I’m a big Seinfeld fan. I remember an episode where Jerry reserves a rental car, but when he arrives at the rental counter he is told that there are no cars available. He expresses his dismay to  the agent at the counter, saying “but I have a reservation. That means you are supposed to have a car for me.” She responds by telling him “I know what a reservation is.” He quickly retorts “I don’t think you do”, and admonishes her about how keeping the reservation is far more important than taking the reservation.

I recently had a similar experience with a client who is buying a coop apartment. Her Contract gave her a “financing contingency”, which means that if she is unable to get a loan commitment within 30 days from the delivery of the Contract, she has the right to walk away from the deal and get her full 10% Contract Deposit returned to her. On day 25, her bank issued a commitment. I then wrote to her to say that we needed to get an extension of her time to get a loan commitment. She said “but I have a commitment”. My response, which I gave her without Jerry’s sarcastic flair, was “I don’t think you do.”

The standard form coop and condo contracts state that a “commitment” (small “c”) issued by a lender is not a Commitment (Capital “C”) for purposes of the Contract if it is conditioned on the completion of a satisfactory appraisal. This means that if a commitment” is issued within the time period required by the Contract (usually 30-45 days), but the completion of a satisfactory appraisal is a condition to that commitment, this does NOT qualify as a Commitment under the terms of the Contract of Sale. Confusing, isn’t it?

In the event the appraisal condition is not met within the required time period, the impact on the Purchaser could be devastating. If the 30 day period expires and she has not obtained a Commitment, she runs the risk of losing the financing contingency, meaning that she forfeits her ability to walk away from the deal with her 10% Contract Deposit. This could cost her the full amount of the Contract Deposit if she is unable to obtain financing for any reason, including a problem with the building, even if it has nothing to do with her, and does not have sufficient funds to close.

So what can a Purchaser do to get the necessary protection? When the end of the loan commitment period is approaching, the Purchaser’s attorney should request an extension of the commitment period from the Seller’s attorney. In most cases, the Seller will agree, because after waiting several weeks with the apartment off the market, the Seller is fully invested in completing the transaction with the Purchaser. If the Seller rejects the request for an extension and the Purchaser has a Commitment, then the Purchaser can either cancel the Contract (and receive a full refund of the Contract Deposit) or move forward without the loan contingency. This is like walking on a tightrope without a net, because if the lender refuses to give the Purchaser a loan, once again for any reason, she will be forced to either pay cash for the apartment (which she likely is unable to do) or forfeit her 10% Contract Deposit. This is why it is crucial not to let the time to get a loan Commitment expire.

In the case I described above, I requested a two-week extension, which was granted. Had the appraisal come back lower than the purchase price, the amount of the loan would have been less than what she applied for, and the financing contingency would have allowed her to cancel the Contract and get her full 10% Contract Deposit back. Fortunately, the appraisal came back at the amount of the purchase price, and my client was issued an unconditional Commitment. She has now been Board approved, and we are now waiting for her lender to give her the all-important “clear to close”. More on that later.

This week, the New York State Bar Association’s Committee on Professional Ethics came down with an opinion on the subject of a lawyer’s participation in the process of “grossing up” the sales price of a residential property in an amount matched by a “seller’s concession”. Here is a link to the opinion: http://www.nysba.org/AM/Template.cfm?Section=Ethics_Opinions&template=/CM/ContentDisplay.cfm&ContentID=55697. The conclusion of the opinion is that this practice does not constitute an ethical violation as long as there is full disclosure of both the grossing up and the seller’s concession.

This is a practice that is, by its very nature, intended to deceive someone, and I do not believe that full disclosure alleviates its potential harm.  Here is an example: Seller and Purchaser agree to a price of $500,000 for the purchase of a coop apartment unit. For any one of a variety of reasons, it is subsequently agreed that the sale price be increased to $525,000, with the seller providing a “concession” of $25,000 to be applied against purchaser’s closing costs.

Won’t the $525,000 value be the one used as a “comparable” by appraisers, thereby artificially inflating property values, misleading future purchasers and making it more difficult for them to get loans? What does the purchaser use as the basis in the case of capital gains reporting, the price that was actually paid for the unit ($500,000) or the grossed-up price ($525,000)? What about a coop that has a flip tax calculated on percentage of profit made on the sale. Which price is used as the basis – the “real” price paid when the apartment was purchased or the inflated price? This grossing up/concession process is nothing more than a fiction that has a boatload of potential adverse consequences. The fact that this is a practice that has gone on for many years does not provide any comfort or make this situation any more palatable.

I will be speaking at a seminar sponsored by the NYU Federal Credit Union on Thursday March 24, 2011. The topic is buying a home in New York and the program runs from 4:30-6:30 PM. The location is Kimmel Student Resource Center, 60 Washington Square South, Room 406, New York, NY 10012. I hope to see you there!

Check out my newest article on Examiner.com about condo boards acting like coops boards. Feel free to write a comment on Examiner.com and let me know what you think.

http://www.examiner.com/real-estate-in-new-york/condos-acting-like-co-ops-what-s-up-with-that

Check out my article on Examiner.com about whether co-op Boards should be compelled to reveal their reasons for rejecting an applicant. Here is the link:

http://www.examiner.com/real-estate-in-new-york/co-op-board-rejections-to-reveal-or-not-to-reveal

The Association of the Bar of the City of New York has issued a strong statement in support of the construction of an Islamic center and mosque 2 blocks from Ground Zero. I support the statement and its message. The following is an article from NY Lawyer, 8/20/10.

New York City Bar Enters Debate Over Site of Mosque Near Ground Zero

By Daniel Wise | New York Law Journal

The New York City Bar issued a strongly worded statement Wednesday defending the right of Muslims to build an Islamic center and mosque, two blocks from ground zero, saying “our nation is the stronger, both internally and in its standing in the world, for preserving religious freedom.”

The statement issued by City Bar President Samuel W. Seymour placed the association in the midst of a political debate stirred by President Barack Obama’s defense last week of Muslims’ right to build the mosque as reflecting religious freedoms that are “essential to who we are.”

Stewart D. Aaron, president-elect of the New York County Lawyers’ Association, which is located across the street from ground zero, said in an interview yesterday that NYCLA was founded on a commitment to “inclusion” and “welcomes the mosque to the neighborhood” as an addition that would make “the area around ground zero more vibrant.”

With mid-term elections less than three months away, Republicans around the country who oppose the plan have sought to capitalize on Mr. Obama’s remarks as they seek to regain control of both houses of Congress.

Mr. Obama quickly backtracked last week, saying that he was not commenting on the “wisdom” of the project.

Some Democrats who find themselves in tight re-election races, such as Senate Majority Leader Harry Reid, D-Nevada, have opposed placing a mosque so close to the site of the Sept. 11, 2001, terror attacks by Islamic extremists.

And Governor David A. Paterson has distanced himself from the president’s position by seeking to promote negotiations that would lead to finding an alternative site for an Islamic center.

However, Mayor Michael R. Bloomberg has strongly defended the decision to locate the center on the periphery of the World Trade Center site. The project, an 11-story building estimated to cost $100 million, is said to be modeled on a YMCA, and will include a pool, gym, 500-seat auditorium as well as a 9/11 memorial in addition to the mosque.

On Aug. 3, the day the project cleared a hurdle when the city Landmarks Preservation Commission voted that the existing building did not qualify for landmark status, Mr. Bloomberg said of the opposition, “to cave to popular sentiment would be to hand a victory to the terrorists—and we should not stand for that.”

Mr. Seymour’s statement supported Mr. Bloomberg’s decision not to interfere with the site of the proposed center.

“Freedom of religion is one of the cornerstones of our constitution and our democratic traditions; indeed it is what brought many of the nation’s early settlers to our shores, and millions more since,” the statement continued.

51 Park Place is the site of the proposed Islamic center.

Mr. Seymour said in an interview he had decided to issue a “narrow constitutional statement” rather than addressing “the entire spectrum of political and emotional issues at play.”

Mr. Seymour said he relied on a wealth of reports the city bar has issued in support of preserving constitutional rights which have come under siege since 9/11.

Michael A. Cardozo, the city’s corporation counsel, said in a statement yesterday, “As corporation counsel, and as a former City Bar Association president, I commend the association’s statement with respect to the downtown mosque. Both the Bar Association and the mayor have expressed their strong support of freedom of religion, one of our nation’s most precious and steadfast pillars. By combining this freedom with tolerance, we show the world that America is a country that won’t be bowed by terrorists.”

The terror attacks directly affected the Corporation Counsel’s office, which is located just north of ground zero. Approximately 1,000 staff were forced to evacuate and relocate to about 40 locations for nearly seven months.

William J. Honan, the executive partner of Holland & Knight, which in 2001 had its office a block from the World Trade Center, said many of the firm’s staff lived through “that horribly traumatic day, but that was the work of terrorists and that is not what we are talking about here.”

Mr. Honan said he was expressing a personal view, not that of the firm. One of Holland & Knight’s partners, Glen J. Winuk, a volunteer fireman, died on 9/11 after rushing to the towers to help with the rescue effort. Holland & Knight has since moved to West 52nd Street.

Evan A. Davis, who was city bar president in 2001, said he is proud the association has fought to prevent curtailment “of basic constitutional principles because something terrible happened.” Mr. Davis, a partner at Cleary Gottlieb Steen & Hamilton, which is located a block from ground zero, said preserving the right to religious freedom is a part of that battle, and he “welcomes” the mosque to the neighborhood.

But Dennis Quirk, the president of the New York State Court Officers Association, said “the mosque should not be located close to [ground zero]” because the families of some of the 2,700 people killed in the attack “feel very strongly” that it does not belong there.

If the sponsors of the mosque would agree to move the site, he added, “they would have their religious freedom but not upset the [victims'] families.”

Many of the union’s members work in courthouses located near ground zero. Three court officers died in the rescue effort, and more than 45 were injured.

Stephen P. Younger, the president of the New York State Bar Association, referred a request for an interview to a spokesman, Nick Parrella, who said the group has not taken a position on the proposed Islamic center.

This NY Times article discusses how some prewar rental buildings are now being converted to condominiums. It’s a good article in that it explains some of the differences between condos and coops and points out some of the advantages and disadvantages of each.  This trend is great for those who want prewar charm without the big-brotherish oversight of a coop.

http://www.nytimes.com/2010/07/11/realestate/11cov.html?pagewanted=2&_r=1

The $8,000 tax credit for first-time home buyers was extended by Congress this week. The credit was set to expire, but was extended until September 30th, for all deals for which contracts were signed on or before April 30th. This is a breath of fresh air to many buyers who had faced the expiration of the credit deadline due to lender delays, which were caused in large part by the flood of new loan applications from borrowers seeking to take advantage of the credit.

http://www.marketwire.com/press-release/Home-Buyers-Get-Tax-Credit-Closing-Flood-Insurance-Extensions-Without-Lapse-Coverage-1284938.htm

A unanimous NY State Court of Appeals held that Columbia University was entitled to take a number of properties in West Harlem by eminent domain, reversing the decision of the Appellate Division, First Department. The lower court decision had distinguished the Court of Appeals ruling in the recent Atlantic Yards case, but the Court of Appeals remained consistent in its application of the law, in spite of the factual differences between the two cases. This sets a potentially dangerous precedent, as it allows a private institution to take private property under the guise of it being for the benefit of the public at large. Here is the link to the NY Times story about the decision:

http://www.nytimes.com/2010/06/25/nyregion/25columbia.html

As I mentioned in an earlier post, co-op boards are using the internet to screen not only applicants, but their families, as well. Here is a link to NY Times article about how boards are checking Google and Facebook sites for anything that might raise a red flag about prospective building occupants. This is becoming a common theme – buyer (or subtenant) beware!

http://www.nytimes.com/2010/06/20/realestate/20cov.html