Purchasing a Condo in NYC: The Four Phases

Phase I: Due Diligence (Not Yet in Contract)

It is imperative at this point to have highly experienced legal counsel representing you. The Law Offices of Kishner & Miller, through their extensive years of legal experience, will guide you through this process. Due Diligence refers to the procedure in which an Attorney investigates various aspects of the Condominium corporation, finances, building, and unit. Through this process, the “financial health” of the Condominium may be ascertained, therefore empowering prospective Purchasers to make a far wiser investment. As a part of Due Diligence, an Attorney generally will analyze the following documentation before Purchasers sign a contract:

• The Condominium’s financial statements – the Financial Health of the Condominium

• • While the Financial Statements of a Cooperative corporation are often analyzed to assess the underlying mortgage, this is not so much the case with Condominiums. Normally, Condominiums do not have underlying mortgages to drag the unit owners and building down.
  • An Attorney will use the Financial Statements to also determine whether the Condominium receives sufficient income through usually common charges or assessments in excess of the operating expenses. In other words, is the Condominium running at a loss or a gain?

• The Offering Plan and Amendments

• • The offering plan includes the scope of the original project, a description of the Condominium’s setup, and other required information. Generally, the younger the Building the more significant this document is.
  • The “Description of Property” section of the Offering Plan deals with an overview of the Property.

• The Meeting Minutes of the Board of Managers
  • The Meeting Minutes sometimes reveal the cash amount that the Condominium holds in the reserve fund, as well as other past or ongoing issues happening in the Condominium (or sometimes even the very unit you may be acquiring).

• Discussion with the Managing Agent/Questionnaire
  • An Attorney, at times, may need to seek answers for the Managing Agent of the Condominium. This is sometimes done in the form of what is commonly known as a “Questionnaire,” where the Managing Agent is asked written questions by Kishner & Miller and responds via written answers to important matters dealing with the Condominium.

Location, size, amenities, and price are important factors to consider when purchasing a Condominium. This is for you, the Purchaser, to make a personal decision; can I live here? Is the space large enough? Do I like the Area? Nonetheless, focusing merely on these aspects would be misguided. Through Kishner & Miller’s Due Diligence, Condominium Purchasers can obtain the details pertaining to the Condominium which one cannot see just by having visually seen the Unit. All of the findings during this process of Due Diligence are directly and clearly explained to you. Only when the Purchaser has a complete understanding of the Attorney’s Due Diligence may one really make a determination of whether they wish to move on to the next phase (signing of a Contract of Sale.)

Phase II: The Negotiation and Signing of a Contract of Sale

A Contract of Sale is a crucial document, as the terms of a Contract of Sale memorialize the agreement between the Seller and Purchaser. You may not use the excuse that you did not know what you signed. If you do not understand something, you must ask for clarification. Many years ago Attorneys had essentially agreed among themselves through custom in the industry, etc., that there would be one form of a Contract of Sale and all Attorneys would essentially use that form. Nowadays, there are many permutations of form Contracts of Sale, produced by a litany of distributors of form documents. As such, the Contract of Sale has become a highly negotiated document containing many terms, provisions, agreements, representations, contingencies, etc. On top of the many forms that are used by Attorneys, Attorneys add what is known as “rider” to the contract. Contract riders also have many terms and may be very confusing to a Condominium Purchaser. After all, it seems like such an easy concept; someone wants to sell and someone wants to purchase. The bottom line is that an experienced Attorney like Kishner & Miller will be able to inform you what should customarily is and is not included in a fair and equitable contract. As a Purchaser, if the transaction is not made in “all cash,” then the terms of a contract are crucial to protect you from the loss of your contract deposit. There are of course many other representations and protections that you are seeking.

Kishner & Miller will make certain that each and every term of the deal made between the parties is clearly contained in the Contract of Sale. There are a wide variety of common terms and conditions in a contract that need to be addressed in a Condominium real estate transaction. For instance, normally you purchase a unit in its “as is” condition. However, as a Purchaser, you may want repairs done or try to ensure that you are delivered a Unit in a certain physical condition. Kishner & Miller will try to ensure that the Contract of Sale explicitly enumerates each party’s respective responsibilities, if any, for making repairs that were mutually agreed upon. Furthermore, in some contracts, an Attorney must confirm that the Seller is delivering the agreed upon specified major systems of the unit, such as the heating or cooling systems, in working order. In other words, an Attorney may confirm which systems or appliances of the unit are guaranteed and which are sold “as-is.” Given the reality that condition of every Condominium may not be perfect, having an experienced Attorney like Kishner & Miller confirm these contractual matters is important for Purchasers of Condominiums.

While all of the terms and conditions explained thus far appear to be very straightforward, a typical real estate purchase contract is complex, densely written, and jammed with legal jargon. It is very possible to simply overlook or misinterpret a single clause that may result in a loss of thousands of dollars. There are, in fact, many Purchasers who for certain reasons may not have the linguistic competency to fully decipher the meaning of the terms and conditions in a Contract of Sale. Fortunately, Kishner & Miller will have the patience, critical analysis skills, and legal knowledge to thoroughly evaluate if the terms and conditions in a Contract of Sale are well tailored to protect the Condominium Purchaser’s interests.

The Purchaser’s protection is further ensured as Kishner & Miller may add a Purchaser’s rider to the Contract of Sale. With this rider Condominium Purchasers may obtain several protections, including the possible ability to void the Contract of Sale without penalty in cases where the Purchaser is unable to obtain financing on the terms specified in the contract after making a reasonable or good faith effort to do so within the time provided. Normally, this provision grants a Condominium Purchaser 30 to 60 days to obtain a loan commitment. In a very competitive Seller’s market, a Seller is more likely to not allow for a mortgage-contingency or a rider that deals with financing protections. If this is the case, Condominium Purchasers should be reluctant when signing a purchase contract as the absence of this clause might force Purchasers to finance a home purchase at a bad interest rate or may lead to the loss of your Contact Deposit. Kishner & Miller will take the time to explain and analyze all risks.

Usually, when the Purchaser signs a contract of sale they give a 10% down-payment to the Seller. The down-payment is supposed to be maintained in escrow by the Seller’s Attorney. The following items are some of the things that you should think about or look out for in the Contract of Sale:

• Correct identification of yourself
  • Use your legal name and be consistent though the entire process to ensure that your name is always spelled the same.
• Correct identification of the Unit you are purchasing.
• Items to be included and items to be excluded

In this category, think of the following:

• All items of Personal Property
• Built-ins
• Appliances
• Televisions (especially ones that are anchored onto a wall)
• Window treatments like, curtains, blinds, levelers
• Storage Units

All items must be specifically set forth in the Contract of Sale.

• Monetary Obligations
  • Purchase Price
  • Contract Deposit a/k/a Down-payment
  • Balance of Purchase Price due at Closing

• Financing – is or does the Contract of Sale
  • “contingent”
  • “non-contingent”
  • “all cash”
  • have protections in the event Purchaser is unable to obtain financing

• Time frames
  • To submit the Board/Purchase Application
  • To obtain financing
  • Is the Closing –an “on or about” date or “Time of the Essence”

• Other contingencies

Phase III: Approval {Bank Approval/Board’s Waiver of The Right of First Refusal/Title Clearance}

By the time you have reached Phase III of the process, you have reviewed Due Diligence with your Attorney and you are still interested in the unit enough to have entered into a fully executed Contract of Sale, in which you have agreed to all the terms contained in the Contract of Sale. As such, you are now seeking to do two things: (1) have the funds necessary to go the closing, and (2) obtain Board’s Waiver of The Right of First Refusal. These two items have been addressed in some manner in your Contract of Sale. The Contract of Sale most likely has specified a designated amount of time for you to have your funds available/obtain financing as well as how much time you have to submit your board application.

Bank Approval/Funds Available for Closing

• The “All Cash” Transaction: An “All Cash” transaction, in the true sense of the term, means that you are not financing. This is very different from a transaction which is just “non-contingent.” A non-contingent transaction means that although you may still be obtaining financing form an institutional lender/bank, you cannot necessarily by right void the Contract of Sale if the institutional lender does not fund the transaction. Basically, you must know what type of Contract you are entering into!
• Financing or the “Non-Contingent” Transaction. With the very first steps of contract negotiation and Due Diligence out of the way, what follows is that a Condominium Purchaser must arrange for financing with a bank (assuming that the transaction is not being made in “all cash.”) At this stage, your ultimate goal is obtaining an unconditional Loan Commitment Letter from an institutional lender {a/k/a a bank}. Most likely you have already been in discussions with a bank or mortgage broker. It must be ensured that the mortgage broker or bank representative possesses all necessary documentation, knows all due dates, and has the level of experience that is required in the New York Condominium market.

• Lock-in Rates:Most importantly, Purchasers must be cautious to not lock in a rate until a loan representative has definitely seen a copy of the Contract of Sale and understands the “on or about Closing date.” Closing dates in New York if not “Time of the Essence” are not precise dates but rather “on or about” which means that there is customarily {not definitely} a 30 day time frame in which to close from the date listed in the Contract of Sale to close. To avoid extension fees, Purchasers should think carefully whether or not to lock in a rate too early especially in view of knowing that the Condominium Board review process can take a while. It is also prudent for Purchasers to find out whether the loan product acquired has extension capability and associated fees just in case the closing is postponed. Purchasers will then receive a Loan Commitment Letter after the bank has finally reviewed all relevant documentation, done a credit report and agreed to fund the loan.

• • • Pre-approved Lenders: Moreover, Condominiums usually keep a list of pre-approved lenders, that is, all of the financial institutions that have already consented to loans in the Condominium. These lists can normally be obtained from the Bank. Condominium mortgages are available in nearly all varieties available for traditional mortgages. Purchasers can choose from adjustable rate, fixed rate, or hybrid loans. All in all, the process for getting a mortgage may take two to four weeks so it is best to get an early start.
    • Timing to obtain financing: When the Contract of Sale is contingent on financing, a specified period of time, normally 30 days, will be granted to obtain the Loan Commitment Letter as well as the submission of the Condominium Board Application Package. Of course, it may in fact be the case that a Condominium Purchaser will fail to secure the Commitment Letter from a bank for legitimate reasons at the expiration of this 30-day period. Nonetheless, provided that the Purchaser had applied in full good faith and has a contingent Contract, he or she retains the right to cancel the contract and receive the down payment back. Also, it should be noted that the Purchaser could still, even at this point, try to convince the Seller for a contingency extension, which will yield more time to obtain the Commitment Letter.
    • Loan Commitment Letter: The Loan Commitment Letter should be a clear indication that the Condominium and Purchaser have fulfilled the lender’s underwriting requirements. These requirements may include submitting additional bank statements, justifying any red flags in employment history, and showing credit history. A loan commitment normally does not become a binding agreement until the bank receives an acceptable appraisal. Furthermore, the contingency period generally comes to a close the moment that the Loan Commitment Letter is issued. The Condominium Purchaser is obligated to respect the contract, even if the remaining terms of the Loan Commitment are not favorable. If the loan is revoked due to the Condominium itself and not the Purchaser, often the Seller can be convinced to terminate the contract.
    • Having your funds available. You need to ensure that you have the balance of the purchase price in readily available funds and are prepared to produce at the Closing the remaining purchase price. Remember, at this juncture you are already in contract, so you now need the remaining 90% of the Purchase Price (i.e. the balance.) Depending upon your financial situation, where your funds are located, and who is actually delivering the funds, it is important that this issue is resolved. Many people do not necessarily have readily available funds as their funds are in mutual funds, securities, or in other investments. In such cases there may be time needed to have funds liquidated in such a manner that you will have the funds available to bring to the closing. In almost every closing of a Condominium, the Purchaser must bring a bank check to the closing from a institutional lender who has a clearing house in New York County. Kishner & Miller is prepared to assist you in any manner that we can to make this process as easy for you as possible. Also, please note that it is rare that you just write one check for a closing equaling the amount of the balance of the purchase price. Rather, the Seller has the right to direct you to produce several checks to many different payees. This is because a Seller needs to make payment to other entities in order to make the deal happen, such as paying off the Seller’s mortgage or payment of taxes. Bottom line: even in an “all cash” transaction there is much coordination and thought that must go into the process of having your balance of the purchase price ready for the closing.

    Condominium Board Application/Waiver of Right of First Refusal

    • Condominium Board Application: Many Purchasers of a Condominium do not think that they need to file any application with a Condominium and therefore a Condominium does not receive financial information from a Purchaser, however this is incorrect. A Condominium application is almost as extensive as a Cooperative application (if not the same) in its request for financial and other related information/documentation that a Purchaser must provide to the Condominium/Managing Agent.
    • Waiver of Right of First Refusal: While a Cooperative has the right to “reject”/”deny” a potential applicant, a Condominium only has the right to make a decision as to whether the Condominium itself wishes to purchase the unit or whether (as is more typical) a Condominium “waives their right of first refusal.” The reason or logic as to why so much financial information is needed from a Purchaser is that for a Condominium to make a decision as to whether or not they will be purchasing the unit themselves or to issue their “waiver.” Potential Purchasers must consider that full financial disclosure is still happening. Once the potential financing process is complete, the Condominium Board Application is the next procedure to be dealt with. In cases where the Condominium Purchaser has hired a real estate broker, that same broker will likely deliver the Condominium Board Application package. If this is not the case, then a Condominium Purchaser’s Attorney can instead assist in obtaining all of the necessary documentation. If the Condominium Board does not issue their “waiver,” the entire down payment will be returned – provided, of course, that the Purchaser applied in complete good faith. The Condominium Board package will likely demand very similar personal information to that which was gathered for the potential mortgage application. Furthermore, the Condo Board may also mandate letters of recommendation along with an additional credit check. While these requirements are quite similar to those set by the Cooperative Board, the process is a lot less severe than that of a Cooperative Board package. Once again, Condominium Boards do not retain the same type of approval “power” that most Cooperative boards have, but in the event that the Board does not wish to approve the transfer of the property to the prospective Purchaser, the Board must buy the property from the Seller at the same price specified in the Contract of Sale. This rarely ever happens, and if it does, a Condominium Purchaser will be refunded for the entire down-payment made.
    • Timing of the Submission of the Board Application. As far as the general timing for when a Board Application needs to be submitted, this is usually controlled by the wording contained in the Contract of Sale. In the “all cash” transaction, the Board Package must normally be turned in 10 to 20 business days from the date of the contract. This time frame should be stated in the Contract of Sale. If a Purchaser is financing, a Purchaser is generally given 30 calendar days from the date of the Contract of Sale, or 3 business days from the date the Loan Commitment Letter was received. It is highly recommended that an applicant begin work on the Board Package as soon they are “in contract.”
    • Title Clearance: Just as any other simple purchase, a Condominium Purchaser needs a title insurance policy to protect his or her title. After the signing of the Contract of Sale, an Attorney will order a Title Report on the Condominium Purchaser’s behalf. While there are individuals who claim it is better to hire one company rather than another to save money, laws set rates so that there is no variation. A title search is meant to ensure that no outstanding liens, mortgages, judgments, or other “cloud” on the title are present when the deed is given to the Condominium Purchaser upon closing. A Condominium Purchaser cannot be forced to close if the Seller cannot produce an insurable title or deed. Also, if the liens and encumbrances are not dealt with promptly by the Seller, the Condominium Purchaser may be entitled to receive back their down payment. After the Title Company determines that the Seller can produce a clean deed, the Condominium Purchaser must purchase a Title Insurance Policy at the closing. This is a one-time payment that is regulated by law and depends on the price of the Condominium. This policy remains in effect for the as long as the Purchaser owns the property and also protects the Purchaser from any other parties’ claims against the property. After the Title Insurance Policy is issued, the property is generally owned by the Purchaser.

Phase IV: Closing Day — the “Big Day”

Following: (a) the approval of the Condominium Board application; (b) having, if necessary, the loan “clear to close,” and (c) knowing that your “title” is clear, a Purchaser can safely conclude that Closing day is near and must prepare to close. The closing statement and check instructions will likely be sent only just before the actual closing day. Though this can be aggravating, this is part of a typical real estate transaction in New York. When purchasing “all cash,” however, check instructions may be provided by Purchaser’s Attorney far earlier than if financing, assuming that the Seller’s attorney is cooperating and providing the necessary information to the Purchaser’s Attorney. The last minute instructions on how to write your checks are due to essentially two factors: (1) The Purchaser’s Attorney must wait for the Seller’s Attorney instructions on how the Seller wants their checks and in what amount each check should be; and (2) Purchasers must wait for the Lender’s Attorney to issue the “net proceeds” on the loan, which refers to the actual amount the bank brings to the closing. The bank will directly deduct its many fees from the requested loan amount. Therefore, the Purchaser should be prepared to bring multiple Certified or Official Bank Checks from a bank that is part of the NY Banking Clearinghouse. One last “walk-through inspection” of the unit is recommended to ensure that all appliances and plumbing fixtures are in the condition as contemplated by the Contract. If there is an issue during the “walk-through inspection,” it must be raised at the Closing, as once the Closing occurs it is difficult (if not almost impossible) to deal with these issues. Purchasers should make sure to reserve 2 hours for the closing process, which will normally take place at the Condominium management office. Lastly, there are many cases where the Seller will be purchasing a new property and may not be able to move out on closing day. A Condominium Purchaser can consent to allow the Seller to stay beyond the closing day and be compensated accordingly with rent deductions. This is known as a Post Possession Arrangement.

Items to be certain to bring to the Closing:

1. Two (2) forms of valid picture identification
2. Your personal checkbook
3. Your favorite pen