Why Is The Board Taking So Long?

Posted by urbandigs

Thu Sep 24th, 2009 10:05 AM

A: Its been a while since I discussed a topic like this. Seems more old school urbandigs from 2006 or so. But as an active member of the Manhattan real estate blogosphere, naturally I find myself on the streeteasy forums in between work projects. So when I see an in-contract buyer seeking advice regarding why a board is taking so long to review a purchase application, I relate. I relate too well. Make no mistake about it, the co-op board purchase application process is a tedious and emotional headache. This is one aspect of the Manhattan transaction process that I would love to see enhanced. I understand the right to properly review a prospective resident, but lets at least respect the other side of the transaction in the meantime! In the end, the board has the right to review, request more information, deliberate, and reject. Just do it within the allotted time that is documented on the package itself - usually within 30 days of receipt of the package - and when possible, earlier.

rejection1.jpgFrom Streeteasy's Forum: Board Approval or Rejection

Prospective Buyer:

I am in contract for coop apartment . After every thing is complete from my side I am waiting 6 weeks to hear back from the board. Is this to long ?
Not sure what to do...


Co-op Vice President response:
At best, it takes three full business days from the time you submit your application until board members actually get it in their hands. Generally, I open these packages the very day I receive them. I give the other board members two full business days before emailing about when/where we should discuss this applicant.

If we're less than two weeks away from our monthly board meeting, that's when we'll discuss the application. Otherwise, it's very difficult to coordinate the schedules of seven busy professionals. Sometimes we'll get lucky and be able to have a majority meet informally later that same week. More often than not, however, it's at least another two weeks before we meet in person to discuss your application.

That's providing, of course, your application is complete, and we have no questions. Again, more often than not, the application is poorly-assembled, the numbers don't add up, and we have to go through the channels for clarification: our managing agent, to the broker, back to you. Or the questions might not get back to you -- we may be busy calling your references. Or your employer. Or your bank. Sometimes it takes days or even weeks (especially during summer vacation season) for these people to get back to us.

Trust me, no news is good news. These things take time.
Right there, is exactly how I see it too. Thats the reality. I go out of my way to get a good package together and there are always delays, more information requested, delays in getting credit reports run, red tape in getting the package processed by management prior to be sent out to the board, misplacement of documents, checks forgotten to be handed in, etc..

If you are a buyer seriously looking at co-ops to purchase, know in advance that a board package process lies ahead of you. More often than not, the board will be nitpicky and look into everything to make sure information lines up and you meet their guidelines for purchase.

When you submit a bid, it should be in writing and should present yourself in the best light possible. I always advise my clients to make transparent the following information (offer letter + REBNY financial statement) when submitting a written bid:

a) employment situation
b) total combined salary that can be backed up by employment letters / tax returns / pay stubs
c) total liquid assets that can be backed up by hard copy financial statements
d) timeline to close
e) attorney information
f) lender information and mortgage information

Some buyers like to maintain their privacy and not disclose any of this information. Well if that is how you feel about it, maybe a co-op is not right for you because the board package process will certainly request documents to support all of the above mentioned items.

Common mistakes I find buyers often make are:

a) confusing liquid assets and retirement assets
b) overstating liquid & illiquid assets
c) understating existing debts
d) overstating salary and then not being able to back it up with tax returns or employment letter
e) overstating bonus and then not being able to get documentation to support

This becomes a nightmare for the agents involved when a buyer discloses incorrect information with a written bid and then can't back it up later on. At this point the contract is signed, the pre-qualification was done, and everybody expects a smooth transaction. I mean, what are we as brokers supposed to do - ask the buyer for tax returns and bank statements when they submit a bid? That won't happen and a standard REBNY financial statement signed by the buyer is the most common practice. We just assume the information provided is accurate.

Its always very obtrusive when a broker asks you about your financial situation, especially if they just met you. But the reason is they have been down this road before, been burned before, and now are trying to pre-qualify you so as not to waste their time or a listing brokers time if the co-op happens to be on the stricter side. Its a part of this business in this market where 70% of the housing stock is co-op.

Generally speaking co-ops look for 1-2 years of liquid assets AFTER closing and a salary that can support a debt/income ratio of below 25% taking into account all carrying charges of the property and minimum payments on existing debts. This is the least strict of the guidelines and only gets stricter from here. It usually takes 2-5 weeks to get a package completed after contract signing with the loan commitment taking the longest to finish it off. Then you send to management for processing where that can take a few weeks. Once processed, the board receives the package and can take another few weeks. It seems the buyer above included mgmt processing time in the 6-week wait period. Maybe mgmt took 3 weeks and the board only had it for 3 weeks. Add in seasonality and that delay can get worse. The board can either call for a meeting upon receipt of the package OR have the buyer wait for the regularly scheduled meeting whenever that may be. For long delays, the buyer should be very mindful of the expiration date on the loan commitment letter and raise concern with the contact at the management office should you be approaching 14 days to expiry.

My opinion is that the board should be respectful of the existing shareholder that likely wants a timely review of their transaction - this then becomes respectful to the prospective purchaser and agents/attorneys/lenders involved in the deal. But that is not always the case and the fact is the board can take their time (usually up to 30 days of receipt of the package) and either deliberate or request more information before making their final decision. All you can do is provide the best package, the best deal price for the shareholders/future loans/future refinancings with everything requested and then pray to the co-op gods that an approval will be granted. If a rejection is passed down no reason has to be provided - a power the co-ops enjoy greatly. Ultimately, the above buyer got turned down. Unfortunately I know the feeling and just had my 2nd board turndown in as many months - trust me, its emotionally draining!

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