ARM Resets: Tsunami Ahead

dco - nope, no positive indicators - that's how it always is, though, when things bottom out - it's hard to know whether we're at the top of a long, slow slide down to a stagnant period, or whether we're in the stagnant period or ... or .... there is no way to predict when positive indicators will pop up, or how many of them, or what they will be. I don't think a higher dollar is a negative sign, though. And Prez election years often feel like this one, people holding back on all major strategy decisions.

Steve, you aren't a lawyer and you are not using "ultra vires" correctly.

Q: What do you call someone who holds themselves out as an expert in accounting, law, real estate, micro and macro economics, history, and finance?
A: Annoying

No, kyle. What I said was the if a co-op corporation were to purchase a unit even if such authority were not specified in its chartering documents, it would be protected from action because in New York State, business corporations are by law have a nearly blanket defense of ultra vires. True, a stockholder can file action against the company to enjoin it from performing an act, but in the case of a cooperative housing corporation which seeks to purchase a unit from a nuisance tenant to avoid eviction proceedings, such a lawsuit would be unlikely to prevail.

We went through this when I was on the board of my co-op - we offered to purchase the unit of a tenant who set fire to his unit while freebasing. Fortunately, another offer was made and we didn't have to do it.

Sorry if you find me annoying. I'm a big fan of yours!

Ultra vires mean "beyond the powers." It basically refers to the principal that a corporation has no power to do anything beyond what it is empowered to do by the bylaws and state statutes governing the corporation. If the board of a coop does something it isn't permitted to do, it can be argued that the action was "ultra vires" and therefore not ascribable to the corporation as a whole--rather the individual(s) involved in the unauthorized action would be held personally liabl. A coop corporation cannot, however, rest easy that any action the board takes will not result in exposing the corp to liability. If the board does something it can't legally do, it isn't so simple, though. The resulting claims of wrong-doing would have to be litigated. The officers would no doubt claim first that its action were not at all unauthorized (i.e., ultra vires) and in any event that they should be indemnified by the corporation or insurance policies it carries based on any number of theories. Meanwhile, the corporation foots legal bills in defending itself and is caught in a horrible limbo while the litigation proceeds. In the event the dispute arises from the board authorizing the purchase of a unit by the corporation, we are talking about a lot of money being implicated no matter what the size of the building. Obviously, the financial impact to the shareholders (residents) is by necessity tremendous. Whether one side is technically correct or not, the litigation necessary to resolve the question could be crushing. Prudence would dictate that it is to be avoided at all costs. Perhaps I misread the point you were making, Steve, but the technical possibility that a coop would step in to prevent a sale of a unit from being sold for a price that is deemed "too low" may exist, but it carries with it such serious potential consequences for the corporation that it is a truly extraordinary measure. It is the coop equivalent of a tactical nuclear weapon. Bandying the idea about as if it is just another tool in the arsenal of a board discounts the reality of the relative unavailability of the tool as a real remedy. Maybe you can explain more fully what you were getting at. But your initial use of the term above sounded to me like an example of a little knowledge being a dangerous thing.

WAIT a minute, stevejhx your fellow tenants are freebasers?

gleeclub: John Belushi.

kylewest, I know what ultra vires means and you describe it correctly. It was petrfitz's claim that the board of directors of a co-op - steeped in cash despite an underlying mortgage, replete with "leverage" and "equity" despite the accumulated deficit - could step in and use the co-op's money in some sort of imaginary right of first refusal to prop up the prices of co-ops.

I said that that was nonsense. Specifically I said was that if the corporation decided to buy out a nuisance shareholder instead of going through the eviction procedure, with the intent to resell the unit at market price, ultra vires action would probably not prevail since the intent of both proceedings is to evict the nuisance tenant, and buying the unit is the more certain outcome. There the business judgment rule would likely prevail.

I also said that the corporation was immune from ultra vires lawsuits by non-shareholders / -members, but that if it decided to step in to buy up units it could be sued by shareholders / members. My point to petrfitz was that that was really stupid, and not likely to happen, and - precisely as you say - if the board in such a case were to claim immunity from lawsuits because of ultra vires immunity or the business judgment rule, it would be a nasty fight.

I think you both misread what I said, and I didn't say it as clearly as I could have. I hope that is clearer - it was in response to petrfitz's (yet again) nonsensical post.

"the technical possibility that a coop would step in to prevent a sale of a unit from being sold for a price that is deemed "too low" may exist, but it carries with it such serious potential consequences for the corporation that it is a truly extraordinary measure."

I know of at least one case in the 80's sinking market where a Board did exactly that. It does carry a lot of potential risk for the officers, and if they are not acting in good faith their liability insurance coverage would not apply.

I think I understand your point now, Steve. Your syntax is off when discussion the term "ultra vires," which probably is what confused me. A board doesn't "claim immunity ... because of ultra vires," nor can one really say "ultra vires action would probably not prevail." I know what you mean, but it is like a Parisian figuring out what I'm saying with what I loosely call my ability to speak French.

steve has never been one to worry about being correct about details. As long as he uses some of the relevant the terms and acts righteous about it and posts more than others, he seems to himself that he is correct, and that is good enough for him.

"Q: What do you call someone who holds themselves out as an expert in accounting, law, real estate, micro and macro economics, history, and finance?
A: Annoying "

You mean steve really isn't really an expert in all of these areas? shocking!!!

In his co-op they called him El Vice Presidente

Hmm, more and more people believe that steve is full of crap. Interesting . . .

kyle, you're right about my syntax - no problem here. Sometimes you write things and don't edit them well.

LICC - did you read, kylewest said that I'm right. And where's Sneaky Pete to answer all the problems with his problematic post?

Nowhere!

Hey, don't use me to support claims of right or wrong on this one because that isn't what I said--I said I understood the point trying to be made--not that I agreed or disagreed. I still think the concept of ultra vires does not illuminate any of the issues here. Perhaps it's a footnote/aside, but it really isn't at all part of a central analysis.

I agree with that, too, kyle - I said that I was right about what I was trying to say. Again, my point was to counter the ridiculous claims made by Sneaky - that co-op boards are flush with cash and have this magical option to purchase units at nonmarket prices to prop up prices in their buildings.

Not.

Especially with the mythical co-op that "he" is the sponsor of, "worth" $4 million, with a $600,000 underlying mortgage and $200,000 in cash. How many apartments is $200,000 going to buy, and how much of that $200,000 is going to be left in December, once property taxes are paid? And commercial loans for co-ops given based on the worth of the building, but rather the discounted flow of imputed rents over the term of the loan.

Steve says "It had better be sitting on that and a lot more, because property taxes are due in December, which will wipe out most of that money."

Steve do you have any idea of how much yearly taxes are on a tenament in NYC? If you think its $200K per quarter you are more of a moron than your blather portrays. A 18 unit building in Manhattan has a yearly tax burden of between $20-40K depending on location, amenities, etc.

So you claim to know everything about co-op finaincing but are madnitudes off (1000's of times high) on your estimates of a buildings tax burden.

Also I just found several co-op's that have buy back options in their contracts"

Q. What if I want to sell my unit?

A. The corporation has an irrevocable option, but not an obligation, for a period of 90 days to purchase the unit from the member at the current value of the membership interest of the corporation. The purchase amount shall be the amount equal to the transfer value determined in accordance with the provisions of the valuation rules of the bylaws less any amounts due to the corporation.

Once an owner has been refused purchase by the board, the owner may sell the unit on their own at whatever price the owner feels appropriate."

Another:

"SELLING

Check to be sure that your board does not have the initial right to buy or right of first refusal. If this does not apply, or is waived, inquire as to what procedure (if any) a Buyer needs to go through to be approved. Many Boards may only meet once a month, so this time frame must be considered when setting a closing date. "

Steve - it is common for boards to have the right to buy back units.

Anything that doesnt fit into your "the market is crashing" naysaying opinion you shoot down as impossible.

"Steve do you have any idea of how much yearly taxes are on a tenament in NYC? If you think its $200K per quarter you are more of a moron than your blather portrays. A 18 unit building in Manhattan has a yearly tax burden of between $20-40K depending on location, amenities, etc."

Your taxes are likely to be closer to the $50k level; my point was that every co-op has to run up cash through December, to pay the tax bill, probably the largest lump-sum payment they have. I'm not "madnitudes off."

FYI $200k is not a "quarterly" income figure - which is what you imply. It is a balance sheet figure. The corporation doesn't earn $200k - that is its cash and cash equivalents, from which it must pay the mortgage and all operating expenses.

Now then, onto your other Sneaky nonsense:

"A. The corporation has an irrevocable option, but not an obligation, for a period of 90 days to purchase the unit from the member at the current value of the membership interest of the corporation."

is from

http://www.williampennhouse.com/index.html

which is a PENNSYLVANIA cooperative. Sorry, dude, in New York State cooperative housing corporations do not have a right of first refusal. ONLY condominiums do. Read the law.

Then:

"Check to be sure that your board does not have the initial right to buy or right of first refusal. If this does not apply, or is waived, inquire as to what procedure (if any) a Buyer needs to go through to be approved."

which is from

http://www.litasmith-mines.com/condos.html

where she is discussing "Cooperatives & Condominiums."

Condominiums have a right of first refusal in New York State. Co-ops do not.

You really don't know what you're talking about, do you?

Steve continue to show your brilliance

http://books.google.com/books?id=YSKwlnjP-PcC&pg=PA74&lpg=PA74&dq=Co-op+board+right+of+refusal+New+York&source=web&ots=qomuQxpRlJ&sig=4B936L35I4PYtbqvDpNbBB04On0&hl=en&sa=X&oi=book_result&resnum=3&ct=result

LMAO!

Did you bother to read that link, petrfitz? It is discussing a condominium's board of managers' right of first refusal. It is not discussing a co-op board's right of first refusal, because they don't have one.

And so it's plain - in New York co-ops don't need that right of first refusal because they can refuse any potential shareholder for almost any reason, and the buying/selling shareholders usually have very little recourse. They don't need to buy the unit; they can just say no.

You claim to have all these properties and you don't even know that simple fact.

Yet again you've been outed as the fraud that you are.

You're now at the level of LICComment.

"Continue to show your brilliance!" We're enjoying it.

Careful steve, do you really want to pull me into this and make you look stupid again?

Steve read down where it discusses Co-ops and their right to buy back any units without shareholders ok.

just because you dont read and mis cite doesnt mean your arguments are correct.

they are not.

Would you people grow up already?

"Careful steve, do you really want to pull me into this and make you look stupid again?"

I can't wait!

Tee-hee-hee.

Imagine, someone who lives in Long Island City making someone who lives in Manhattan "look stupid again."

I'm waiting for the first time, LICC.

"read down where it discusses Co-ops and their right to buy back any units without shareholders ok."

First, it doesn't say that anywhere. Second, co-ops can indeed buy back any units without shareholders' okay. That is not a right of first refusal. If, however, they do do that, and their purpose is to prop up prices in the building and not something in the legitimate interest of the corporation, such as evicting a nuisance tenant, then they are very likely to be sued as that would likely be deemed ultra vires, acting beyond their authority. Beyond that, most co-ops - like the one you claim to be the "sponsor" of - don't have enough money to do that, and can't get further financing if they already have an underlying mortgage.

oh Steve thanks for agreeing with me that "co-ops can indeed buy back any units without shareholders approval.

I am glad you finally admitted that you are wrong.

I've always said that, petrfitz. They can do whatever they want, and they're likely to be sued if they do, if the purpose is to "prop up prices," which is what you claim they will do. There would likely be an emergency injunction issued to prevent the sale in a case like that, since the harm would be immediate and irreparable. The sale would then never take place, since justice is slow.

Go back to the "ultra vires" discussion.

And they don't have the money to do it, and won't be able to get financing.

You see, Sneaky, unless it is a specific purpose of the housing cooperative to buy back its own units, then the board would be exceeding its authority if it were to do so. Imagine a building of 20 units, where the board buys 2 apartments back. That means the other 18 shareholders will have to bear the cost of those purchases. The Board can't rent out the units and if they could they wouldn't get enough in rent to cover costs, so maintenance would skyrocket to support these shareholders.

And, since by law all shareholders must be treated alike, if another two shareholders decided they liked the price the Board was offering, they could sue to force them to buy their units for the same price. Again, more litigation.

What the board is more likely to do is to refuse to sell at a price they don't like, but that, too, is dangerous.

steve, everyone familiar with our past discussions knows that every time, you come out appearing foolish, obnoxious,disingenuous, petulant, and stubbornly mistaken. It doesn't matter where we live, or how much older you are than me, when you are blatantly wrong about things.

"when you are blatantly wrong about things"

:|

Steve - thanks for admitting that I was correct. It is nice to see you back down and admit that you were wrong. I think much more highly of you now.

Oh, Sneaky! Now you're doing the LICC tap dance: lose, announce victory, and move on.

Anyone can do anything they want. Any board of directors of any company can do anything it wants. Whether it's legal or not doesn't matter, whether they'll get away with it or not doesn't matter. They can do it.

A co-op board could, in fact, buy a unit in the building. Not, as you stated, because they have the right to. Simply, they could do it. If it's in lieu of evicting a nuisance tenant, it would probably be protected by the business judgment rule. If it's to "prop up prices" in the building, not only would there be an uproar within the building that would lead to the ouster of the board, it would probably be declared illegal because that is not within the scope of the corporation - its purpose is not to "prop up prices." Moreover, any shareholder could file for an emergency injunction to stop the sale as potentially illegal, which would kill the whole deal.

So, if that's what you said, then I agree with it. If what you said (which is what you said) is that co-op boards have the right to repurchase units, that is untrue. If what you said (which is what you said) is that co-ops are sitting on mounds of "equity" - whatever that is considering they all have accumulated deficits - that they could use to execute these transactions, that is untrue. If what you said (which is what you said) is that a building "worth" (under your definition) $4 million with 18 units with $200,000 in cash could buy those units, then you're saying that a) the units average $222,000 each so not one could be purchased as it exceeds cash on hand (needed to pay taxes and operating expenses), and b) there is virtually no co-op in Manhattan going for $222,000 so you just made this building up. If what you say is that a co-op with an underlying mortgage can readily get financing - TO BUY UP THE UNITS IN THE BUILDING! - then you're insane because once it bought up those units there would be no one left to pay the maintenance.

Sure, a co-op board could even vote to move the building down the street. But it's not going to happen.

Steve says "A co-op board could, in fact, buy a unit in the building"

Steve thanks again for admitting I was right and you were wrong!

petrfitz: "Also many co-op boards are sitting on massive amounts of equity and cash. Most also have a buy back priveledge or ability. Co-op board can buy units from owners to avoid precipitous drop sin their buildings and/or foreclosures."

That's what you said, and it's all untrue.

Don't know if this is of interest, but the coop I first bought a unit in, who teetered near insolvency, did take ownership of several units, but they did not use any cash; rather, investor(s) defaulted on maintenance payments. Somehow title ended up in the name of individual board member(s). This among other things led to a lawsuit from a disgruntled shareholder. A receiver was appointed. Eventually the disgruntled shareholder died, so his legal disputes ended. The coop became healthy financially. I'm failing to see the point of any of the above argument about whether a board could or could not, whether it's hypothetically/legalistically speaking, or whether boards will prop up market values by using spare cash. Because my hunch is that most cases of coop boards taking over ownership of units are forced to do so by tough circumstances and no one wins.

Gotta diligence your co-op. The worst is one that has been converted from rental and still has 10% or more of sponsor units and many original purchasers who bought on the conversion ... likely they don't have the same economic profile as new buyers and this creates conflict.

A well run board, good reserves, no sponsor involvement, and - a clean building with an update lobby and hallways are things to look for.

Otherwise go condo.