Top Dozen Reasons for Co-op Board Rejections

(And How to Avoid Them)

By Carol E. Levy

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Before even beginning the hunt for that perfect co-op, the prospective buyer should be familiar with all the possible ways one's application might be rejected. That familiarity will enable one to focus on the appropriate buildings as well as to make the necessary adjustments so that rejection will not occur. It is also essential that one choose a broker who not only knows the criteria and delicate nature of the co-op boards to which one might apply, but is also capable of creating a fail-safe board package that will be one's passport to a new home. Since boards never reveal the reasons for rejecting a buyer, one must rely upon an experienced broker who understands the delicate nature of purchase applications and the variety of unpublicized reasons why rejections occur. Boards never specifically state reasons for rejecting a buyer, for by doing so, it could open itself to a lawsuit for discrimination. Here are a dozen of the most common reasons why prospective buyers are rejected by co-op boards.

1. Financials

A prospective buyer needs sufficient assets following a closing. Boards focus on the amount of liquid assets one has, and many of the premier buildings require one to have two to four times the value of the purchased apartment after closing. Other building boards may insist that one have two to three years of maintenance and mortgage payments in the bank. And, again, that should be the amount after all closing costs have been paid. A knowledgeable broker will not only be aware of each building's requirements, but will also keep abreast of those changing variables, for when new boards are elected every year, they often change the criteria for new buyers.

If a buyer's income is too low, that buyer may be rejected. The rule of thumb is that co-op boards generally want a buyer to be able to devote 25 percent of one's earnings to the payment of mortgage and maintenance. If those payments for one or more properties exceed more than 25 percent of one's gross annual income, one may very well be turned down.

2. Job History

Most co-op boards will ask to view not only a prospective buyer's earnings from employment, but all of one's job history. They will want a buyer who has demonstrated job stability, rather than someone who hops from job to job. It is not uncommon for prospective buyers who had sufficient assets to be turned down by boards simply because they changed jobs every few years.

3. Bad Credit

Although a prospective buyer may have a good income and plentiful assets, if that buyer has a poor credit history, including a negative track record of paying current maintenance fees or rent, then that prospective buyer will likely be a candidate for the board's rejection. A good broker will examine a client's financial history to make sure that there are no red flags that will invite a board's rejection.

4. Pied-a-Terre

Some boards are entirely amenable to having pied-a-terres. Others make decisions on a case-by-case basis. Still others do not allow them at all. If one is looking for a pied-a-terre, make sure that the broker has a clear understanding of the rules of prospective buildings.

Even if a building will consider the sale of an apartment as a pied-a-terre, the board may reject a part-time tenant who they feel might be spending too little time in the apartment. In such cases, the board may be concerned that the apartment could potentially be used as a hotel for friends and family. I know of a couple who attempted to purchase a small one-bedroom pied-a-terre; but because the couple had three teenage children, the board worried that the apartment was too small for a family of that size, and the children might use it for parties in their parents' absence. If the couple had been represented by a knowledgeable broker, they would not have had to waste time applying to a building that would ultimately reject them.

5. Guarantor

If one requires a guarantor, then one's broker should make sure that all prospective buildings are guarantor friendly. And since so many buildings annually change rules and bylaws, one's broker must be up-to-date on those changes. Even in buildings that permit guarantors, one should qualify the guarantor, for boards will require a couple years of tax returns as well as verification of income and assets.

6. Life Style

While many co-ops accept those who have high public profiles, there are others who do not want any undo attention brought to their buildings. There are still other buildings that do not want those who will disturb the peace, quiet and security of its shareholders. They may, for example, not sell to a paparazzi prone rock star who is known for a flamboyant lifestyle and hosting large, highly publicized parties into the wee hours.

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7. Home Work

Most boards will not object to tenants working in their homes, as long as their occupations do not involve a revolving door of client traffic. A writer, for example, is acceptable, but a psychotherapist will most likely be rejected.

8. Failure to Fulfill Additional Requirements

Even after receiving a comprehensive board package from a purchaser, a board may require additional documentation for clarification or a preconditioned escrow deposit, or a change in one's mortgage product, prior to even granting an interview. If the buyer is unable or unwilling to accede to the supplementary demands, then the board will likely reject that buyer.

A fairly common requirement by boards is asking for one to three years of maintenance in escrow. If a board feels that a prospective buyer does not have sufficiently strong financials, the board may decide to approve a purchase, but only if the buyer agrees to the board's demand to put maintenance into an escrow account. After a tenant has a history of meeting financial responsibilities, the escrow account will be dissolved and the funds returned. If a purchaser does not agree to the maintenance escrow, that individual will be rejected.

Another example includes a purchaser who is unable to provide additional verification of projected income, which sometimes occurs when the buyer is self-employed. It may also occur when a buyer is simply unwilling to provide the requisite documentation for every asset. In both cases, a board may reject a buyer's application.

9. Low Purchase Prices

If a shareholder attempts to sell a co-op apartment at a below market price in order to facilitate a rapidly executed deal, the board will object, as such proposed deals diminish the value of all the apartments in the building. For example, I have seen a desperate seller accept an offer on his apartment that was 20 percent below the true market value. The board, of course, rejected the buyer since a greatly reduced price per share would negatively impact the share values of all the owners.

10. Pets

As in so many of the previous cases, this one also requires that a buyer's broker perform the necessary due diligence to learn which buildings are pet friendly. Even if a building permits dogs, a broker must learn if there are limitations on the number of dogs or breeds of dogs one might own. For example, numerous buildings do not permit more than two dogs per apartment and will not permit Pit Bulls, Mastiffs and Rotweillers. Still others will not permit dogs that weigh more than 50 pounds.

11. Noise

A board may reject a buyer, if that buyer has a profession or hobby that might entail making noise that will disturb other shareholders. For example, trumpet players, drummers, opera singers or tap dancers may all pose noise threats that will cause boards to reject their tenancy. And, if they are approved, their acceptance may be contingent upon sound-proofing their apartments, prior to taking possession.

12. A Poor Interview

A savvy broker will prepare a prospective buyer for the inevitable board interview. Not only should the buyer be on time for the interview and dress appropriately, but the buyer should not ask questions that might arouse concerns or suspicions on the part of even one board member. For example, one should never ask about subletting, or suggest that the building install a gym or a children's playroom. Rather, one should simply answer all questions succinctly and politely with a pleasant demeanor. In fact, the less said the better. Once a purchaser has been accepted by the board, has closed on the apartment and moved in, a shareholder may make as many suggestions to or ask as many questions of the board as desired. Now having become an owner, that shareholder is an exclusive co-op "club member" with the power to have a voice and a vote.

Carol Levy is president of Carol E. Levy Real Estate in New York City (www.carolelevy.com) and specializes in representing buyers and sellers of high-end co-ops and condos.

Comments

an unknown user

How can a new board who is only doing it for 2 weeks and never meeting us reject us.

ray

who gave the co-op board such power? the laws must be changed to have the board clearly specify the reasons they deny a sale. this will help improving housing markets

Mary

My coop nightmare has been going on for 16 months. In Sept my third buyer was rejected. For years I have had a problem with my downstairs neighbor who happens to be president of the board. I asked that he recuse himself from any decisions regarding my sale back when this started. Not only did he refuse to do so he had the coop attorney send me a letter forbidding me to communicate with any board member. The third and most recent rejection was overturned by the board when I (and my attorney) served the board with notice that we were going to seek damages from each one personally if necessary. In their reversal they demanded some that the buyers (a couple with a two year old child) comply with the floor covering requirements prior to closing. The buyers were insulted, disgusted, and put off. They terminated their contract. The board then sent me and the whole coop a letter saying they meant to say prior to occupancy. It was too little too late. I'm now left with trying to sell in the worst market in history. I moved out a year ago. I have engaged the whole coop. Our building is angry at the board for several reasons including this one. It's a mess. What rights do I have as a shareholder? I have kept all documents relating to the dispute, the rejections, the reversal, and both of our respective attorneys emails acknowledging that this "looked and smelled" bad. That said, my attorney still says I have no recourse but to wait until i sell and then sue for damages. I would appreciate some other input. One attorney I spoke to said he would be more interested if this was a million dollar apartment (it's in the $400,000 range).

an unknown user

in this day and age, it is puzzling to me that the board can reject people without any explanation. my friend was rejected and it is the most perplexing thing i have ever encoutered. her salary is good, a steady secure job, very smart, nice, good personality, but is it because she is black? i guess we will never know.

Attorney

To Unknown User: Your friend should call Skadden Arps to sue the board. They famously represented (on a pro bono basis) one of their black associates (who was married to a white woman) who got rejected by a coop board. Scott Musoff was the lead attorney.

an unknown user

what about a criminal record federal white collar crime that was 15 years ago,and you paid your debt to society does the coop do a internet search on your name? Can you be turn down for this?

Elaine

How can we make it a LAW that co-op boards have to specify reason for denial??

J

i think its important to remember that it is usually not personal

shex

i've been on two co-op boards. We recently rejected a buyer for financial reasons.. she was living on the cusp.. but the other board members noticed that she was wearing replacement finger nails that cost a fortune to maintain. Because that the prospective buyer did not use good judgment in using the little income she had, they rejected her. Interestingly, we did accept an earlier applicant for a less expensive co-op which had a lower income but presented herself in a more conservative fashion.

M

My husband and I are interested in a co-op. We are going to pay cash for our co-op, and are going to put three years worth of escrow toward our fees. My husband is retired and I have a lucrative grant writing business that I do from home. My business has no foot-traffic as I go to the agencies that employ my services. I do not feel it is any of their business how much money my husband and I have in the bank seeing as we are selling a $250,000.000 home to down size because both of children are graduated from college and have moved away. We are making this move so we can travel and not be tied down with maintenance or yard work, an dlike the security this co-op offers. Our broker feels this is not going to a problem becasue we are paying in cash, but i do not like the idea of 12 strangers being able to review our personal finances. I am very aware of identity theft in these times and feel we have a right to our privacy. If this is the case from all I have read, then my husband and I may look into other options. I could see the necessity of reviewing all these financial issues, if we were needing a mortage from the bank, but i feel we have the right to our privacy. Thanks.

Angry coop owner

For all those coop owners who have been help captive by a group of board members who have NO FINANCIAL loss by their decision, please take a look at this link. I am in the same position with you all and I am just as angry. This new office needs to make the Board financial accountable on a smaller scale especially when a board member is using their own inept decision making or personal gain against a private seller to hurt them. Good luck all. This is one of the worst makers to sell in and to have ANOTHER person make your financial decision for you should come to an end. The Peer Review need to come into effect. Take a look at he office by the attorney general. A11452B-2009: Creates the office of the cooperative and condominium ombudsman; appropriation

v

since reading about the power a coop board has to over power the sellers decision to excepts someones offer is scary. For coop boards to determine who lives where is very discouraging for a perspective buyer.

A

I just went to a board interview, the way they ask you the question is like you are the one who is in jail. I dont see why the board interview is necessary if everything I have is qualify to the reqirement of the coop. I'm very upset the way they treated me. I spent my own money to get the coop. I don't understand why I've been treated like I'm begging for something free. Interestingly, they approved me but saying I were mean to them.

Rachel

Now, the whole acceptance/rejection process may become a whole lot more transparent in the five boroughs. City Councilman Hiram Monserrate, D-Queens, has introduced a bill, known as Intro 119—“The Fair and Prompt Co-op Disclosure Law, “ or more commonly referred to as the written rejection bill—that would give co-op boards five days to give a rejected prospective buyer their reasons for the rejection. You can read the whole article in the cooperator- " Was it something I said" Read this article. here is the link. Its about time! go to cooperator "Was It Something I Said"

Worried

Do co-op boards check with IRS also

new to co ops

well me and my husband to be are in the process of getting a co op our next step is the board interview, i am very nervous about this, any one have any tips?

an unknown user

My daughter and husband just went on their interview for co op approval. They were told they someone will need to come to their present home to see how they live !!! Is this normal ????

G

I think it must be very hard to get rid of a bad coop neighbor, which is why boards are so fussy. I can understand that they want the place kept quiet and do not want questionable people wandering through the building or threatening dogs. They certainly want to know that you have the money to staff such a place adequately. It seems to me that most of their requirements have to do with things that, once you are a tenant, you would want as well.

an unknown user

Does the real estate agent go to the board interview, the closing anymore?

stephanie

This should be against the law. what ever happened to freedom??? being able to live wherever your money can take you? there should not exist any board approval. that's discrimination.

NS

We have a contract to sell our apartment to our next door neighbor in a coop. He was approved for his funding but was turned down by the Board even though he already owns an apartment in the building. Is the Board within its rights to do this?

an unknown user

Do coop shareholders realize that when they sell their units (shares), at settlement any underlying mortgage on their units gets deducted from the proceeds of any sale?!

an unknown user

Why would somebody want to live in one of these overpriced elitist dumps anyways when they could easily buy their own place or even rent a very luxurious apartment for the kind of money they would waste on a stupid co-op? People sure do love wasting money, but then again its theirs to waste :-)

WHAT????

Has anyone ever hear of a co op that is for investors? No need to live there ever, can be sublet out from the start.....same co op board and interviews though......good or bad investment???????

marie torrisi

I need help! I am trying to sell my co-op and have reduced my price as it has not moved in 2 months. Many of the apts in Riverdale have reduced their price because of the market. Can the Co-op board reject the price because of the market if all the apts are reducing their price???

Rabbit

I got a coop interview that was 3 months after I submitted my application. The board is asking some other document to be supplied. I would not like this process going on and on forever. I heard that a coop board has the right NOT to make a decision at all. Is that true?

Board God

Don't EVER buy property you have reduced control over. Bunch of power-hungry pricks from the business world continue their rule where they live. Run, Jane, Run!

Tom Rowan

The Board in our co-op changed the managment company and miss a month of charges. It has not asked for this missing month. Can it take it our of the reserves and not request it back?

an unknown user

May I ask co-op board package held for over 3 months. Finally called for board interview-no one from the board showed up for the board interview. Still have not heard back from the board for a new date for board interview. Is this legal?What can seller or buyer do?

Property Manager

After reading all comments, first let me say I am not an Attorney but a Property Manager. I manage a few Co-ops- the Association has the right to deny applicants (as they are the "Landlord" of the property, owners own a stock (a percentage of shares). one of the responsibilities of Managing, is gathering all financial information from the prospective buyer/s to ensure you can afford the Common fees, regardless if this is a cash purchase. the Association has financial obligations to meet, on a monthly basis. if a buyer comes in and there is an assessment that puts the new owner in a paycheck to paycheck status, can end with a foreclosure. Once I gather all financial info (statements, 1040s, etc) I determine if it meets the Associations requirements based on an income/ household expense ratio, if acceptable, I forward to the board (only the credit report (blocking the SSN) which I conduct with their authorization, application etc. no finances get forwarded. I provide the Board with my recommendation, the Board simply meets the buyers, talks a bit and 9.5 out of 10 times gets approved (escrow is contingent at times, if they are border-line out of financial requirements) I am not on here much, so may not be able to further comment immediately, however will be back. Hope this helps a little.

potential coop buyer

I appreciate the information. Considering buying a Coop unit in Florida this winter. Appears there are a number of things to consider. This would be our winter residence only.

Dory

Can a Board deny a purchase because the purchaser and his wife have 4 children? It is a very large one bedroom converted to a 2 bedroom. There is a 14X15 foot large bedroom and an 9X11 foot small bedroom. Living Room/Dining Room combo and kitchen and bath.

Nataliya

I believe the Board is not authorized to make parents separate their kids creating non supported legally restrictions or limitations. Family should have rights to decide if the conditions within the apartment are appropriate for the entire family since it does not affect anyone from shareholders.

an unknown user

There is a petition for a bill right that would require board members to state reasons for rejections. Concerned citizens have to sign petition and then will be present its case. You can sign through realestateboard of ny website or just research the bill yourself in nyc.gov

an unknown user

It sound as this co-op board could reject one for any reason, religion could be the underline reason, how sad, we think we live in a free society but this type of stuff still happens.

Laura

How can a co op property manger refuse your payment and take u to court for it

denise w

so I did everything required of me and submitted application and financials. 780 credit score and NO delinquencies. Denied without ever speaking a word to anybody on the board and no request for interview. And when asked why by my attorney the response was "we don't need to give you a reason" I'm disgusted, angry and disappointed. it seems unfair that such a decision would be made with nary a question or a comment my way.

clooless

Why buy a co-op when you dont even own real estate after all that hassle?? get a condo instead.

Board of Directors Unfair Practice

I am shareholder in Co-op In New York and I had 3 buyers denied. Co-op would not give me a reason and I guess they don't have to, but being shareholder (just like them) I have the right to know why. I believe that my buyers were qualified. If all three were not why interview them in the first place. The Board of Directors reviewed their financials beforehand why waste their time, buyers time and my time and money paying the maintenace fee. Also, I read that NY Court ruled that a coop Board cannot set a minimum amount that a seller can sell his/hers apartment but it seems that in a lot of articles I read, the coops reject potential buyers because of too low of selling price Isn't this breaking the law-- Bd of Directors should be accountable for this. They need to be investigated. I want The Attorney Generals office to get invovle and the FHA also. Coop's Board have too much power over the seller and buyer and many times thieir actions are unfair and descriminatory. Nobody is helping Seller from Board of Directors who are unreasonable..

an unknown user

My girl friend is buying a coop with her own and I am going to live with her there, I recently filed chapter 7 bankrupcy so does it make any problems. Please advice, thanks

Samuel Fraticelli

I have been figthing with Directors of Kingsview Board in Brooklyn N.Y trying to sell property and they continue to decline offers. While the keep declining the maintenance fees keeps incresing. I dont know what to do and I am in desperate need of some expert help.

randyfcarini@yahoo.com

Legally speaking how many days does a board have to except or Deni a co-op buyer in the state of Florida, Fort Laud .area?


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