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October 18, 2015

Many small buildings, especially in challenging financial times, prefer to save on the expense of retaining an outside management company.  Often in such instances, unit owners perform some of the building related tasks, ranging from maintenance of the building to accounting and record keeping services.

Such self-managed buildings pose unique challenges to brokers and attorneys since often there is no centralized person to contact for information or questions which commonly arise during the course of a real estate transaction.

During the lending bank’s due diligence in the mortgage approval process, it may be difficult to locate the correct building representative to properly answer questions.  In some of the buildings, particularly the smaller ones, the notes of minutes are scattered or unavailable. The problems may multiply if the banker involved is not experienced in New York Cooperatives and the building is not already on any approved bank lists. It is important to have the bank submit its questionnaire as soon as the offer is accepted to help determine if the bank will lend in the building.  A broker or client who forgets this step can find themselves in a situation where the buyer is initially approved but right before closing the bank raises an issue preventing the loan such as insufficient reserve funds or inadequate insurance.

Recently we saw an instance where a building did not answer the bank’s inquiries regarding the building’s insurance program despite repeated requests by the banker. We assisted the building in securing an insurance broker to obtain adequate insurance so that the sale could proceed.

Often such buildings have only unaudited financials, or worse yet financials done on excel spreadsheets with no accountant opinion at all. In those instances, lawyers and brokers must carefully guide the process through the buyer’s bank to avoid an unnecessary underwriter denial.

In another instance a small self managed building could not find a corporate resolution to support their flip tax which they had been assessing for years. Unbeknownst to the building, the flip tax resolution had long since expired.  By working with the brokers and the building to research the issue, we discovered that the flip tax had lapsed. By being proactive, we were able to ensure that the closing proceeded without a hitch, and of course the clients were thrilled to avoid paying the flip tax.

As any broker who has ever worked with our firm will attest, we continually strive to take the additional steps to keep deals on track especially with self-managed buildings, and we communicate with brokers, in particular during challenging points in the transaction, to help keep clients happy and well informed.