A lawyer discusses co-op and condo real estate closings: What to watch out for - by C. Jaye Berger

Anyone considering the purchase of a co-op or condominium unit usually asks me as their first question, “What should I watch out for?” Once the purchaser’s offer has been accepted, the purchaser should review the deal sheet prepared by the broker to ensure that the information concerning the key terms of the potential purchase are accurate.  There are the obvious ones, such as the purchasers’ names and addresses. It also states the projected closing date, the  monthly maintenance, any assessments, the flip tax and what items are or not included in the deal, such as drapes or chandeliers. It sets the course for the entire transaction to follow. It is not unusual to find that there will be a maintenance increase or an assessment right before, during or right after the closing. The information about this should come out either in the deal sheet itself or when the purchaser’s attorney reviews the minutes of the board of directors meetings.

There may be multiple purchasers, including combinations such as both parents and an adult child. Sometimes one of the group drops out of the deal early on for some reason.

Then there is the purchase price and how it will be paid. A key issue there is whether or not financing will be allowed. While a lot of buyers want mortgages, they are competing with other buyers offering all cash to purchase.  Having a mortgage means there is still a period of uncertainty in the deal where the seller does not know whether the buyer will get a mortgage. The property will be off the market for 30 to 40 days during this process and it can turn out that the buyer does not get a mortgage. It can also happen that the property does not appraise for as much as it needs to for the size of the mortgage being requested. This can lead to a mortgage turn down or the need for the buyer to contribute more cash to the deal.

The deal sheet may not mention whether pets are an issue, but it should be raised at the first opportunity by the purchaser so that the correct answer can be obtained. In one closing, a buyer was lead to believe that there were pets allowed in the co-op building on an “exception” basis because a board member had a pet. What turned out to be the case was that the house rules had been changed to have a no pet policy and the only pets in the building, were those who had been grand fathered in. The board met to discuss whether an exception would be allowed before the full application was presented and the answer was “no.” The would-be purchaser spent a lot of time and money on a possibility that was unlikely to occur. Condominiums do not usually have the same restrictions and are considered better choices for people with pets.

The ability to sublet is another big issue for some purchasers. In co-ops it is rare and limited. In condominiums, it is the norm in some buildings. Co-ops generally want the apartments to be occupied by people and families that want to be in the building full time. Condominiums, on the other hand, are often purchased as investments by foreigners or people who do not live in New York City and are purchased with the intention of subletting the units to others. Banks do not like buildings where there are more than a certain percentage of sublets and so the buildings try to restrict it to some extent.

Different co-ops have different sublet rules. Some allow subletting on a one time only basis. Others allow subletting for one or two years in a period of time. There are different rules for each building and sublet fees to go along with it. If a shareholder sells a co-op and for some reason still wants to live there for a year to two, he may be subject to the same sublet rules and fees as everyone else is.

Renovation issues are another big area of concern. While a purchaser may not know whether or not they can renovate as they wish to, they can have a good idea going into the deal about what to expect. There should be a form building Alteration Agreement that they can review in advance to get an idea of what will be expected. It used to be that all renovations were treated roughly the same, but now there are different levels of renovations with increased requirements and fees for the larger ones.

Closing by power of attorney has become more prevalent than in the past. However, executors of estates are sometimes surprised to learn that they cannot give their “power” to others. They have to either personally be there or have documents pre-signed before the closing.

I always like to walk my clients through the stages of the closing, even if they have had a closing before, since sometimes people are too shy to ask. These are just a few examples of issues that can be handled sooner rather than later and can make the closing go smoothly.

C. Jaye Berger, Esq., is the principal of the Law Offices of C. Jaye Berger, New York, N.Y.