Dear Prudence Beier: Congratulations! Your co-op contract is fully executed. Patience and contingency planning will be critical at this point and going forward to get you through the next steps of the board review process before you can set a definitive close date and confirm a move.
Dear Prudence Cellar: Ditto. And ditto.
While the co-op Contract of Sale stipulates how many days a buyer may take to submit required documents, there are no uniform standards for how and when a managing agent and co-op board must respond. In theory, upon receipt of the package, the managing agent will do a credit and background check and look to see that the required documents are complete and submitted in good order before turning them over to board members. In turn, a responsible board will examine the papers and accept or reject a candidate using good business judgment in a timely manner. In practice, however, a review can be as short as two weeks, or as long as half a year. While an unusually long review doesn’t necessarily mean that the buyer will be turned down, delays almost always have consequences.
When both buyer and seller are in approval-limbo, much is at stake. Mortgage commitments can expire. When nothing is really certain, it’s tough for a buyer to lock in a rate. When a seller must vacate one place and is clueless about the next purchase, there are real issues about where to house the children and pets.
Not all managing agents nor all co-op boards operate the same way. Not only do requirements vary from building to building, but procedures differ widely. Only a handful of managing agents will agree to do a credit check in advance of receiving the full package. Some will review a package thoroughly and even make recommendations to the board. Others will check only that the documents are sequenced in the requested order. Still others insist that the buyer’s broker be present while an agent reviews every enclosure.
It is the brokers’ responsibility to present a board package in the best light possible. To that end, there needs to be sufficient time for the paperwork to be reviewed first by the buyer’s broker and then by the seller’s broker so that any improvements can be made. If the information offered is incomplete or unclear, getting additional clarity could hold up the process unnecessarily for weeks. When a board asks for additional information, negativism begins to breed.
Some boards meet on pre-set dates for meetings and interviews, others meet as needed, still others do not say. Some buildings are known as being notoriously slow, and buyers in those co-ops should be forewarned by their brokers. It is important to recognize that at this stage of the transaction, the applicant is on unequal footing with the board, and is well advised not to take anything personally, including any delays.
It is equally important to acknowledge that the board is made up of individual shareholders who serve as unpaid volunteers. They have jobs, families and lives apart from their responsibilities as board members. When there are setbacks, the accepted protocol for communication is between brokers and managing agent, buyer’s attorney and seller’s attorney, and only the seller directly with the board.
“Everyone is always concerned with ruffling the feathers of board members,” observes Reis Cooper LLP attorney Alan Reis who represents co-op boards and lenders. “We have to believe that board members try to act quickly. But if someone misses a July meeting, and the board doesn’t meet in August, then we’re staring at September as an interview date.”
It’s important to acknowledge also that unless “time is of the essence,” the close date in a contract in New York, is “on or about” a certain day. In other words, it’s a target or an approximation of a closing date and rarely coincides with the actual close.
It’s not unusual for buyers to become impatient with the review process and complain that the board is being inconsiderate or worse. Karen, a recent buyer in contract to sell her Westchester home and in contract to purchase a West side co-op, is not alone in her sentiment when she emailed on successive days that she needed to confirm with her movers, and why would she even want to live in a building whose board demonstrated so little respect for others. “I have to get on with my life, and I'm losing patience with this deal,” she objected in frustration. “When this is over,” I wrote back to her, “and you are a shareholder, I hope you will become a board member and try to institute some reforms. The system is certainly not perfect.”
Indeed, the practice is imperfect. And delays have considerable consequences. The Contract of Sale gives both buyer and seller the right to cancel the contract if a board interview does not occur 30 days after the “on or about” contractual closing date. While I’ve never heard of this occurring, and the attorneys I’ve polled haven’t either, buyers and sellers and their brokers and attorneys are cautioned to keep this from occurring—especially in a changing market.
A number of years ago, REBNY published a “Co-op Admissions Guide” with recommendations on how a board should conduct the process, concluding that “timely review is in everyone’s best interests”. When a board reviews an application, buyers and sellers alike must put their moving plans on hold. From the co-op board, we expect courtesy, fair treatment and good judgment. And from you dear Prudence, if you would only work from the inside to institute some practical standards … we might greet a brand new day.