Keeping Your Lender Local To Avoid Bumps

Posted by urbandigs

Tue May 4th, 2010 08:45 AM

A: You may often hear Manhattan brokers recommending to any buyer that they use a New York City based attorney and lender. There are reasons for this recommendation. Now of course the buyer has the right to shop around and go with an out-of-city lender if they offer the best rate/terms; but be advised that it may cause you some headaches down the road.

In a new development, all buyers pretty much wait for the temporary CoO to come in and those 30-day closing notice letters to be mailed out by the sponsor. Once that happens, the buyer's job is to make sure their loan is clear to close so that the attorneys can co-ordinate a closing date. Once a closing date is confirmed, a punchlist walkthrough can be setup for the buyer to inspect the property prior to closing. So the process goes.

But what happens when the lender erroneously advises the client that the loan is cleared to close, because they are not familiar with the NYC new development closing process? Here is what I just went through with a client who gave me the OK, along with their attorney, to discuss their experience here with the hopes of educating others out there who may find themselves in a similar situation:

The chain reaction of emails and frustration begins as confusion sets in on all sides wondering why there is a delay? The buyer was told they are clear. The attorney was told they are clear. In reality, the bank is not clear to close due to internal mis-understandings of the closing process here. The sponsor wont give a close date because the lender didnt clear the close. The contact at the new dev is emailed to 'break the silence' and help with the walkthrough. The punchlist team organizer is pinged, who can't do anything until a closing date is confirmed. The buyers are frustrated and rightfully so being told inaccurate information. The attorneys are trying to explain and the sponsor/new dev team are partially blamed for their silence. And of course me, the broker is left wondering where the source of the problem is; as I naturally assume what my client's lender told to us is correct information. Why shouldn't I?

Here was the problem:

"First off, your bank has not even sent their bank attorney your commitment letter. To top it off, then the Albany bank attorneys, need to communicate with their NYC representatives which has not happened at all. We cannot schedule a closing with the sponsor until the bank attorneys tell us your loan is fully cleared, which it is not. The lender is asking for things from the sponsor's counsel that are NOT provided in NYC sponsor condo transactions; for example, they are insisting that the deed be prepared ahead of time for bank review. Sponsor will not, nor are they required, to produce closing documents prior to the closing. The bank also does not understand how violations are cleared in NYC and in addition, they are asking for unnecessary and unavailable Certificates of Occupancy. Until the bank attorneys understand how to do a closing here, we are delayed."
The following is some advice from Steven Matz of KatzMatz.net, an attorney I have worked with before and would recommend to any buyer or seller out there seeking a suggestion for an attorney to use.

For Co-ops: A few cooperatives exist in parts of Long Island, and in some other urban areas, such as Chicago and San Francisco, but they make up a minute sector of the real estate market in those locales. Contrast with New York City, where coops predominate the market -- many out of City lenders are simply unfamiliar with the components that make up a cooperative loan -- we have lien searches, not title reports; we have a stock certificate proving ownership, not a deed; we have Uniform Commercial Code filings, not recorded mortgages; add to the mix cooperative recognition agreements, questionnaires needed from managing agents, and the whole "board approval" process, and even a seasoned broker or lender's representative who is unfamiliar with these factors will inevitably find the process daunting and complex.

For New-Dev Condos: Many real estate attorneys in New York City are faced with trying to explain the unique nature of these transactions, as well as continually point out that "no, we don't have homeowner's associations here -- just a Sponsor run board", or needing to explain that a Temporary Certificate of Occupancy is absolutely sufficient to close on NYC, and that the Permanent Certificate of Occupancy may not issue for years, or what plan effectiveness and the filing of the declaration of Condominium actually means.

The Role of Bank Attorney at Closing: Another significant feature of New York Real estate that is quite unlike most other areas is that we are essentially an "attorney state"; Buyers and Sellers are represented by Counsel, and so are lending institutions! In many jurisdictions, a title or abstract company handles the documents, the filings and the disbursement of money. In New York City, the bank has their own counsel to represent them at a closing, something extremely rare in other places. We have encountered numerous lenders around the nation, who are completely unaware that they must retain local NYC counsel to represent them at the Closing -- this misunderstanding, and lack of communication between lender and attorney has caused more delays and problematic closings than can be estimated.

Final Thoughts: It is not my intention to make disparaging remarks about out of NYC lenders/brokers, or to add to any misconceptions about the "mystique" or "snobbery" of NYC real estate -- I merely urge all of my clients to consider a local lender to make their own lives exponentially easier. It is often difficult to persuade an out of City or State purchaser to take this advice; some have long standing relationships with their own local lenders or brokers and insist these people "know what to do." Yet time and time again, we are faced with significant delays in closings, and in some extreme cases, even the complete withdrawal of funding, because the Purchaser's local lender did not understand the particularities of a NYC real estate transaction. The New York real estate market and closing process can be difficult enough, without adding to the mix a lender or mortgage broker who is understandably unfamiliar with the complexities and nuances of our systems. All New York real estate attorneys and real estate brokers can make their deals much more streamlined and increase the probability of a swift and smooth closing, by gently but concertedly recommending a local broker or lender.

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