Mortgage declined due to coop ownership

Yes. Proceed at a run away from this building, and send the lender's employee a dozen roses.

If you really want it, ask why. If you still really want it, find another lender, like one who is shown in ACRIS to lend to the building already, and while you wait, get a price reduction from the Seller. Go find another place or pretend you are doing that for leverage.

Flutistic, you might be right but I hope I can still make it work.

The first reason is the building is more than 10% sponsor owned. The building is only 9 units so the one sponsor unit constitutes 12% of ownership. Also, the building is less than 50% owner occupied but will be 62% once we move in.

Checking ACRIS is good idea, crescent22. I wonder how many Fannie Mae exemptions are approved?

Thank you so much for your thoughts,guys

2013:

1. your lender sounds very impractical and mechanical
2. try other lenders

3. also, what neighborhood is your building in

The building is a smaller one in Brooklyn Heights. It looks like the coop was unprepared and submitted insufficient and inaccurate documentation. It was pulling teeth to get anything from them

If it's a small, self-managed building, I'm not surprised.

The building may not know what it needs to do, and/or that less than total owner occupancy puts it at risk -- especially if there have been no recent sales and if there's no underlying mortgage.

I live in a seven-unit building that only discovered the above when it was initially rejected for an underlying mortgage. Since then, we've moved to an extremely strict (one unit at a time, one year only with no renewals) sublet policy.

You may want to understand more about the building's future intentions. If it does NOT intend to change policies, you could be left with an unsellable unit that only cash buyers could consider. Be careful.

I've represented buyers in Brooklyn who got mortgages in small, self-managed buildings. Your loan officer can walk you through what substitute documentation the lender will take (for example, formal financials as we think of them might not exist, but a running record of expenses that shows what the corporation is spending its money on and when will probably be acceptable in lieu of a P&L). It is also the job of the selling broker to help you out with this.

Frankly, in a nine-unit building pretty much every owner is on the board, so you can comb ACRIS, or you can just ask the seller to ask her neighbors what lenders they have their mortgages with.

I realize this is a pain in the tail but it is certainly not the end of the road.

On the other hand, self-managed buildings are sort of a very specific taste -- lad has been a great resource on these boards talking about pros and cons -- and this is probably a good inflection point at which to ask yourself if you want to be shoveling your own snow and taking out your own garbage.

ali r.
{downtown broker}

lad's last point might get you a lower price too. you can say truthfully, look, we didn't realize how illiquid these details made it to get a mortgage. we need to get in cheaper for the risk we take in getting out. you (seller) didn't know about this either since you haven't helped us, so you need to adjust your expectations too.

Maybe Aboutready could help. Her husband is an equity partner at a top law firm, yet they were denied for a mortgage and had to switch banks. Maybe she could give some insights.

It is a good idea to see what their future intentions are if I can discern this without alienating the coop board.

It is a lot more work in a smaller building especially since, it seems, things are not being managed well.

I wonder how seriously the mortgage companies take the 25% investment in building guideline. Our bank did previously lend to the building a few years ago but won't for this loan.

A lower price would be nice.

Thank you so much. You advice is helpful and really encouraging

Your lawyer can ask whoever is filling out the co-op's paperwork (probably the Treasurer) which lenders have loaned to the building recently. For the most recent sale in our building, the seller sent out three contracts in a bidding war (don't get me started!), and all three lawyers asked me for a list of lenders. Of course, ACRIS will also give this to you.

My small building -- and many that I know of -- make decisions over e-mail v. having a true "board." (We have a "board," and a once a year board meeting, but 90+% of building "management" is done over e-mail.) Your seller is likely on the board or closely connected to it. I'd see if your agent can go to the seller's agent and try to find out a little more about what's going on.

The seller can also sometimes pressure the Treasurer (or whoever is managing contact for the building) to provide more info. The paperwork is a pain in the ass. I estimate I spent at least 40 hours of my time on our building's last sale. I wouldn't blame anyone for providing the minimum and letting the attorneys ask for what's most important.

At least in my building, we welcome questions about future intentions from potential buyers. After all, a person buying into the building is quite likely to be on the board within the year. For better or worse -- and yes, yesterday was one of those days when I was out de-icing our steps because our maintenance person was AWOL -- you're buying into a true partnership. In most buildings, you are "supposed" to say you might be interested in a committee or something, but you don't want to be on the board. In most small buildings, it's critical to emphasize that you want to be VERY INVOLVED. Running a small building is hard -- harder than even a single family house because you have to herd cats and deal with politics. There are two "profiles" of buyers we don't want: people who pay late or not at all, and owners (absentee or otherwise) who sit back and expect others to fix their problems. We always ask buyers whether they specifically targeted smaller buildings, and why. The correct answers are "yes," and a mix of "appreciation for unique spaces" and "wanting to be actively involved in the building."

I'd not worry about alienating the co-op board in this instance. If you do, you're better off not buying into this building.

I suspect our building spent about 10 minutes gathering paperwork: A 2011 financial statement and last year's taxes. Only once I told the seller's broker the building was in danger of being declined did the coop pass on the offering plan and a the phone number of their lawyer. There is just the building president involved, it seems, and he just don't seem to understand how essential this is. Hopefully, the building being declined will shake him up a bit. To quote the seller's broker, "he doesn't like to be bothered".

The building is about half investor units with no involvement, including our seller.
We were planning on being very involved and I appreciate being part of the decisions on how money is being spent, unlike in huge coops.
I appreciate you reiteration about asking them more questions and not being afraid to alienate them. I do think the people in the building are probably reasonable and nice, however, they just do not seem to be accessible enough. Our broker is a little concerned about us making waves but I would be more concerned about buying blind

Again, none of this is surprising. When you have a sale, on average, once every five years, things like this tend to happen. Especially if you have a lot of long-time residents who may not be the most financially savvy. When we bought into the co-op, everything existed only on paper, and divided among 3 or 4 different people. Person A didn't necessarily know what Person B had, and vice versa.

One of the first things I did when I moved into my building is locate and scan everything I could. The offering plan we were given was missing amendments. (Fortunately for us, none were too bad!) My co-op did not even have a certificate of incorporation. I had to send away for an authorized copy. Four years later, I'm still discovering things we should be doing but haven't been, although each year gets a little better.

Based on what you describe, the other owner-occupants in your building should be relieved you're considering buying. Do you have minutes? Do you know the sublet policy? Have the other owners tried to change it / make it more restrictive? (Hoping for you that the answer is yes.) Any other indications that the building is doing everything it can to get the owner-occupancy ratio up-up-up? (E.g., restrictive sublet fees, raising move-in or move-out fees, etc.?)

Good luck! Happy to help however I can.

2013nyc:

1. that owner occupancy isue is largely the result of vestigial thinking and memory

2. it mattered in the real estate meltdown of the late 1980's to mid-1990's because
large numbers of Coop Sponsors went bankrupt owning 50-80% of their Coops after
encumbering theie Coops with unsustainable mortgages which resulted in increased
maintenance charges such Sponsors coukd not pay because the apartments they had
retained were occupied by low rent rent-stabilized or rent-controlled tenants

3. things are different today: what matters in economic terms is whether the remain-
ing Sponsor apartments make or lose money on a monthly operating basis

4. if they do - and I believe that in most instances the Sponsor blocs do - their con-
tinued ownership by a sponsor does not present an economic threat to a Coop or to
its ability to service its underlying mortgage, current or new, as long as the Sponsor's
positive cash flow is stable and unlikely to reverse

If you have the offering plan and one set of recent financials you're not in terrible shape. I can name you three fancy Manhattan managing agents that would take six weeks to produce master certs of insurance, so having to chase building documentation is a problem that lenders are definitely used to dealing with.

The next question is "where are the 2012 financials"? If previous financials exist but current ones don't, does that mean that the building's treasurer retired or moved out? That might be a red flag to me.

But again, if they simply haven't been drawn up, that's not the biggest task in the world.

ali r.

I may be able to help. My bank can lend on unwarrantable condo's & co-op's.

James Giacalone, Mortgage Banker NMLS# 482256
The Federal Savings Bank | 120 Broadway, 29th Floor, Suite #2950 | New York, NY 10271 | USA
direct: (646) 568-3644
email: jgiacalone@thefederalsavingsbank.com
web: www.thefederalsavingsbank.com/jamesgiacalone

All of this is really helpful insight. Thank you so much you guys are such a wonderful resource!