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Your Coop Purchase... What To Expect

Contract Negotiation and Due Diligence

  • Once your offer is accepted, a transaction summary sheet (or Deal Sheet) will be prepared by the brokers and sent to your attorney. Then, immediately upon your attorney’s receipt of the Deal Sheet, they will begin the due diligence process, investigating the cooperative corporation, its finances, the building and the Unit.
  • Simultaneously to the due diligence your attorney is performing, they will request the contract from the Seller’s attorney and negotiate that contract, to ensure it contains all relevant components of the deal that were struck, and that it contains certain protections for you, the purchaser.These protections and representations from the Seller will be included in a Purchaser’s rider, which we will negotiate into the contract.
  • Once your contract is fully negotiated, we will send the completed version to you with a summary of the important points, both in the contracts and on the building, for you to review and subsequently sign.If everything seems to be in order, and all your concerns addressed, you will sign the necessary contract pages and return everything to your attorney’s office. The contract will then be sent to the Seller’s attorney for the Seller’s signatures counter signature, a check for 10% of the Purchase Price (or negotiated down payment amount) will also be held in an escrow account and be applied towards the funds for closing. After the Seller executes the contract they will be returned to our office, along with confirmation that the down payment has been deposited into the seller attorney’s IOLA Attorney Escrow Account. The day the fully executed contracts are returned to us is the date of the contract.

Financing (if you plan to obtain a Mortgage)

  • Once “in contract,” you will need to work closely with your mortgage broker or bank representative, to ensure they have all requested and necessary documentation from you.DO NOT LOCK IN A RATE UNTIL YOU ARE CERTAIN YOUR LOAN REPRESENTATIVE HAS SEEN A COPY OF YOUR CONTRACT AND UNDERSTANDS THE “ON OR ABOUT CLOSING DATE”.In New York, closing dates are not exact, rather they are “on or about.” This allows a Purchaser or Seller a 30-day window in which to close.All too often Purchasers lock in a rate too early and are faced with extension fees.Remember, when the Coop Board reviews your application and interviews you, there still remains an unknown as to when the closing will actually take place, so some flexibility is necessary.You should always inquire if the loan product you are acquiring has extension capability and whether there are associated fees just in case the closing is delayed.
  • Understand that a “pre-qualification letter” is NOT a Loan Commitment Letter.A Loan Commitment Letter is issued by the lender only after three checks have been done: (1) they have reviewed your documentation, (2) have done a credit report and (3) agree to fund the loan subject to additional conditions that may appear on the Commitment.
  • It is important to arrange for your lender to perform an appraisal on the premises as quickly as possible; the bank and your real estate broker will ensure the appraiser has access.
  • If your contract is NOT contingent on financing, if you are unable to secure a loan commitment letter, you are still bound by the terms of the contract and will be expected to close.If your contract IS contingent on financing, you will have a specified period of time (most often 30 calendar days from the date of contract to secure your Loan Commitment Letter), to submit your Loan Commitment Letter, along with the Coop Board Application Package.Your Board package typically must go in no later than 3 business days’ after you receive your Loan Commitment Letter, so please make sure you are simultaneously working with your broker on the Board Application to not miss this deadline.If at the expiration of this period, you are unable to secure the Loan Commitment Letter, after making a full good faith application, you will be entitled to cancel the contract and receive the down payment back. However, if you desire, you may ask the Seller for a contingency extension, allowing you additional time to secure the Commitment Letter.
  • The Loan Commitment Letter may have conditions and require you to provide more information. For example, the bank may request the submission of additional bank statements or pay stubs, a written explanation of any irregularities in previous employment or credit history, etc.Normally, a Loan Commitment Letter will not be considered a binding commitment, until the bank has received a satisfactory appraisal.
  • With few exceptions, once the Loan Commitment Letter has been issued, the contingency period is deemed over, and you will still be bound to the contract even if you are unable or unwilling to satisfy the remaining conditions of the Loan Commitment.We will discuss any specific or special details should this arise that are unique to your purchase Contract – often we are able to have a Seller agree to let you terminate the contract, if the loan is rescinded by the lender, even after a loan commitment is issued, due to something relating to the Cooperative, and not you.

The Bank Attorney

  • When financing, once the Commitment is issued, you should be receiving some communications from the lender’s attorneys.They will be sending you 3 important items:
  • The UCC 1 Authorization Form – enables the bank attorneys to “register” the loan (normally requires a fee ranging from $100-$125).This form and the check should be sent back to the lender’s attorney per their instructions as soon as possible.
  • The Lien Search Request Form – if you choose, the bank attorney can also order the Lien Search (a report that discloses all existing liens against the apartment and seller that may affect the Unit).We can do this for you as well – the choice is yours.
  • Three copies of the Cooperative Recognition Agreement, also called the “Aztec Forms”; this is an agreement whereby the bank and Cooperative Corporation recognize the responsibilities and obligations towards the other, in the event of a loan default.All 3 will be pre-signed by the lender; you will need to sign them as well, AND DELIVER THEM TO YOUR REAL ESTATE BROKER, OR TO OUR OFFICE SO THEY CAN BE FORWARDED TO THE COOPERATIVE BOARD, AS THEY ARE REQUIRED IN ALL BOARD PACKAGES.

The Board Application

  • If there is a real estate broker working on your transaction, they will provide you with a copy of the Coop Board application package.If not, your attorney will acquire the necessary paperwork for you.Your broker will provide additional instruction for the completion of the package; most likely, the same documentation you have assembled for your mortgage will be needed in the board package.There may also be the requirement for letters of recommendation and another credit check.This is normal and while seemingly a bit invasive, however it is all part of the Cooperative process.
  • Remember to provide ALL information that is requested.In the event that the Board does not accept your application, you will receive your entire down payment back, PROVIDED YOU APPLIED IN COMPLETE GOOD FAITH – nothing has been falsified, misrepresented or willfully excluded.
  • If you are not seeking financing, the Board Package is usually submitted between 10 and 20 business days from the date of contract.
  • If financing, your board package will typically be submitted within 3 business days from the date you receive your Loan Commitment where the appraisal condition has been satisfied.It is prudent to begin working on the Board Package as soon as you are “in contract.”

Getting Ready To Close

  • When your loan has been fully approved, it is called “clear to close (or “CTC”).”This is a term you will likely hear frequently as we get near a closing.Remember that only the bank’s attorneys (not mortgage broker or the bank representative) will give the final clearance – your attorneys will be in constant touch with these attorneys and will keep you informed.
  • You will be notified by the Coop Board that your application has been approved and that an interview (in most cases) will be scheduled. You will be required to attend the interview in person, with rare exceptions granted only in extenuating circumstances. If you are working with a Real Estate Broker, they will be able to assist you in preparing for the interview. Normally, the board will issue its decision shortly after the interview.
  • Once you have been approved by the Board, and your loan is clear to close, we can schedule a closing date. In all likelihood, the bank attorneys will not solidify a date until your loan is “clear to close.” Your “first choice” of closing date may not be available (or even the second for that matter).If you believe you will be unable to attend the closing in person, please let us know as soon as possible so we can review the details of closing by Power of Attorney with you. It is frustrating in New York, as you likely cannot confirm movers and other plans until we have the firm closing date. Please be patient, be a little bit flexible, and of course, it always helps to have a sense of humor.
  • Please also keep in mind that once the bank is officially cleared for scheduling, the bank will issue you a final “Closing Disclosure,” which federal regulation requires you acknowledge at least 3 business days in advance of your scheduled closing date. Please keep this in mind – while your attorney will do everything they can to accommodate a closing at the earliest possible date and time, a closing can never be scheduled less than 3-4 days’ notice.

Closing Day

  • Although we will make every effort to get you final numbers as far in advance of the closing as possible, it is quite likely that you will not receive your closing statement and check instructions until right before the closing.This is the process in NYC, and while extremely frustrating, is not unique to your transaction.If you are purchasing “all cash”, we will most likely be able to provide you with your check instructions earlier than if you are financing.With a loan, we must wait for the lender’s attorney to provide us with the “net proceeds” on the loan. Your “Net Proceeds” is the amount the bank is actually bringing to the closing.For example, if your loan is $500,000, the bank may really come with $496,239.87.Why?Because the bank takes all of their fees right off the top of the loan.You are still borrowing $500K, but they collect underwriting and processing fees, appraisal fees, bank attorney fees and the remaining mortgage interest for the month in which you close, right from the mortgage; consequently, until we get that number from the lender, we cannot tell you the exact amount of the checks you need to bring yourself.Be aware however, that you will likely need one or more CERTIFIED OR OFFICIAL BANK CHECKS, drawn from a bank that is a member of the NY Banking Clearinghouse.
  • Prior to closing you should schedule your “final walkthrough” with your broker. This inspection will take place when the apartment is fully vacant to ensure that the apartment is in the condition as contemplated by the Contract.During this inspection, you should test all appliances, heating, plumbing and electrical fixtures and look for any damage that was not apparent when you initially went into contract. In most cases, it is always helpful to have the super or building handyman’s phone numbers if issues arise at the walk-through. Often issues that come up during an inspection are easily addressed and resolved if the super or handyman is available to repair the issue during the walk-through.
  • You should allocate approximately 2 hours for your closing.Those present at the closing will be us, the seller’s attorney, the sellers, your bank attorney (if you are financing), and the cooperative managing agent.Closings for coops are normally held at the coop management offices.

Remember that we are here to make this transaction as stress-free as possible for you. Please let us know if you have any questions about this information, or about your transaction in general.

 




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