Co-op & Condo Financing: 3 Weeks is the New 10 Days

Christine Toes here!

We used to tell buyers and sellers that "it takes 10 days to 2 weeks to close" after co-op / condo approval or after a 30 day notice in a new condo had been issued.

After my last four sales took what seemed like forever to close, I took a survey of Corcoran agents to try to figure out if it was the banks I was recommending, if I needed to take a closer look at the mortgage bankers I work with, or if it was an industry-wide problem.

The consensus from my colleagues is that it now takes 3 weeks to close. "Its like pulling teeth" and "I'm tearing my hair out" were common statements about clearing deals to close.

Bank of America and Wells Fargo received the most votes for being "the worst." The problem is that they often give the best rates, so a lot of us recommend them all of the time and therefore the results are definitely skewed. One of the mortgage bankers I work with left Wells Fargo because they had laid off so many people that it was frustrating to get deals done. But he went to Bank of America which seems to be just as slow.

One comment was that "Chase was bad for a while but they're catching up. Citibank is fine. HSBC too." But another agent said Chase was slow also. Chase/Citibank's rates seem to be higher than Wells and B of A, so I don't usually refer them, but if they're faster getting deals to close, I might have to start!

One great comment came from my colleague, Gene Keyser:

"Delays are because of multiple iterative approval and re-approval processes stemming from a new rule where any loan that a bank floats into the secondary market must be bought back by the issuing bank in the event of a foreclosure. They have a lot of skin in the game now." (And hense are being a lot more cautious).

Doug Heddings over at TrueGotham.com also recently blogged about the longer timeline to close in today's market:

"...it is imperative to mention that banks are also slowing the process considerably these days with tighter lending standards.

So realistically, one should expect a closing of a Manhattan co-op to take approximately 2-4 months from the time a contract is sent out. Having said that, things like holidays, vacations of Board members and other pressing business that a Board may have to address are all factors that can lead to further delays."

In the last year, I have seen banks asking for more and more information and underwriter after underwriter is reviewing and re-reviewing the mortgage file. A new HVCC change also isn't helping as regulators try to separate the appraisal process from the lending institution - now you are seeing out of towners commuting to Manhattan from all over to conduct appraisals. For a more detailed explanation on this, I refer to Andrew Goodman, owner of Gotham Valuation:

The HVCC is a new code adopted by Fannie Mae, that has been in full effect as of May 1st, 2009. The objective of the HVCC is to change the way which appraisers are engaged by lenders originating most loans. Whereas appraisers were previously engaged by loan originators (mortgage brokers), the HVCC mandates that appraisers now be hired by third party appraisal management companies which have no vested interest in the outcome of the appraisal.

The effect of this legislation has not all been positive. In many instances appraisal management companies are engaging appraisers who lack required Manhattan specific market knowledge. In these instances it is not uncommon for properties to be either under or overvalued.

Banks have also lost co-op stock certificates or UCC forms and instead of taking 2 weeks, it is taking up to a month to find them. In the last few months, clearing to close seems to be taking longer and longer.

Now that I know that 3 weeks is the new 10 days, I can prepare my buyers and sellers accordingly! When they've identified the property and are shopping around for the best rate, I can send them a list of representatives from the four most frequently used NYC lenders, plus one mortgage broker who can shop smaller banks for them. Buyers may have to choose between a speedier transaction and lower rates.

One word of caution here is that you don't want too many banks to run your credit report because it will lower your credit score! Usually we recommend that people go to a max of three lenders within a short time span, which generally will not lower your FICO score.

Since I know that this isn't just a problem that I am facing with my own deals, I can stop tearing my hair out. What I am hearing from mortgage bankers is that in the next six months, depending on transaction and refinancing volume, banks should start ramping up the number of employees they have, which should help transactions move more quickly. Additionally, if the pendulum starts swinging back the other way to make getting financing easier, the process should be less frustrating for everyone involved.

Keeping my fingers crossed (but not holding my breath!)

Tips for getting your closings done as quickly as possible:

Toes says: if you paid cash for your apartment or paid off the mortgage on your co-op, put your stock certificate and proprietary lease in a safe place! Make sure your attorney knows where these documents are. If you lose them, it can slow down the transaction.

Toes says: if you are selling your apartment and you have a mortgage on the property, make sure your attorney contacts your bank as soon as possible to locate the stock certificate/proprietary lease. Some banks will "search" for these items for four weeks before they will declare these documents "lost" and issue new ones.

Toes says: If you purchased an apartment in one name, and you are now using a different name, ie, your married name, you must notify your attorney! Title / lien searches may need to be done in BOTH names. It is frustrating when everyone thinks you are cleared to close and it turns out that the title or lien search was done in a different name than what is on the stock certificate / proprietary lease or deed. New title / lien searches will have to be ordered, delaying the closing.

Toes says: Keep your condo/co-op offering plan, HUD settlement statement, stock certificate / proprietary lease / deed (depending whether it is a co-op or condo) in a safe place. Also keep any amendments to the offering plan as well as the past two years of building financial statements that are given to you in that same "safe place." If you lose your offering plan, it can be around $150 to replace. If you lose your copies of the building's financial statements, a management company will charge between $25 and $200 (!) for each year of financials that you need. When selling your apartment, the buyer's attorney will need at least two years of financial statements as well as the offering plan and any amendments.

Although closings are taking longer these days than they used to, being organized can make a big difference in the time it takes to close.

(PS - Special thanks to my attorney, George Kontogiannis, for assisting with this post!)

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