Publication Date: Winter 1997
CNYC proudly presents its Cooperative
Housing Conference each autumn. With product exhibits to visit
from early in the morning and scores of workshops and seminars,
the Conference brings together hundreds of CNYC members for
a day of learning and sharing.
Reviewed below is a presentation
on Admissions Policy from a recent Cooperative Housing Conferences:
CREATING AN ADMISSIONS POLICY
With New York's residential sales market heating up, cooperative
and condominium boards need to take a hard look at their admissions
policies. Outdated or inadequate rules and procedures can
quickly erode the value of units in your building or its quality
of life, so it pays to make sure that your admissions policy
According to Arthur Weinstein, a cooperative and condominium
attorney and CNYC vice president, boards should have all their
procedures locked in place "before a contract of sale
is signed -- before it is even thought of." That means
having all policies in writing, reviewed and approved by your
attorney and accountant and distributed to all shareholders
and prospective purchasers, so that "you don't have a
one-bedroom apartment being used by four families, without
rules that specifically state that this can't happen,"
REVIEW ALL BUILDING RULES
The first step is to review all of the building's rules and
regulations defining what shareholders can and cannot do with
their apartments. "If you have a strict alterations policy,
a good synopsis of it should be in the admissions package,"
says Stuart Bardin, executive vice president of Quadrangle
Realty Services. "This way, by the time of the interview,
people have a clear sense of what is allowed and what isn't."
APPLICATION FORM IS KEY
Another important component of the admissions package is the
application form. This should not only ask the applicant to
state his current income, but also provide some evidence.
Most boards are satisfied with receiving only recent Federal
1040 tax forms, yet this can prove tricky. "Don't rely
on the 1040s totally, because they are easy to fake and there
are plenty of people out there who will try to deceive you,"
says Mr. Weinstein.
Instead, contact the applicant's current employer and ask
for verification. You can also ask the applicant's CPA to
verify the income in writing on his letterhead, "especially
if the applicant is in the performing arts or other freelance
areas, where income can vary from year to year," says
Mr. Weinstein. Also ask for a balance sheet of assets and
liabilities. "You could have someone who owns $10 million
worth of real estate, but has $11 million in debt," says
Mr. Weinstein, noting that "it's grunge work to have
to collect all of this, but it's information you need to know."
Another tough call is when the applicant owns his own business,
and may intentionally declare a low personal income to avoid
the higher taxes. An obvious way around this might be to look
at the applicant's personal assets, but these, too, could
be tied up in the business. "The only protection you
have is to get the business on the hook for the maintenance,"
says Mr. Weinstein. "That is the entity with the assets,
so it should be responsible for making sure the maintenance
is paid. You have to be creative in the admissions process."
When you receive financial information, limit the number
of copies that are distributed, and make sure they don't fall
into unauthorized hands. "This can be a particular problem
when celebrities move into buildings," says Mr. Weinstein.
"It's your responsibility to handle these documents responsibly."
CHECK ALL REFERENCES
The application package should also ask for social and business
references - another touchy area. "Always check out the
references that people give you," says Mr. Weinstein. "Many,
many times, people have either put down fake references, or
put down the names of people who would not give them a good
reference. I have heard of people calling and getting some very
telling answers on the phone. Overall, I have seen some evil
people get admitted and some good people get rejected. Someone,
preferably a member of the cooperative's admissions committee,
should get on the phone and verify each reference." Adds
Mr. Bardin: "Ninety-nine percent of your phone calls will
verify the recommendation letters that people put in their packages.
But every once in a while, you'll run into someone who doesn't
want to talk, or they never heard of the applicant. At the minimum,
verify that the references are real."
To do all of this work, the board should create an admissions
committee which includes at least one board member, who should
serve as the chair. "The committee does not have the
power to say yea or nay, but it does all the work to get the
information that the board will need to make a decision,"
says Mr. Weinstein.
FINANCING & REFINANCING
Another absolute must for the admissions package is to state
the building's financing and refinancing guidelines - and the
board should should enforce them. "If the buyer meets your
cash requirement of 65% and then goes the next day and gets
financing for 80%, you should stick to your guns," says
Mr. Weinstein. "You might want to be more lenient with
older, more proven shareholders if they want to refinance. But
draw the line with new shareholders. You have control over who
buys into your building and how."
Some buildings prefer not to send out admissions packages
when the seller is in arrears. This can present problems,
says Mr. Weinstein. "If the seller is in bankruptcy,
why hold onto your refusal to let him close? You want to get
him out of the building and get a maintenance-paying shareholder
in. And, he'll have to pay all arrears at the closing, anyway."
Both Mr. Bardin and Mr. Weinstein recommend letting the deal
proceed and then making the shareholder pay all debts at the
closing. "This is your time to clear up every single
problem you've had with the owner," says Mr. Weinstein.
"If they've ignored late fees for the last 10 years,
you can collect it now. If they made an illegal renovation,
you can now make the new shareholder sign an agreement to
be responsible for making the changes. The power is in your
hands not to let this transfer go through otherwise."
REJECT INCOMPLETE ADMISSIONS
Do not accept an incomplete admissions application package.
"If you asked for three years' worth of 1040s and they
only gave you one, send it back," says Mr. Weinstein. "The
committee should not review any incomplete packages." Making
sure the package comes in complete is often the managing agent's
job. "Most of the time we spend on the phone is with shareholders
or purchasers about why we cannot send an incomplete package
to the board," says Mr. Bardin. "This is preliminary
and has nothing to do with reviewing the purchaser, so the board
or the committee should not have to do it."
One of the most crucial elements of a complete admissions
package is the contract. The admissions committee should read
this very closely. "Make sure the seller did not misrepresent
anything, like saying the buyer can tear down all the walls
in the apartment," says Mr. Weinstein. "If you approve
someone without seeing the contract, you could be locked into
something you do not want."
According to Mr. Weinstein, the board should update the admissions
package every few years. The building's needs change, as do
government regulations regarding transfers. One example is
the recently passed lead-based paint disclosure law, which
takes effect on December 6, 1996, for cooperatives and condominiums.
Your current admissions package should include appropriate
disclosure information and should clearly state the seller's
responsibilities and the buyer's options.
GET INFORMATION ON LEAD PAINT
The regulations apply to the sale and leasing of housing built
before 1978, when the use of lead paint
was banned. Sellers of pre-1978 buildings must disclose the
presence of known lead-based paint, provide any existing records
or reports pertaining to the presence of lead-based paint, and
provide appropriate disclosure language in either the contract
of sale or the lease. In addition, they must supply the purchaser
with a lead information pamphlet
(also available from the National Safety Council by calling
1-800-424-5323). For more information on the lead-based paint
disclosure regulations, make sure to attend the September 11
workshop entitled Complying with Lead Paint Regulations, which
will be led by attorney and CNYC president Marc Luxemburg. See
Coming Events on page 10 for details.
If there's one fact that all boards should remember with
every admissions decision they make, it's that they are in
control. "Don't compromise your standards," says
Mr. Weinstein. "You are the ones who have to live in
the building, with or without the prospective purchaser. So
keep the building just as you want it to be."