Coop Bylaws and Financials, Due Diligence and Auction Properties
Started by sisyphean
over 16 years ago
Posts: 152
Member since: Jul 2009
Discussion about
I apologize if many of these topics have been covered in other scattered discussions, but I thought it might make sense to bring them altogether in one topic. I’m interested in purchasing a coop in Queens that is up for sale. It is an estate sale and not a foreclosure. The coop will be sold on an “as is” basis at a public auction. If you win the auction you have to put down 10% on the spot and... [more]
I apologize if many of these topics have been covered in other scattered discussions, but I thought it might make sense to bring them altogether in one topic.
I’m interested in purchasing a coop in Queens that is up for sale. It is an estate sale and not a foreclosure. The coop will be sold on an “as is” basis at a public auction. If you win the auction you have to put down 10% on the spot and complete the transaction within 30 days. If you don’t go through with the transaction you lose your 10% deposit. As such, I’d very much like to do my “due diligence” before the auction as I don’t want to discover some major catch after putting 10% down and risking forfeiture.
I’d very much like to see the coop bylaws (especially regarding subletting.) I intend to live in the unit initially for at least two to three years, but I would like to know if I have the option of either temporary sublets if I must go out of the country for a year on sabbatical or the option of serial subletting if down the road I want a larger place. (The apartment in question is an inexpensive, one-bedroom coop in Western Queens in a 80 year old building.)
The apartment would need major renovation and so it would be nice to know the rules on renovations, and other such matters. For example, are dishwashers allowed, pets allowed, et cetera.
I’m also curious about the Building Financials. It looks well maintained but one never knows. I did not have time to call in a home inspector. The apartment seems to sag a bit from the exterior walls down toward the middle of the apartment causing some cracks in the walls, and there have clearly been water leaks from the apartment above from the toilet and one of the heating registers. The auctioneer does have a home appraisal on file though which I can see before the auction.
I tried calling the number listed for the coop and was blown off big time by the person answering the phone. Said person struck me as very unprofessional and showed no interest in providing me with any information about the building and made it clear he did not wish to speak to me. He told me to talk to the folks running the auction. When I spoke with the auction administrators, they said they never receive such materials from the coops they handle.
Outside of standing outside the building and asking tenants for info (which may or may not be accurate) can anyone suggest ways of getting important info about the coop before the auction? It is being held later this week so I don’t have a lot of time.
Is this just the nature of “as is” auctions and coop and government bureaucracies? How does one do due diligence when basic information is not provided?
Any practical advice on how to proceed?
On a more utopian plane, I am a bit mystified why more coops don’t just put bylaws online where they are publically accessible. Aren’t these quasi-public records? Wouldn’t it make sense to require such info be posted where it is publically accessible given fair housing laws? Wouldn’t it spare coops the time spent responding to requests such as mine – which seem to be a perfectly rational request?
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Response by JuiceMan
over 16 years ago
Posts: 3578
Member since: Aug 2007
I would hire a good real estate lawyer to help you with the diligence. Most likely, they will contact the management company for the co-op and request the information you require. You could probably do this yourself, but I would highly recommend hiring someone that can get you through the nitty gritty details. If you are unable to gain access to the information or execute the diligence you mentioned above, walk. These auctions are usually best for experienced real estate investors and most that purchase in these environments have an inside track on information or can take large capital risks. Kudo's for thinking about these things ahead of time, you sound like a savvy buyer.
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Response by 30yrs_RE_20_in_REO
over 16 years ago
Posts: 9880
Member since: Mar 2009
"Any practical advice on how to proceed?"
The person answering the phone works for the Coop on a fixed fee, not for potential Public Administrator Sale purchasers. They have probably been getting 100's of calls requesting all sorts of information from all sorts of parties, none of whom they owe the time of day to.
So, first call the Public Administrator's Office and see what documents they have. Then, if you don't morally mind wasting someone's time who works on a commission basis, find another listing in teh building, set up an appointment to see it, make a bid on it, and say you will only raise your offer after seeing the Coop document s you want to see.
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Response by sisyphean
over 16 years ago
Posts: 152
Member since: Jul 2009
Thanks you both JuiceMan and 30yrs_RE_20_in_REO.
As for 30yrs_RE_20_in_REO, I've been reading the boards here for a while and I've always found your commentary exceptionally well-informed and insightful - completely BS-free! Count me as a fan!
After all this bubble malarkey I was actually starting to think that no one in RE/REO knew what the hell they were doing. Apparently you learned quite a bit.
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Response by tenemental
over 16 years ago
Posts: 1282
Member since: Sep 2007
Good advice above. I would add that you can get a tremendous amount of info at www.propertyshark.com, most of it for free. There's a collection of filings from DOB and HPD, permits, etc. You may find some red flags here that put an end to your interest before going any further.
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Response by sisyphean
over 16 years ago
Posts: 152
Member since: Jul 2009
Tenemental. Thanks for the advice. I did find very useful info on ps.com.
In other news, I was able to speak to the Coop's rep on the phone today, and at least got him to address the subletting issue. While obviously, I'd prefer to have this info in writing, I'll take what I can get. As I understood him, he said that "officially" you have to file paperwork for the tenant, but he implied that no one does, and I think he implied that no one follows up on it. He made a point of saying it is “not a regulated sublet."
I spoke to a friend about this conversation, and they suggested that some coops essentially practice, "don't ask, don't tell" with respect to sublets. I intend to live in the building for at least a few years, but would like the option to sublet if my situation changes. (Also, I expect housing prices to be down for at least 5 years, so I'd prefer not to resell for a good long while, if that situation arises.)
Would anyone here like to comment on whether I'm interpreting the sublet conversation correctly? My understanding is that some boards are extremely anti-subletting, while others are relatively loose.
Does anyone know if there is a relationship between the relative cost of the apartments/building and their policies toward subletting. My impression is that less expensive coops tend to be more lax wrt subletting, and more expensive ones are very anti-subletting, but I don't have that much experience. For the record, I think the highest an apt has sold for in the building in question in the last 5 years is $250K.
THat said, propertyshark only has 9 sales on record for a building with about 100 units. Does that mean people are subletting rather than selling, or does that just mean that people are happy where they're at and staying put?
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Response by sisyphean
over 16 years ago
Posts: 152
Member since: Jul 2009
To add to my own thread, I was debating a friend over drinks this evening about the status of Coop Boards wrt foreclosure sales. I am under the impression that Coops can reject foreclosure sales. My friend disagreed. I was able to find the following summary (at bottom) of one case online that would seem to support my argument.
I'm wondering if anyone else here is familiar with this issue? Can Coops reject foreclosure sales? And if so, do they do so very frequently? In the case summary, they specifically refer to the terms of the proprietary lease (is that the same as bylaws?) Would the ability to reject a foreclosure sale depend upon the Coop bylaws? If a foreclosure sale is rejected, what recourse does the purchaser have? Flipping the property? Voiding the sale?
Extra for experts. Assuming Coop boards can reject foreclosure sales, given that HDFC buildings typically have income restrictions, would it be legal for them to accept someone who purchases a foreclosure sale but has income above those limits?
Coop Board Rejection of Foreclosure Sale Upheld
Paley Management Corp. ("Paley") acting as agent for 244 East 60th Street Owners Corp. rejected the purchase application of Allison Aridas ("Aridas") for the purchase of a cooperative apartment which was the subject of a bank foreclosure by the Dime Savings Bank of New York. Aridas brought an action against Paley, alleging that Paley had wrongfully refused to give its consent to the sale of the apartment to Aridas, and sought an injunction directing Paley to consent to the sale. Aridas also asserted claims against the Cooperative Corporation and its president, for intentional interference with contractual relations, seeking compensatory and punitive damages. Aridas also asserted that under paragraph 17(b) of the proprietary lease, the sale was only subject to the approval of the managing agent, which approval "shall not be unreasonably withheld".
Paley and the Cooperative asserted that the application submitted on behalf of Aridas to the Cooperative Corporation made the sale subject to their approval. Further, the Cooperative and Paley asserted that the rejection of Aridas was based upon "financial deficiencies" - bona fide economic considerations. Justice Marilyn Shafer of the New York Supreme Court ruled that by submitting the application to the Cooperative, Aridas has relinquished her claim that only the managing agent could decide whether to approve or reject her application. Further, since Aridas failed to show evidence that the Cooperative or Paley had acted in a manner which wrongfully interfered with her contract for the sole purpose of harming Aridas, or that they had committed independent torts or predatory acts, the Court ruled that the tortuous interference claim must also be dismissed.
I am ALL TOO FAMILIAR with actual cases on this issue, having been personally part of way too many of them.
Firstly, it depends on what it says in the Offering Plan and Proprietary Lease. The language is most commonly found in paragraph 17 (as above). The language there is typical to MANY leases (most notable exception that I know of are the MJ Raines conversions like Lincoln Towers, Eastgate, Southgate.......).
The problem usually comes in the form of a privity issue: the courts have ruled mostly that since the buyer at foreclosure is not a party to the Proprietary Lease, they can not sue to have a provision in it enforced, on;y someone with "privity" could. So, obviously the foreclosed owner could sue, but that's not too likely. The issue, which I'm not sure has been tested yet, is what would happen if the foreclosing bank brought suit?
As far as HDFC Coops go, it's also a tough questions because an awful lot of them (up in Harlem anyway) have been disregarding the guidelines on REGULAR sales for quite a while now. one of the reasons this is meaningful is that these same Coops have HUGE flip taxes, a bunch of which are supposed to go back to HDFC and they are not imposing them, because they don't want to pay 70% of their windfall to the Coop and HDFC. But there's a LOT of money which isn't being paid to HDFC which should be.
I would hire a good real estate lawyer to help you with the diligence. Most likely, they will contact the management company for the co-op and request the information you require. You could probably do this yourself, but I would highly recommend hiring someone that can get you through the nitty gritty details. If you are unable to gain access to the information or execute the diligence you mentioned above, walk. These auctions are usually best for experienced real estate investors and most that purchase in these environments have an inside track on information or can take large capital risks. Kudo's for thinking about these things ahead of time, you sound like a savvy buyer.
"Any practical advice on how to proceed?"
The person answering the phone works for the Coop on a fixed fee, not for potential Public Administrator Sale purchasers. They have probably been getting 100's of calls requesting all sorts of information from all sorts of parties, none of whom they owe the time of day to.
So, first call the Public Administrator's Office and see what documents they have. Then, if you don't morally mind wasting someone's time who works on a commission basis, find another listing in teh building, set up an appointment to see it, make a bid on it, and say you will only raise your offer after seeing the Coop document s you want to see.
Thanks you both JuiceMan and 30yrs_RE_20_in_REO.
As for 30yrs_RE_20_in_REO, I've been reading the boards here for a while and I've always found your commentary exceptionally well-informed and insightful - completely BS-free! Count me as a fan!
After all this bubble malarkey I was actually starting to think that no one in RE/REO knew what the hell they were doing. Apparently you learned quite a bit.
Good advice above. I would add that you can get a tremendous amount of info at www.propertyshark.com, most of it for free. There's a collection of filings from DOB and HPD, permits, etc. You may find some red flags here that put an end to your interest before going any further.
Tenemental. Thanks for the advice. I did find very useful info on ps.com.
In other news, I was able to speak to the Coop's rep on the phone today, and at least got him to address the subletting issue. While obviously, I'd prefer to have this info in writing, I'll take what I can get. As I understood him, he said that "officially" you have to file paperwork for the tenant, but he implied that no one does, and I think he implied that no one follows up on it. He made a point of saying it is “not a regulated sublet."
I spoke to a friend about this conversation, and they suggested that some coops essentially practice, "don't ask, don't tell" with respect to sublets. I intend to live in the building for at least a few years, but would like the option to sublet if my situation changes. (Also, I expect housing prices to be down for at least 5 years, so I'd prefer not to resell for a good long while, if that situation arises.)
Would anyone here like to comment on whether I'm interpreting the sublet conversation correctly? My understanding is that some boards are extremely anti-subletting, while others are relatively loose.
Does anyone know if there is a relationship between the relative cost of the apartments/building and their policies toward subletting. My impression is that less expensive coops tend to be more lax wrt subletting, and more expensive ones are very anti-subletting, but I don't have that much experience. For the record, I think the highest an apt has sold for in the building in question in the last 5 years is $250K.
THat said, propertyshark only has 9 sales on record for a building with about 100 units. Does that mean people are subletting rather than selling, or does that just mean that people are happy where they're at and staying put?
To add to my own thread, I was debating a friend over drinks this evening about the status of Coop Boards wrt foreclosure sales. I am under the impression that Coops can reject foreclosure sales. My friend disagreed. I was able to find the following summary (at bottom) of one case online that would seem to support my argument.
I'm wondering if anyone else here is familiar with this issue? Can Coops reject foreclosure sales? And if so, do they do so very frequently? In the case summary, they specifically refer to the terms of the proprietary lease (is that the same as bylaws?) Would the ability to reject a foreclosure sale depend upon the Coop bylaws? If a foreclosure sale is rejected, what recourse does the purchaser have? Flipping the property? Voiding the sale?
Extra for experts. Assuming Coop boards can reject foreclosure sales, given that HDFC buildings typically have income restrictions, would it be legal for them to accept someone who purchases a foreclosure sale but has income above those limits?
Coop Board Rejection of Foreclosure Sale Upheld
Paley Management Corp. ("Paley") acting as agent for 244 East 60th Street Owners Corp. rejected the purchase application of Allison Aridas ("Aridas") for the purchase of a cooperative apartment which was the subject of a bank foreclosure by the Dime Savings Bank of New York. Aridas brought an action against Paley, alleging that Paley had wrongfully refused to give its consent to the sale of the apartment to Aridas, and sought an injunction directing Paley to consent to the sale. Aridas also asserted claims against the Cooperative Corporation and its president, for intentional interference with contractual relations, seeking compensatory and punitive damages. Aridas also asserted that under paragraph 17(b) of the proprietary lease, the sale was only subject to the approval of the managing agent, which approval "shall not be unreasonably withheld".
Paley and the Cooperative asserted that the application submitted on behalf of Aridas to the Cooperative Corporation made the sale subject to their approval. Further, the Cooperative and Paley asserted that the rejection of Aridas was based upon "financial deficiencies" - bona fide economic considerations. Justice Marilyn Shafer of the New York Supreme Court ruled that by submitting the application to the Cooperative, Aridas has relinquished her claim that only the managing agent could decide whether to approve or reject her application. Further, since Aridas failed to show evidence that the Cooperative or Paley had acted in a manner which wrongfully interfered with her contract for the sole purpose of harming Aridas, or that they had committed independent torts or predatory acts, the Court ruled that the tortuous interference claim must also be dismissed.
Source: http://www.ganferandshore.com/sub/March6.jsp#sale
I am ALL TOO FAMILIAR with actual cases on this issue, having been personally part of way too many of them.
Firstly, it depends on what it says in the Offering Plan and Proprietary Lease. The language is most commonly found in paragraph 17 (as above). The language there is typical to MANY leases (most notable exception that I know of are the MJ Raines conversions like Lincoln Towers, Eastgate, Southgate.......).
The problem usually comes in the form of a privity issue: the courts have ruled mostly that since the buyer at foreclosure is not a party to the Proprietary Lease, they can not sue to have a provision in it enforced, on;y someone with "privity" could. So, obviously the foreclosed owner could sue, but that's not too likely. The issue, which I'm not sure has been tested yet, is what would happen if the foreclosing bank brought suit?
As far as HDFC Coops go, it's also a tough questions because an awful lot of them (up in Harlem anyway) have been disregarding the guidelines on REGULAR sales for quite a while now. one of the reasons this is meaningful is that these same Coops have HUGE flip taxes, a bunch of which are supposed to go back to HDFC and they are not imposing them, because they don't want to pay 70% of their windfall to the Coop and HDFC. But there's a LOT of money which isn't being paid to HDFC which should be.