Probably the best manner of looking at a purchase of a Cooperative (Co-op) is that you will be going through the following four (4) phases:
In sum and substance, a law in New York called the “Statute of Frauds” provides that until such time that a Seller signs or clearly consents to a Contract of Sale in which all the materials terms are agreed upon; there is no binding transaction between the Parties. This means two things: first, you are not bound to honor the verbal offer to purchase the Cooperative and second, this also means that the Seller is not bound to accept your verbal offer. We will not deal here with the ethics and morals of a Seller informing you that you have a deal and then changing their mind because a higher offer comes in. People should of course honor their verbal commitments. but we are dealing with the law and as we all know, “the law” is not always what it should be. For a Purchaser, this is sometimes good news as it allows you to make certain that after the verbal non-binding offer you definitively want to move forward with the transaction and enter into the Contract of Sale. This system allows a Purchaser the opportunity to engage in Due Diligence, which is the legal process of an Attorney making certain that what you visually saw and verbally agreed to is in fact what you are purchasing.
It is imperative at this point to have highly experienced legal counsel representing you. The Law Offices of Kishner & Miller, through our 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 Cooperative corporation, finances, building, and unit. Through this process the “financial health” of the Cooperative may be ascertained, therefore empowering prospective Purchasers to make a far wiser investment. As a part of Due Diligence, an Attorney will generally analyze the following documentation before a Purchaser signs a Contract of Sale.
Location, size, amenities, and price are important factors to consider when purchasing a Cooperative. 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, Cooperative Purchasers can obtain the details pertaining to the Cooperative 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 once 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, which is 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, that there would be one form of a Contract of Sale and that all Attorneys would essentially use that same 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, and contingencies. On top of the many forms that are used by Attorneys, Attorneys add what is known as “rider” to the Contract of Sale. Contract riders have many terms and may be very confusing to a Cooperative Purchaser. After all, it seems like such an easy concept; someone wants to sell and someone wants to purchase. An experienced Attorney such as Kishner & Miller will be able to inform you what customarily should and should not be included in a fair and equitable Contract of Sale. As a Purchaser, if the transaction is not made in “all cash,” then the terms of a Contract of Sale are crucial to protect you from the loss of your Contract Deposit.
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 of Sale that need to be addressed in a Cooperative 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 of Sale, an Attorney must confirm that the Seller is delivering specified major systems of the unit such as the heating or cooling systems in working order. In other words, an Attorney may make sure which systems or appliances of the unit are guaranteed and which are sold “as-is.” Given the reality that most Cooperatives are in old buildings, having an experienced Attorney like Kishner & Miller confirm these contractual matters is ever so important for Purchasers of Cooperatives. Intuitively, Cooperatives are in older buildings and are generally more vulnerable to dilapidation. Therefore, costly repairs are likely to arise and if known and you want them addressed they should be addressed during this initial phase of contract negotiation.
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 or even just leisure to fully decipher the meaning of the terms and conditions in a Contract of Sale. Fortunately, Kishner & Miller will have the patience, developed 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 Cooperative Purchaser’s interests.
Even more, the Purchaser’s protection is further ensured, as Kishner & Miller may add a Purchaser’s rider to the Contract of Sale. With this rider, Cooperative Purchasers may obtain many 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 Cooperative Purchaser 30 to 60 days to obtain a loan commitment. Indeed, 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, Cooperative 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. However, Kishner & Miller will take the time to explain and analyze all risks.
Ultimately when the Purchaser signs a contract of sale they give a 10% contract deposit to the Seller. The Contract Deposit 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:
In this category think of the following:
All items must be specifically set forth in the Contract of Sale.
By the time you have reached Phase III of the process, this means that you have reviewed Due Diligence with your Attorney and you still like the unit sufficient 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) to have the funds necessary to go the closing and (2) to obtain Board approval. These two items have been in some manner addressed 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 and how much time you have to submit your board application.
One of the most famous and well-known parts of the purchase of a Cooperative (Co-op) is the Board Approval process. It is imperative to have full transparency with a Board as well as with the information that is submitted to the Board. While many people do not like the Board approval process while they are going through the process (as they feel sometimes it is invasive), it serves a legitimate purpose to protect the building. Generally, if a real estate Broker is involved with the transaction they will be assisting in the assembly, duplication, and submission of the Board Application.
Following the approval of the Cooperative Board Application and having, if necessary, the loan “clear to close,” a Purchaser can safely conclude that Closing day is near and must get ready to close. The closing statement and check instructions will likely be sent only right before the actual closing day. Though this can be aggravating, this is part of the typical real estate transaction in New York. When purchasing “all cash,” however, check instructions may sometimes be provided by Purchaser’s Attorney far earlier than if financing. The last minute feel of getting instructions for how to write your checks is due to essentially two factors: (1) The Purchaser’s Attorney must await the Seller’s Attorney for instructions on how the Seller wants the 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 New York 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 of Sale. If there is an issue during the “walk through inspection” same must be raised at the Closing. 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 Cooperative’s 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 Cooperative Purchaser can consent to allowing 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: