Co op interview and financials

if the board approves you conditionally and then you don't meet the conditions (e.g., money held in escrow for xx amount of years), it would be the same as the board not approving you.
i was on the board of a small, self managed co op and we didn't like the buyers' financials so we asked them to put money in escrow. they declined and we ended up allowing them to buy anyway... i wouldn't put too much stock in a nasty attorney. everyone's goal is the same- to close.

I wrote a really long essay as my first response to this post, but I just canned it in favor of: "why on earth does seller have a case to take your escrow money back?"

You signed a contract thinking that you had the financial resources to buy this apartment. Then you had some kind of illiquidity event or reversal, and you successfully scrambled to have your network -- in this case your family -- help you out.

The lending bank still thinks you have the financial resources to buy the apartment. Unless you're lying to them, you're in a decent position.

It's possible that the board has seen an influx of money from your family come into your checking account, so they might want to see affidavits to the effect that those monies are gifted, but in my experience they ask for those before the board interview, not at it.

Try to go into the interview without being anxious on that point, and instead work on communicating why you initially loved the apartment, and how you'll be a responsible and helpful neighbor.

ali r.
{downtown broker}

p.s. technically, let's call that money the "contract deposit." Calling those funds "escrow' is more common in California than here.

I wouldn't worry too much. In general, if you have a board interview then you're more or less approved, and the interview is more of an opportunity to get to know you and lecture you about the rules - most rejections happen before the interview.

Also, presumably you told the seller (and/or their broker) about your financial situation, and they accepted your offer on that basis. As long as you were honest about it, any subsequent rejection is as much their fault / problem as it is yours, and the ordinary course of action in that event would be to return your downpayment (if not your application fee) and everybody calls it a day.

Hi All.
Thanks for the replies. Need some more help here based on the latest developments. Things turned out differetnly than what most of you thought. I had the board interview and they asked me to put money in escrow, given my financials are tight. I obviously don't have anything left to put aside, so I said that due to the bank requirements, I didn't have money left. They obviously said they will reject me, and said that "the lawyer and broker should have prepared me better". Now, here is my biggest problem. I knew I'm going to have liquidity issues after signing the contract, and the lawyer of the sellers was building a case around me "playing around" when I couldn't get the mortgage approved. The contract says very clearly that if the board rejects me, i get my money back. Can I really sleep safely? can the seller argue that I acted in bad faith going into the contract and not having money to pay for maintenance when I was "forced" to close a mortgage and didn't have any more money for liquidity? I'm really lost here and I'm so worried about my 10% deposit. Thanks very much!

It is extremely unlikely that the board would grant an interview if it considered your finances problematic. Keep in mind that most rejections happen during the application review stage, and if the board were planning on rejecting you based on your financial situation they would not want to expose legally themselves by granting you an interview only to reject you afterwards.

Expose themselves legally I meant... sheesh. Long night.

Now I 'm sad I didn't write my longer reply, which included the line, "If they do want you to put money in escrow, find out who on the board is the point person for that, so your attorney can negotiate it, and you don't have to negotiate it in the heat of the moment."

However, let's assume that the outcome would have been roughly the same anyway. You now have options -- the power to close or not to close -- which is good.

But there are still details that are missing here ... what was the liquidity problem? Do you need to sell a property? Restricted stock? Is there a divorce involved?

Also, how much is the contract deposit? And how much does the board want to see in escrow? For how long?

Without knowing more, my general advice would be to just borrow the escrow (either from your family, off your credit cards, or through peer-to-peer lending), have your attorney negotiate to make the escrow as short as possible, and to work your way through the expensive short-term debt as fast as you can. Presumably you have some discretionary income, or you wouldn't have gotten even a conditional approval.

But I'm curious what your team (who should direct you, as they're closest to the situation) advises. Tell us more!

ali r.

ali r. thanks for the comments. I wish I did have a good team but I feel so unprotected by my lawyer and broker. I told them I'm not going to have enough financials and you can see that in the documents. The board said that they honestly don't want me to "eat catfood" for a year because I'm not going to have money left and that this is a lose-lose situation. I didn't want to say I agree, because I need them to reject me (which they did). The contract is very clear about what happens in a rejection, I get my money back. The question is if someone can argue that I should have known that the co op requirements are going to include that. I asked these questions, but my lawyer and broker didn'd prepare me well for the interview.

You should definitely consult you attorney vs an internet forum for this. But from general experience it would be very rare for a seller to take your contract deposit, especially since you legitimately got rejected. Taking someone's 10% deposit is a huge deal and obviously leads to lawsuits. I'd be very surprised if the seller and listing broker wants a lawsuit. It just doesn't happen in practice, especially for the professionals as it's quite bad for business.

With that said, your broker if you had one should have prepared you a bit more for the purchase application and interview (http://www.hauseit.com/nyc-coop-board-package-purchase-application/). You should have also signed up for a broker commission rebate since your finances are so tight. 1% of the purchase price at close would have helped you. Good luck!

Well, jco, I love co-ops and boards, so forgive me while I geek out on this.

But first, realize that I can't see the complete shape of this thing. There could be a lot of different scenarios: Maybe there were two sets of brokers who saw financials where you were a poor board candidate, and neither side flagged it. Maybe you were a decent board candidate and then you had a financial reversal. Maybe you omitted a material financial fact.

Also realize that any advice you get from strangers on the Internet is worth pretty much what you pay for it. Here's where I throw in the disclosure that I'm not an attorney, and that nothing I say should be taken as legal advice.

However, in general, the way forward from this kind of situation depends on where the break happened.

***

If, for example, you were in a certain financial situation and something materially changed (let me use the example that you were employed when you made your offer, but then lost your job between contract signing and closing) you probably shouldn't close. You do have a responsibility, outlined in your lending documents, to notify your lender of major changes in circumstances. To "forget" to do so would be to commit mortgage fraud. Make that notification, and the lender will probably pull the loan.

***

If, when you made your purchase offer, you submitted a true and complete REBNY financial form, and then after contract signing you had a liquidity event (let me use the example here that you owned an investment property, which you disclosed on the form, and then suddenly your tenant needed an emergency $20,000 repair) then arguably seller had the information to realize that you were a marginal board candidate, and he/she rolled the dice as much as you did, and you both lost.

***

If, when you made the offer, your REBNY was, let's say, "inaccurate," that's IMHO much closer to Bad Faith. You have a duty to, for lack of better language, not misrepresent, either positively or by omission of pertinent facts.

If you're in a situation where 10% of the purchase price is at risk, and the board has offered you a way to close, then you probably bull your way through.

In a situation like this, your side probably asks seller to take a small haircut on price, since a small haircut would be better than paying lawyers to tussle over the contract deposit and then having to re-sell the property into a declining market. Both brokers would pitch in a little of their commissions -- to Riddhi's point, discounting is not exclusive to discount brokers, so if you needed a slight commission cut from the brokers to close the deal, you could propose that. Commissions are always negotiable, and the brokers would probably prefer getting paid something to not getting paid at all.

And you would indeed be stuck eating catfood for a year, but that's probably better than losing your deposit.

Consider that, from pretty much everyone's POV, this "lose-lose" hypothetical would be the lesser of two evils.

But, like I said above, I'm just spitballing here, since I'm neither your broker nor your attorney and I don't know your full circumstances.

ali r.

A lot said here and I'm sure Ali offered some solid insight. I'm still puzzled that the listing agent/seller accepted your offer with not even a years worth of maintenance/loan payment liquid post close. Sounds like you did not have the funds even before you ran into a cash crunch. Sounds like both sides were anxious to get a deal signed without a thorough vetting of your qualifications.

Co-op 101 as I call it: 2 years post close liquidity and a 25% debt to income ratio. If you don't have this then ask questions. In a few cases where our client was well qualified in one area but not another or had a unique financial situation, we turn to the board for direction. Pre-contract signing if we are not sure if we will meet the boards requirements we submit a snapshot/explanation of the clients financials to the board prez or treasurer and ask for guidence. We are not looking for an approval just direction on whether we should proceed. It has been very effective even in cases where we had to twist the listing agents arm a bit because we felt we had a good case to proceed (and they didn't).

Keith Burkhardt
The Burkhardt Group

Hi All,

Thanks for your comments. Keith was putting it accurately. Everyone just wanted to get the deal signed and get their money. period. End of story is that I managed to get my money back. Completely agree there was no thorough vetting of my qualifications.