a building that strict might possibly hire a forensic accountant, so aging the funds for three months to bypass "usual" credit check requirements might not be enough.
What does the listing broker say?
DG Neary Realty
I thought this post was about something else....
Those requirements seem strict for anything but the unattainable park and fifth ave buildings, where I can't imagine someone as liberal as you (falco) would want to live. You are not telling us everything here.
Another thread with a certain poster contributing blatantly incorrect tax advice. Shocking.
never heard of such a building? There are plenty. I'm not sharing this one but an example of a similar situation is at 1056 5Th Ave. requires 1.5X liquid post close 50% down. In fact there are quite a few buildings that require significant liquid assets & anual salires.
In fact what I like about these buildings is the better than average price and reasonable carry.
Let's say the apartment is 2MM. That means that I need a little north of 5MM to be considered.
If I have about 4.3M liquid and I have the steady income I'm just 700K short...
Could hit family for a temp loan of 700K...very tricky
"banks have a responsibility to report all deposits over $5,000 to the federal government."
It is $10,000 in CASH deposits that have to be reported.
i don't know anything about possible tax consequences but i would guess that with numbers like what you're talking about that the extra 700K sliding in a few months before the transaction could be explained as a transfer as a capital gain from the sale of an interest in a business that you don't wish to discuss further.
i have heard of securities being transferred and then returned--i'd be suspicious of 700k sitting in cash
falco--i live, i learn--seems odd that if you need so much liquid on the side of 50% down, these bldgs arent simply all cash.
and YOU CAN AFFORD THE APT if you have 4.3mm liquid, and the apt costs 2mm--if you love the place and can arrange the financial window-dressing without duress, do it
matt, you seem jealous---dont worry, you are in good company--there are many board members who wouldnt qualify in their own buildings--maybe even a few in washington heights
Yes, Needsafvice, the thought of the federal government trying to analyze the billions of transactions over $5k had me amused! But the tax issue is easily solved. You need a loan agreement specifying a market interest rate (which fortunately for you is close to zero). I've made a short term loan to someone (that I trusted a lot) under similar circumstances. As long as you document the loan and have bank records with cashflows consistent with the loan agreement, you'll be ok from a tax perspective.
Kylewest points out other meaningful obstacles and you might be forced to dig a deeper and deeper hole to keep the lie going. Can you forge old bank statements? Can you have people lie for you concerning the source of funds? I'm sure it's done all of the time, but think about how bad you really want this unit!
And good luck to you.
Falco: I lend you the 750k at 10%, ok?
why am I not a Coop board member?
Because I'm shopping?
Come on truth...imagine the possibilities that transend snarky comments.
If I do buy, I'm still not selling the Coop I own which is not my primary residence or the Condo I own which is rented out or the commercial property which I own which is also rentals. Not a mogul, just a small fish in a big pond trying to fetch a prize.
Falco - Is it coop's general requirement that applicant have 2X purchase price after 50% down or are they asking for number specific to your situation given the other properties you are carrying? In other words, I could understand a coop's requiring higher liquidity for someone who has other properties with carrying costs.
I ask because my husband and I were just talking through a scenario where we technically would meet a generic requirement but would hope that a sensible coop would require more of us given carrying costs of another property we are not willing to part with. Were I managing a coop, I'd want to make sure any applicant had enough liquidity to cover carrying costs of all illiquid assets for some period of time in the event income stream dried up for whatever reason (loss of job, disability, etc.).
The mystery...the Coop is a commercial unit in a res. building from which I operate a business.
I live with my family in a rental unit.
Falco - thank you for solving mystery and good luck with purchase.
I always advise clients to be completely honest in all dealings and subscribe to that course of conduct myself; this thread was most interesting to me because Yikes appears to be okay with a purchaser's fudging the truth here, and I generally find him to be a poster who advocates integrity, so it suggests to me that in NYC, this is not frowned upon. We were also at a dinner not that long ago in a beautiful residence in an all cash building where two people at the table were discussing ways of circumventing all cash requirements. They laughed at the shock on my husband's and my faces and teased us about our midwestern sensibilities.
These are the requirements period. As told to us by the listing agent at an OH. I did ask...
NYCNovice: it is not any kind of standard operating procedure that people are advised to be dishonest in coop purchases in Manhattan. FWIW, my position on this is without caveat or exception: be honest in your dealings. One, because it is simply the right way to conduct oneself in life. Two, lies come undone in all sorts of unanticipated ways, and in a real estate transaction of the sort discussed here, the escrow funds are most definitely at risk if the deal is entered into based in any way upon reliance on a fraud purpetrated by the buyer. The escrow on a $2MM unit is $200K. That's a lot of money to tie up for a couple years in litigation (not even counting the legal fees that could accrue) and to potentially lose. If a club doesn't want you, either fight to change the rules or walk away--but don't shoehorn your way into somewhere you don't belong by lying.
Kylewest - totally agree. I would not want to be part of any coop that did not want me "as is," and would never fudge anything on application for a host of reasons, most basic of which I think is that it is simply not in my DNA. Glad t hear it is not SOP in NYC.
Re above requirements-you should also consider how difficult it will be to sell this apt. Buyers who meet these requirementsare few and far, so unless you want to spend the rest of your life there, be careful.
Is this in Sutton Place?