A cooperative is an apartment that is owned by a corporation and the individual apartment owner is a shareholder of that corporation. Just like a regular corporation, decisions in the coop are made by the coop board which is made up of individuals appointed to various positions. The owner of a coop apartment cannot do anything with their apartment which is in violation of cooperative rules or without prior consent of the coop board. In addition, the coop board must approve all new owners and can deny a person’s purchase of an apartment. They are not required to provide any explanation as to the reason for their denial. In some instances, a buyer can be accepted by the seller and approved by a lender to purchase a coop but denied approval by the coop board. If you are interested in purchasing a cooperative you should have knowledge of the following:
Financial Viability of the Coop
You want to make sure that your cooperative is financially sound. If a cooperative is not financially sound, you are likely to experience increases in your monthly maintenance. You can obtain copies of financials for a cooperative. You should have your attorney review the debts owed by the cooperative vs. the income the cooperative has received.
Owners vs. Renters
When you purchase a cooperative, you want to make sure that most of the units are owned and not rented. Cooperative buildings that contain more owners tend to be better managed because the owners have an interest in the property and renters do not. A cooperative that contains mostly renters, is not usually as well maintained and/or financially sound.
1. Meet with a mortgage broker and/or lender and obtain a preapproval letter.
2. Make sure you advise the mortgage broker and/or lender that the preapproval is for a cooperative apartment.
3. Make sure that the mortgage broker and/or the lender you go to have no restrictions on your purchase. For example, some lenders may have restrictions and/or requirements such as coop must be 95 percent owner owned or they will not approve a loan.
4. Find a cooperative you’re interested in. Prior to putting in an offer you should find out if the cooperative has income requirements.
5. Physically view the cooperative the building and grounds. You want to make sure that the cooperative will meet your living requirements.
6. When you locate an apartment you like, advise Canale Realty and we will conduct some preliminary research on the management of that cooperative.
7. You should also advise Canale Realty of any questions you may have such as: a. How much is the maintenance? b. Is there parking? and/or c. Any other questions you may have.
8. Make an offer with a mortgage preapproval and proof of funds. For example, if you are buying a $200,000 coop and need 20 % down. You need to demonstrate that you have the $40,000 in your bank PLUS closing costs which can be an additional $5000 to $10,000 plus a preapproval from a lender for $160,000.
9. The next thing that will happen is the seller’s attorney will prepare the contract of sale and send it to your attorney.
10. Your attorney should request at this time, the cooperative financials and by-laws so they can review them with you along with the contract of sale.
11. While your attorney is dealing with the contract aspect, you should gather your financial documents which will be requested by the cooperative such as a month of pay stubs, two months of bank statements, two years of tax returns, and your preapproval letter. Note that each cooperative has its own rules and may request more months of any financial document. You will also have to complete a cooperative application and credit check.
12. When you go to your attorney’s office be prepared to put down at least 10 percent of the contract price so bring your checkbook.
13. Once you sign the contract, the seller will sign the contract.
14. Your attorney will order a title/UCC search. UCCs are the liens placed on cooperatives. For example, if a landscaper was not paid by your cooperative, he could place a lien against the property. You want to make sure that there are no major liens against a property you are purchasing.
15. You need to give your lender a fully executed contract of sale.
16. Once the cooperative reviews your application, credit report, and financials they will schedule a face-to-face meeting with the cooperative board where you will be asked several questions including background, financials, and questions regarding your use and intentions with the apartment you are applying to purchase. An example of intentions can be, are you planning to rent or sublease your unit.
17. Canale Realty will accompany your bank appraiser to the property if they wish to appraise the property.
18. If your lender approves the transaction they will issue a commitment.
19. You must close prior to the expiration of the commitment.
20. You must obtain approval from the cooperative. If the cooperative does not approve you, you will not be able to purchase the apartment.
21. Assuming the cooperative approves you, you should obtain homeowners insurance.
22. Prior to closing Canale Realty will accompany you to a walk-through. You want to make sure the cooperative you are purchasing is has been vacated and is in the same condition that it was when you made your offer.
23. Canale Realty will assist you with determining the cooperative move-in instructions. Cooperatives may have specific days and/or elevators that can be used when moving in.
A condominium is an apartment house in which the owner owns the individual apartment unit but the common places, such as the outside grounds, have shared ownership with other owners.
Steps to purchasing a condominium are as follows:
1. Find Property.
2. Prior to placing a bid on the property, you should check the common charges/maintenance that is required to pay separately.
3. Prior to placing a bid on the property, you should find out what costs are included in your maintenance.
4. Prior to placing a bid on the property, you should obtain a preapproval letter from a bank or mortgage broker.
5. When you submit your preapproval, be ready to submit your proof of financing with your offer.
6. You should also have the name, address, telephone, fax, or email of the attorney you want to use.
7. The offer is usually submitted in writing to the seller.
8. You may choose to have a home inspector conduct an inspection of the unit for you. There is a charge for this service.
9. Once the offer is accepted, it is forwarded to the seller’s attorney who will prepare the contract of sale.
10. The seller’s attorney will forward the contract to your attorney.
11. Your attorney will review the contract with you and you will sign the contract, you should be ready to put a down payment when you sign which could be anywhere from 5% to 10 %.
12. The attorney will send the contract signed with a down payment check to the Seller’s attorney.
13. The seller’s attorney will have the contract signed by the seller and return 1 copy of the fully executed contract to your attorney
14. Your attorney needs to give the fully executed contract to your mortgage broker or bank so they can start the mortgage.
15. Your attorney will order a title on the property to make sure there are no liens against the property
16. Once you obtain your mortgage commitment from your lender and the title is clear you can close.
17. Before you close you can do a walk-through of the condo apartment to make sure the unit looks exactly the way it did when you put the offer in.
18. When you do the walkthrough, it should be close to the closing date so you can make sure the seller is in fact moving.
19. At closing you will have to bring your identification.
20. At closing your attorney will provide you a list of certified checks you must obtain.
21. Closing costs will include the balance that you owe the seller, your title bill, and your attorney’s bill.
22. You should also bring your personal checkbook and make sure you have money for any extra costs that may arise.
23. At the end of the closing make sure you obtain your keys.
Disclaimer: Anadel Canale is a licensed real estate broker & attorney. In her capacity as a real estate broker, Anadel cannot offer any legal advice and cannot represent a buyer or seller in the sale of a real estate transaction and/or Closing of a property where she is a real estate agent. As such, the attorney-client privilege does not apply in that capacity. A buyer & seller must obtain an independent real estate attorney to represent them in the sale or purchase of their home.