Q&A: A Board Member's Self-Interest

Q What do you do when a board/board member rejects you as a prospective buyer for self-serving gain? My husband and I were in contract on an apartment where we were paying in cash, had no mortgage, could easily pay the maintenance even if we both lost our jobs. We both have fantastic references and have easily passed boards before in much "tonier" buildings. However, the board in our recent situation had a member who was angry because she had wanted to buy this apartment, but lost out to us because she didn't have her finances in order.

Apparently, the board strung us along for months until this board member could get the money together, and then we were turned down—no interview, no explanation, nothing. We were all packed, we'd worked to sell our current apartment, then out of the blue and for no reason at all (save this board member's insistence she get the apartment) our lives have been turned upside down. The apartment in question is an estate sale, so there's no seller or anyone to whom we can call the board out on this. Do we really have no options? Can a board really just destroy our lives like this?

—Feeling Rejected

A According to Manhattan-based real estate attorney Adam Leitman Bailey, "Although New York law allows a cooperative board to reject an appliciant for almost any reason, these reasons do not include insider dealing or a co-op board's bad faith. All cooperative boards must act in the best interests of the cooperative, and acting in favor of one board member's self interest violates this rule.

“In one case, Sinensky v. Rokofsky (full disclosure: Adam Leitman Bailey, P.C. represented the buyer-contract vendee that prevailed in this case), the potential buyer signed a contract of sale to purchase the unit and the board rejected the buyer. Subsequently, a member of the board entered into a contract for the same unit at a much cheaper price. The Appellate Division, Second Department found that the rejected purchaser had standing to sue the board for insider dealing and discrimination. That being said, the board member in the Sinensky case made it extremely easy for the rejected buyer to demonstrate the board's bad faith, as this board member controlled the board of directors and the seller cooperated in our investigation of the facts. In most cases, such bad faith/insider dealing becomes very difficult to prove and the cases extremely difficult to prevail without a 'smoking gun,' such as letters indicating the board's interest in putting one board member's own finacial interests ahead of the interests of the building.

“Even worse, until you sue, you may not be able to determine whether the conflicted board member actually purchased the same unit, and the ability to determine whether such a purchase resulted in the board's bad faith. Furthermore, the current law does not require a board to indicate its reasons for rejecting a buyer. If the writer does decide to sue, they should also ask a court for injunctive relief stopping the sale of the unit to the board member."

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