Buying an apartment in New York City isn’t just a matter of finding the right unit and qualifying for a mortgage. In the case of a co-op, it’s also a matter of passing muster with the board. And even for a condominium world today, prospective buyers still have to jump through hoops in order to secure the board’s approval of their purchase. Though boards have the final say, they also must be careful not to cross lines into discriminatory practices when defining the requirements and standards to which they hold prospective purchasers.
For buyers, the first step in gaining approval for their purchase is completing what has become known as the ‘board package,’ which is an application submitted to the co-op board for their review. It can include many items—among them are financial and personal data, and reference letters from both friends and business associates. The board’s review of this information is generally followed up by an in-person interview.
“Usually, a resale application is submitted to the managing agent’s closing department for board review,” says Jennilee De Leon, an account executive with Sacks Real Estate Management Corp., in New York City. “Financial and personal information is included.”
Board packages can be quite lengthy. Larry Lubin, a broker with Manhattan-based Klara Madlin Real Estate, describes one package he is working with that has 11 different requirements, including: a formal application form; a financial information form; credit and background checks; two years of state, federal and local tax returns with W2 or 1099 forms; an employer letter confirming salary and terms of employment; personal references; business references; references from the current co-op board or landlord; pay stubs; and three most recent bank statements. “Exact requirements may differ slightly from building to building,” he says, “but the bulk of the items listed above are typical of most co-op applications.”
When considering an applicant, boards are primarily looking at the purchaser’s financial ability to buy the apartment and cover the monthly carrying costs. While they may consider certain non-financial criteria — such as the personal recommendations of friends and business associates — they must be very careful not to make decisions that could be considered discriminatory (That will be discussed later in this article).
“Every building has a finance requirement,” says De Leon. “Some buildings are all-cash, while others permit financing, which can range anywhere from 50 percent to 80 percent of the purchase price. In terms of liquidity, annual income is a deciding factor. Applicants have usually applied for a mortgage as well. In virtually all cases, they would have already passed muster with a financial institution before they get to the board” — a clear indication that they can pass muster with the board, at least as far as the money component is concerned.
“Before you go forward with an offer, you should qualify the buyer,” says Lubin. “If they are financing the purchase, you want to see their mortgage pre-approval. They should also fill out a financial statement form, which is available from the Real Estate Board of New York. You look at their debt-to-income ratio – that’s the main measure most co-op boards use to determine if a purchaser qualifies. Generally, you don’t want anyone with a debt-to-income ratio over 25 percent. If a person has been approved by a bank for a mortgage, that will pretty much satisfy a board, since a bank wouldn’t approve the buyer’s credit if they weren’t qualified.”
De Leon concurs, adding: “A board may be satisfied with a bank’s screening process, though some high-end buildings may have more stringent requirements. In luxury buildings, net worth is a bigger factor. Great financials are a positive factor in gaining approval, as are great references. Alternatively, bad credit, a bad or erratic employment history, or outright not qualifying according to the co-op’s rules may lead to a rejection of the application.”
A Case in Point
Ray Levi is a member of the board at a 56-unit co-op located in Washington Heights. “We have an application package that includes credit and income information, and letters of recommendation from both friends and co-workers,” he explains. “But it’s mostly financial information. We want to see that the monthly carrying costs are reasonable enough for the buyer that they can make the payments.” His board doesn’t look deeply into a purchaser’s cash holding in banks or other financial institutions, or the purchaser’s ratio of income-to-monthly payments. But the board does look at outstanding debt overall. “We want to try to remain affordable,” Levi adds. Sizable outstanding debt is an issue for his board, as is professional stability. If an applicant’s employment history seems unstable, the board is concerned about it. It prefers to see an applicant’s long-term employment with the same employer, rather than a patchwork of many different gigs. He also stresses that the board calls up all references in order to establish a level of comfort with a potential neighbor. Levi notes that during his time on the board, “we have not turned down any applicants.”
It goes without saying that the discretion granted to a co-op board certainly does not equal a license to discriminate. According to Deborah Koplovitz, an attorney with the New York City law firm Anderson Kill: “Fifty years ago, the Fair Housing Act was passed in the wake of the assassination of the Rev. Martin Luther King, Jr. It was the most important piece of legislation from the civil rights era. It was also the hardest to pass, as our country has a history of government-mandated segregation at the federal, state and local levels. Southern Democrats opposed the legislation. People didn’t want to live together, which is absurd. The purpose of the law has been to promote integration in housing – and that’s not just limited to race. In 1988, it was extended to include people with disabilities, for instance. New York City has the strongest laws in the nation, so if you’re in compliance with New York City’s laws, you’re in compliance with federal and state laws as well.”
Any discussion of board approval (or disapproval) inevitably begs such questions as: What leeway does a co-op board have in deciding the fate of a purchase application on non-financial grounds? Are there any groups of individuals who are not protected under the various anti-discrimination measures in place? As it turns out, the answer is yes – at least as of this writing, and in certain very specific circumstances.
“If an applicant is a felon, has a record, has been to jail, or is a celebrity,” says De Leon, “a board may reject them.” This exception is based on the execution of the Business Judgment Law. “In making a decision,” she explains, “the board of directors, acting on an informed basis and in good faith, may reject an applicant for these reasons, as the action is taken in the best interest of the community.”
“A conviction record is not a protected class in housing,” says Koplovitz. “It recently became one in employment, though.” She believes that this will lead to a similar status for housing. “Historically, housing has followed employment in this type of legislation. It’s only a matter of time.”
Unlike co-ops, which are corporations, condominiums are real property. Thus, condo boards have less control over who can buy in. In many markets outside of New York City, a condominium requires little or nothing from the buyer or seller to approve a sale of a unit. In New York City, however, condominium associations are requiring buyers to complete board approval packages; that may be due to the influence of the co-op market. “Condos in New York City ask for basically the same information as a co-op,” says De Leon.
But the remedy afforded to a condominium board looking to reject a buyer is quite different than a co-op. Unlike a co-op, which can simply say ‘no thanks’ to a prospective buyer and move on to the next one, a condominium board has a right of first refusal. In simple terms, if it is unhappy with a prospective buyer for whatever reason and chooses not to approve the sale, the board can elect to purchase the unit itself at the same price as the prospective buyer. This is a very rare occurrence, as few condominium associations have the available cash on hand or in their reserves to purchase units that can have high six- and seven-figure price tags.
In the final analysis, co-op boards should be rigorous in their assessment and vetting of potential buyers. But they also careful not to veer into discriminatory practices when determining who their neighbors will be.
Financial review is a legitimate requirement for purchasers, but rejection for non-financial reasons can bring serious repercussions. Koplovitz notes that even asking for the age of an applicant is ill advised, since that question can be viewed as a possible discriminatory factor. Although common on many applications, the question should still be removed. And if sued by the rejected applicant, the board is open to legal discovery, which will expose any negative or discriminatory action on its part—even though the board doesn’t have to give a reason for turning down the application. The best advice is to play fair. A co-op should be concerned about whether a buyer can afford to carry his or her share of the load, not who that person might be.
A J Sidransky is a staff writer/reporter with The Cooperator, and a published novelist.