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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 THAT WORKS

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 Outdated or inadequate rules and procedures can quickly erode the value of units in your building or its quality of life, so it pays to make sure that your admissions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 is sound.

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," he says.

REVIEW ALL BUILDING RULES AND REGULATIONS
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 GUIDELINES
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 PACKAGES
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 DISCLOSURE
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."

 
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