Welcome back to Part 5 of my home buying series, Purchasing an Apartment in New York City. It’s time to address everyone’s favorite part of the purchase process – The Board Package!!! OK I admit, an entire article devoted to the board package is not sexy and usually ends with an unhappy buyer, a lawsuit or a nap. Well, not this time! Read on and prepare to have your socks knocked off…
As I mentioned in Part 4 (Beer – Wine – Champagne), in most real estate markets around the country, both parties would have felt the legal safety and security of the deal long before the end of a 7-10 day long due diligence process. Well, welcome to New York City where we aim to make life overly exciting and unreasonably stressful. In NYC, possession of the “fully executed contract” (or FEK) is the first time that both parties can breathe a little more easily knowing that both buyer and seller have legal obligations and rights pertaining to the deal. So, now that you are in possession of the FEK and an empty bottle of wine (see Part 4), it’s time to buckle your weightlifting belt and gear up for the “heavy lifting” – assembling the board package.
If you followed my advice in Part 4, which suggests that you work concurrently on the different facets of the deal throughout the “due diligence” phase, you have already started the process of gathering the documents which will ultimately become the all-important board package. If not, let’s get started now.
If your purchase is a “resale” (an apartment being resold as opposed to a “sponsor unit” which means you are purchasing from the “original owner”) you will likely be obligated to submit the board package to the building’s management company and Board of Directors for review and approval.
Most New Yorkers have at least one first, second or third-hand horror story about the board approval process. Allow me to give you a few examples; “This one guy I knew put his dog through four months of obedience training and circus camp to pass the board interview.”, or “I work with someone who knows this woman who was forced to agree never to remodel her kitchen because she was buying the unit above the Board President’s apartment.”, and “I overheard this gentleman on the train talking about a how his board package was denied because he chose a 5/1 ARM rather than a 30-Year Fixed-Rate mortgage.”
Despite the fact that all of those stories may actually be true (I actually know personally that the last one is), they are definitely the exception and not the rule. In the majority of cases, co-op boards are far more reasonable than their reputations suggest, and the components of the board package in a condo or condop purchase are actually very similar. The major difference between the co-op board approval process and condo or condop board approval process is not the contents of the package, rather the authority the board has in approving or denying the purchase – but that’s an entirely different blog post altogether. Bottom line, whether it is a co-op, condop or condo, you should make sure the board package is filled out completely and accurately, leaving no room for confusion, questions or delays during the board packet review process.
I want to take one step back and talk about “sponsor units”. If you are purchasing from the sponsor (whether a co-op, condop or condo), there is typically no purchase application, no board package, and therefore no package review or interview. A common sponsor unit example in NYC is the purchase of a “new construction” condo in which the buyer is purchasing directly from the developer/sponsor. If you’re purchasing a sponsor unit, getting to the signed contract is like completing an 70 yard bomb to the 10 yard line. The only thing between you and a touchdown (assuming the building and apartment are habitable and you are financing the purchase) is a commitment letter from the bank. If you are all-cash, well call your attorney and tell them you are ready to close!
But back to resale purchases…
So, when is this treatise we call a board package expected to be delivered to management? Well, like many other things in NYC real estate, it depends.
If you are purchasing the home “all-cash” there is a lot of good news and just a little bad news. The good news is the process will move much more quickly since there is no need for a bank appraisal, commitment letter or underwriting process. You can expect to close relatively quickly. However, because there is no bank involved, the amount of time you have to assemble and deliver the board package is shorter as well. Typical language in the contract of sale states that your package is due “… within 10 business days after the Delivery Date (FEK)…”. So, if you are “all cash”, get on your horse and get that board package completed ASAP! (Note: this timeline can be negotiated by your attorney)
If you are financing, there is a very important “or” which follows the language above; “…within 10 business days after the Delivery Date or if the Loan Commitment Letter is required by the Corporation, then 3 business days of the earlier of (i) the Loan Commitment Date or (ii) the date of receipt of the Loan Commitment Letter.” Blah, blah, blah. All of those ifs and thens basically mean you have a little more time to complete the board package since receiving the commitment letter from the bank generally takes a more than 10 business days. The second piece of good news for those who are financing is that the documentation a needed by the bank to approve the loan will also be needed in the board package. So, by applying for your loan you are already putting a small dent in the board package.
While we are on the subject, let’s just dive right in and look at components of a typical board package. Keep in mind, this is just a general list and your specific board package may require more or less than the list below:
- Cover Letter (stating how excited you are about being a member of the community)
- Purchase Application
- Financial Statement of all Assets & Liabilities
- Personal Letters of Reference (2-3 for each applicant)
- Professional Letters of Reference (2-3 for each applicant)
- Credit Reference Letter or Bank Reference Letter
- Employment Letter
- Pay Stubs (2-3 for each applicant)
- Federal Tax Returns (full returns for the past 2-3 years)
- W-2s or 1099s (2-3 years)
- Asset Statements (2-3 months including checking & savings, retirement plans, money market accounts, stocks & bonds, etc.)
- Signed Loan Application
- Appraisal Report
- Fully Executed Contract of Sale
- Recognition (AZTECH) Agreements
- Loan Commitment Letter
- Riders and Form (including Window Guard Rider, Lead Paint Rider, Emergency Contact From, Acknowledgement of House Rules, Carbon Monoxide Rider, Name Plate From, etc.)
Are you still with me? Great. Want more “good” news? So that the multitude of original documents, forms, statements and letters in your board package don’t get lonely, the management company generally requires an additional copy for each of the 5-10 board members who will ultimately review it. Fortunately, in our digital age (some management companies were not aware of this digital age until last year…but that is another blog post altogether) some management companies require only the original and one or two copies. That said, be prepared for a few trees to fall on behalf of your purchase. The management company may also ask you to protect your sensitive information (social security numbers, account numbers, etc.) by redacting sensitive information on each copy. So, round up a few Sharpies and start your hand-strengthening exercises now.
And, to make sure the multiple copies of your board package don’t get lonely, you will be asked to provide a series of certified bank checks with the package as well. These checks have terribly creative titles such as, Processing Fee, Application Fee, Duplication Fee (even though you just made 10 copies!!!), Credit Check Fee, Background Check Fee, Financing Fee (yes, a fee just because you are financing), Document Transportation Fee, Move-in Fee (not to be confused with a move-in deposit…they ask for one of those too!), Move-out Fee, Reading Your Package Fee, Doing Their Job Fee and Carpal Tunnel Fee just to name a few. OK, I made up the last three, but the rest are actual fees I have encountered. In short, be prepared to cut checks totaling around $1000-$1500 as management companies are notorious for using the transfer of ownership as a way to generate income. You just have to get over it …as you can see, I have.
Now all that is left is the actual delivery of your package to the management company’s office. If you’ve followed my advice in ALL of my other posts, your AGENT will have done ALL of this work for you. If you ignored my advice, don’t have an agent, and just put together the board package on your own, shame on you! In all seriousness, try to hand-deliver the package directly to the Transfer Agent who will be reviewing the package (so you know it got to the right person), or be sure to get the name of the person who does take it (receptionist, etc.) and ask them to have the Transfer Agent contact you to confirm receipt. Then, because you are paranoid (and have every right to be given the sensitivity of the information you are handing over to a person you’ve just met), immediately send the Transfer Agent an email and let he/she know you dropped off the package and who in the office you gave it to. That way you have a date and time stamp if anything goes missing.
That’s it! Now you just sit back and wait…impatiently.
(To be continued…)
My name is Eirik Davey-Gislason and I work in real estate in New York City. Unreal Estate is an opportunity for me to educate my audience and have a little fun in the process. By sharing, preparing and advising readers on what to expect, what is normal, what is right, and what is wrong, I hope to do my part to give valuable guidance, expose the wrong-doers when necessary and shape the future of this dysfunctional thing we call NYC Real Estate.