Who Makes the Cut Assessing Buyers' Financial Information

When the author of this story bought her home, she sat in disbelief when the lawyers handed her the last paper to sign—the one that confirmed she signed all the other papers!

The confusion wasn’t surprising; the home-buying process is known for being tedious and overwhelming, but nothing prepares you for the mountain of paperwork involved. Once you decide to buy a home, there are agreements with your real estate agent to sign, mortgage loan applications to fill out, multiple copies of financial accounts and other statements to obtain, and paperwork to sign when you bid on the property—and that’s not even counting the pages and pages you’re presented with at the closing.

If you are buying a co-op, however, be prepared to add yet another layer of tree-pulp onto this already-vast mound of paper. It’s up to a co-op building’s board/ management team to make sure that anyone expressing the intent to purchase an apartment in their building has enough financial wherewithal to not only make the purchase, but to pay their maintenance fees and taxes on-time into the foreseeable future. How do they do that? They will request an exhaustive amount of financial documentation—everything from tax returns to credit reports, investment income statements, pay stubs, letters from accountants, net worth statements, and more.

Prepare for Scrutiny

“First time co-op buyers are taken aback by the financial scrutiny that co-ops employ because they feel it rises to the level of privacy invasion,” says Stephen W. O’Connell, a partner with the Manhattan-based law firm of Hartman & Craven LLP. O’Connell says, however, that the typical board’s rationale is that their building’s financial security is at risk, and admitting residents who may then fail to pay can cause existing shareholders serious monetary damage.

That doesn’t mean that the ideal financial tenant for a million-dollar co-op apartment is someone like wealthy heiress Paris Hilton, whose bank account many of us envy. Although we don’t have Ms. Hilton’s assets or credit report, let’s fictionalize and assume that her wealth comes from trust fund distributions set up by Mommy and Daddy Hilton. If that’s the case, some of her wealth may be tied up in investments. She might also be overextended financially with mansions in the Bahamas, Vegas, Sydney, Australia and Tuscany, Italy. And, other than showing up on the red carpet occasionally and being a rock star’s girlfriend, it doesn’t seem that the young Hilton holds down a consistently paying job. Add in a few credit dings from her less-than-sedate youth and a co-op board might well stamp her application with a big red NO.

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