Gea Elika's Blog, page 125

Can You Live With a NYC Co-op’s Rules?

New York City co-op boards are notorious for their rules. They are picky about whom they let live in their building, but it does not end there. There are also rules to follow once you are living there. The rules are, ostensibly, for the unit owners’ own financial well being and to ensure everyone shows the proper respect for their neighbors.

Still, a co-op board’s policies are not uniform from one building to the next. Since there is not much you can do once you move in, a little homework ahead of time can save you a lot of headaches later on.

 

The house rules

You may have some work to do in order to uncover the house rules. These do not have to reside in one place. We advise reading them ahead of time to see what it includes. Some major areas for the co-op’s rules cover common areas, noise levels within your apartment, permitted appliances (washer and dryers), subletting, and pets.

How strict is the board’s enforcement?

The co-op board could choose to strictly enforce their rules. Alternatively, they could be lax. Uncovering their enforcement policy requires some extra work on your part, but it is well worth the effort. You may like living with a lot of rules, or you could find it stifling. Either way, you want to know this information ahead of time to determine if you will be happy in your home.

There are several sources of information. You should first tap your exclusive buyer’s agent. He or she may very well have a lot of familiarity with the building that interests you. Your agent could have even sold many units in the building. Next, try to talk to people currently living in the building. If you do not know anyone personally, you can use the time to get to know your potential neighbors, killing two birds with one stone. Former building residents are another font of knowledge, although you should take this with a grain of salt. Things might have changed, or they could have had a bad experience.

You can ask everyone about the general living conditions. If there is a particular rule that concerns you, make sure to bring it up.

At this point, you are ready to scour the Internet. In this technological age, there are a myriad of ways to obtain information. You can look at the various social media sites, even putting the question out there for people to see.

What can you do?

If you feel the co-op board is overzealous in its enforcement, there is not much you can do once you move in. The city has information on how to resolve disputes, but these typically involve boards that are not enforcing the bylaws, maintenance issues, and violations of the law.

Final thoughts

You may wish to prioritize which rules you can live with, and those that are deal breakers. Some are obvious, such as a no pets rule when you have one or are planning on getting one. Others require some thought into your current and future lifestyle.

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Buying vs. Renting – 13 Reasons on Whether You Should in NYC

Buying and renting offer the same pros and cons in New York City as in the rest of the country.  There are a few different variables involved with good ol’ NYC – and we will get into them a little bit later – but the most important is to understand the costs and benefits of each housing strategy in a clear, easily categorizable way.  That way, the right decision becomes a straightforward matter of weighing two sets of several different factors against each other, and then ask yourself which approach is best for you.

 

 

Let’s first divide the pros and cons into two main categories:  Financial considerations and lifestyle concerns.

Talking strictly about finances first, if you can afford it, buying is almost always the better long-term investment.  Barring obscene interest rates, much of your monthly mortgage payment will come back to you in the form of the value of the home when you eventually sell it.  Rent payments, as most of us get to feel deep down in the gut once a month, are just throwing money out the window.

Furthermore, the federal tax structure favors homeownership – social security, and that part of the tax code are the only two last vestiges of a civilized country’s social policies that we have left in the U.S…  The federal government subsidizes a considerable part of home ownership by making most mortgage payments tax deductible.

There are two financial downsides to home ownership.  First, if there is any real chance of you defaulting on your debt, then you should keep in mind that doing so can ruin you financially for a good chunk of your life.  Don’t get cocky when considering the likelihood of this possibility, Mr. Financial Superman; unforeseen events can put you in extreme financial jeopardy.

Relatedly, don’t get sucked into a high-interest loan.  Owning a home is a lot of work, and if you’re paying almost as much in interest as you would have been in rent, then it’s just not worth it.

Now, let’s talk lifestyle concerns. 

Take it from someone who has both studied a whole lot of economics and has been worked into the ground as a teenager by two parents who owned a home that required a lot of fixing up:  The real main drawbacks to home ownership aren’t financial, they are practical.  While you might gain a lot financially, you lose a lot regarding mobility.  Owning a home is a lot of work, and you can’t just rent the place and go gallivanting off around the world.

In New York City, two main things make owning a home more desirable than elsewhere:  First of all, everything involving housing in the city is costly.  That means that the financial benefits of homeownership are proportionally more important.  Secondly, demand for New York City real estate is expected to continue to rise for years to come, through corrections and all.  The limited size of the city in comparison to the growing population means that property values are likely to increase, making home ownership in the city a safer than usual investment.

If you can afford it, and you know you are going to be in the city for a while, home ownership is probably the way to go.  But the best colloquialism to apply to home ownership everywhere should be stressed in New York City even more strongly:  Never, ever, bite off more than you can chew.

13 Reasons on Whether You Should Buy vs. Rent

Buying or Renting your New York City apartment should be dependent on some factors. Consider your particular lifestyle, your finances and any other additional features you might want in your home.

1. Enjoying privacy and comfort in your home

The decision to purchase New York City real estate requires a long-term financial commitment, so it is essential that it thought of while considering numerous things. Some choose to move to New York for reasons related to their employment, others because of family and there are many other reasons for moving which may require a change in lifestyle. Purchasing property is more time-consuming affair than the practice of renting.

Someone who has purchased their home will usually be eager to settle down in their new abode. The primary concern for the homeowner has to deal with their privacy and comfort. The new owner will also want to think of ways that they can personalize their new home, and this might mean some renovation or modifications to the existing floor plan. However, most people usually stick with upgrading kitchen appliances and bathroom remodeling.

 

 

2. Equity Creation

Owning a New York City apartment isn’t merely about having a place to call home; it also comes with some significant financial advantages. Buying property means that the property owner isn’t wasting money on rent and even if they do decide to move homes, the property can always be rented and become a source of income. The many benefits of property ownership are why it is an important option. People who bought five figure homes in the 70’s were delighted to sell the same houses for seven figures and more in the later part of the 90’s. This tremendous growth isn’t always guaranteed, but it does not make owning New York City real estate any less rewarding.

3. Tax Benefits

Tax benefits regarding owning an NYC apartment, come from the ability to deduct mortgage interest and property taxes from your income statements. People who choose to rent do not have such benefits. A substantial amount of money can be saved and reinvested from such gains and can also lead to a sizeable reduction regarding expenses incurred monthly.

Despite all this, it is essential to note that those who choose to rent are not tying down their capital like those who purchase property that earns them no income. The fact that it is possible to yield a substantial Capital Gain from the resale of a property decides to buy a smart one.

If you require additional information about tax benefits that accrue from purchasing property, contact an accountant or another relevant professional.

4. Well Equipped and Maintained property

People who demand a higher living standard should note that condominiums and co-operative buildings tend to come built with higher standards compared to rental buildings. They typically feature larger living spaces, better finishes, high-end appliances and more great overall amenities. Also, those that own a condominium or co-operative can choose to be actively involved in the management of the building.

5. Substantial Capital Commitment

The main reason people decide not to buy is a significant amount of money required for the down payment. A one bedroom apartment costs $700,000 on average in New York City, and at least 20% is expected as a down payment to buy it.

Expensive closing costs are an additional expense as well as insurance costs and attorney’s fees. Find further explanation in our Buyer’s Guide. Anyone who wants to purchase a New York City apartment should have no less than $100,000 in their bank accounts as well as a cash reserve of up to six months for mortgage payments and common charges.

There will also be requirements you need to fulfill the purchase, such as a credit check, rental and owner history, and approval by a condominium association or a cooperative board.

6. Long-Term Involvement

Another reason while people may not be so eager to purchase a New York City apartment is the long-term commitment required. Buying real estate is a tremendous financial obligation that can impact on a buyer’s lifestyle with the loan financed the needs be paid off over an extended period. Buyers’ will be legally responsible for every aspect that comes with home ownership.

7. Dealing with Condominium Associations and Cooperative boards

People who wish to move into a condo or a co-op apartment will first require approval from the management overseeing the building. In the case of condo boards, the rules are not as strict as co-ops, and most people don’t experience too many difficulties. People applying for co-ops may find that things tend to get more complicated. When it comes to approval requirements for co-operative buildings, New York City co-ops have the most stringent requirements.

8. Stress-Free Process

If you have neither the money nor time to buy a home, renting one can be a quicker and cheaper way of living in New York City. The legal and financial commitments are less complicated than buying a property, and a quicker process. Many people who come to New York City choose to rent whether they come to work, to search for work or just to experience residing in the Big Apple.

Renting offers the opportunity to live in the city, understand it better and prepare thoroughly to make the right decision when purchasing a home.

9. No Long-Term Commitment

Renting an apartment is the least expensive option for short-term purposes, with no substantial down payments, mortgage, attorneys, insurance or closing costs. There is also no monthly charges, repair fees or property taxes when renting. The only commitment is utilities, and in some instances, a brokerage fee equals up to 15% of the annual rent.

10. Renting does not build Equity

The primary disadvantage when renting is that regardless of how long you have lived in an apartment, you do not own property or equity when you move out and the money spent on rent is also not tax deductible. All these are substantial benefits you would enjoy when owning your apartment. Building equity

11. Buildings and Apartments not as well equipped and maintained as condos and co-ops

Rental buildings are rarely the same quality as coops or condos. There are a few exceptions. However, most co-ops and condos constructed to higher quality standards.

12. Lack of Control over Living Conditions

Renters must accept different living conditions when it comes to various buildings. Some significant problems may include the lack of an elevator, old staircases, leaking roofs, issues with kitchens and bathrooms, electrical faults, etc. Landlords might allow renters to customize their apartments but sometimes the costs are so prohibitive that tenants stick with whatever is available.

13. Landlords

The most critical aspect of any tenants’ position. A great owner can make your stay an enjoyable one, and a terrible landlord can make you regret ever signing the lease. The best thing to do is have a meeting with the owner first and assess the person’s demeanor and understand what they desire from their tenants and what they can provide in return.

 

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Condos’ Right of First Refusal

A condo board typically retains the right of first refusal. This means they have the right to purchase your condo unit and can deny your pending sales agreement. Although condo boards often have more flexibility than a co-op’s, this does not mean they are not interested in protecting their financial well-being.

Understanding how the right of first refusal works is important for buyers to understand.

 

Image by Wally Gobetz / Flickr

 

Why it exists

The right of first refusal allows the condo board to step in and buy your unit at the same price the seller and buyer have agreed upon.

This right protects existing condo owners’ interests. It sets out to discourage well-below market sales to others, for instance, relatives/friends, which hurt current unitholders’ resale value since it provides a low comp sale. A special insider deal could be blocked since the board has the right to pay the seller the same amount.

Additionally, the right of first refusal provides some protection in cases where the provided financial information does not add up, or the board does not feel he/she is someone they want to live in the building. Condo boards typically do not require the potential buyer to provide the same level of detail, but sellers may hand over limited information on the buyers.

The Board could also exercise its right if it wants the apartment for its own purposes, such as for the superintendent.

Limited time

The board’s right of first refusal does not extend in perpetuity. Typically, they have a very limited time frame to exercise their right. A standard period of time is 30 days after the seller and buyer sign a contract.

This does not mean the condo board cannot extend their time. They can request more information, which could delay the closing process. A board could do this in order to frustrate the buyer and have the deal fall through.

Rare occurrence

While a condo board usually has the right of first refusal, they rarely exercise it. They typically do not want to expend that large a sum, and then have to sell the unit to get it back. It also presents potentially unwanted litigation. There also might be procedural hurdles, such as two-thirds of the owners agreeing to invoke the right of first refusal.

Generally, the board only uses their right of first refusal when there is an egregious case. A buyer merely getting a good deal will not likely cause the board to act. A co-op board is a different matter. They have wider discretion to reject an application.

Final thoughts

This is one of the few weapons at a condo board’s disposal where they can control the buying process. The seller does not lose anything monetarily, unless there were shady, under the table dealings. However, the buyer could lose out on the apartment, and, thus, your awareness of the existence of the board’s right of first refusal is helpful.

But, the board’s right of first refusal should not present a major impediment, providing it is a true arm’s length transaction and you are not someone they would find objectionable.

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Deal Sheet – What is a Real Estate Deal Sheet in NYC?

Selling a home in NYC can be a long process but once you’ve found an offer your willing to accept you can move onto the next step. Completing a deal sheet. If you are unfamiliar with the closing process and have never compiled a deal sheet, this article should clear everything up. Of course, if you’re working with an agent, it won’t present many problems and can be drafted by them. Still, it helps to know the process and what goes into one.

 

DEAL SHEET

Download available at the bottom of this article

 

What is a deal sheet?

A deal sheet is merely an Excel or Word document that includes a summary of the deal. The reason for it is not to “lock-in” a deal but show that you’re serious about closing and want to move ahead with all. The thing to keep in mind is that this document is non-binding and shouldn’t be signed until it’s been run by your listing agent and attorney first.

If you are managing your sale through an Agent Assisted FSBO you will be required to assemble the deal sheet on behalf of the listing agent. If working with a full-service listing agent (as 99% of NYC deals are) then they can assemble and circulate the deal sheet on your behalf. Once an accepted offer has been reached the listing agent will draft the deal sheet. After it’s been reviewed by the buyer’s agent, it will be forwarded to all parties involved. Once everyone is happy the seller’s attorney can begin drafting the contract of sale.

What goes into a deal sheet?

The key things that any NYC deal sheet should include are:

Terms of the sale (price, down payment percentage, contingencies, anticipated closing date)
Specific information about the property (common monthly charges, number of shares in the case of a co-op)
Contact details for all parties involved (purchaser, seller, both attorneys, brokers and the lender)

Also, the deal sheet should include the following information from the buyer and seller: name, current address, social security number, email, contact phone and fax number. It should also include the following information from the attorney: firm name, attorney name, mailing address, email, office phone and fax number.

The same goes for the brokers involved in the deal. Ensure that the deal sheet includes their name, firm name, firm address, agent license number, commission split, firm license number, email, office phone, cell phone and fax number.

Lastly, the deal sheet should include all the terms of the proposed transaction.

Purchase Price – ensure that the proposed price of the property is included. If the price consists of any extra items, such as furniture, it should be added as well.
Closing Date – if either the buyer or seller has any stipulations for a particular closing date it should be included. Otherwise, it’s okay to just state the standard 60-90 days for a financed deal or 30-60 days for an all-cash or non-contingent deal.
Financial Information – if it’s a financed deal, ensure that the percentage down that the buyer gave on their offer is included.
Exclusions/Inclusions – if anything is being included in the sale, such as furniture, it should be stated.
Flip Tax – if this is a co-op deal, include the buildings flip tax. This is usually either a percentage or a per-share dollar amount.
Number of Shares – for a co-op deal, list the number of shares allocated for the specific lot.


What to do with a completed deal sheet

The listing agent ensures everything is in order and sends it on your behalf to both attorneys, the buyer’s agent and yourself. Once circulated, the attorneys will contact each other to begin the due diligence and contract process. As things move forward, you can expect your attorney to contact you and explain the next steps as you move to close the sale.

 

DEAL SHEET SAMPLE TEMPLATE

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Subletting Rules for Your NYC Co-op

Co-op boards have rules you need to follow, including those that guide everyday living. A co-op board is interested in protecting its investment, and it is natural to have policies that involve subletting your unit. These are useful to know, even if you do not plan on renting out your apartment since this can affect your resale value. Potential buyers look at the percentage of owner-occupied units in comparison to rentals as a factor in their decision.

 

REBNY Co-op Apartment Sublease

Download available at the bottom of this article

Differing policies

You need to check the subletting rules since these run the gamut. It ranges from forbidding all rentals to allowing them with no restrictions, allowing you to sublet freely if a very liberal board.

In between, co-op boards allow subletting but apply certain conditions. This is not unusual, but it means you need to pay close attention to the details.

Common Co-op subletting restrictions

Co-op boards can apply a residency time required prior to permitting subletting. They do this to ensure the building does not get overrun with investors since renters generally do not have the same pride of ownership. Under this subletting rule, you have to live in your unit for a certain period of time. For example, once you buy the co-op, you have to occupy the apartment for a 1 – 2 year(s) period, at a minimum. You may also have to get board approval prior to subletting.

Minimum and maximum subletting terms are also common rules the board imposes. Under these conditions, the board states a minimum lease term in order to minimize rental turnover and discourage short-term renters. The Board could also impose a maximum rental term, after which the owner has to request a renewal. Subletting rules could also limit the number of consecutive periods you can sublet. For instance, after the third consecutive year subletting, you must either move back or sell the unit. The board could also limit the number of subletting periods within a defined set of time.

The co-op board could ban subletting altogether, but allow it in a certain instance. In these unusual circumstances, you would likely have to present your case to the board.

There is a price

Co-op boards generally do not like subletting. In order to discourage its use and raise revenue, there are typically fees attached to the lessor. This may be imposed as an upfront fee or paid out over time.

Under a co-op’s subletting rules, they may institute additional fees, such as an increasing percentage based on the number of years you sublet and annual renewal charges.

Remember to account for these fees when setting your monthly rental charge.

Final thoughts 

Investors are likely to find a condo board imposes fewer restrictions. If you are seeking a full-time rental, this is no doubt the easier route, although condo properties are costlier.

A co-op could work for those that are seeking occasional rentals, however. For instance, subletting your co-op unit might fit in the rules for those taking a temporary overseas work assignment or have a summer home.

We have given you typical subletting rules, but we implore you that investigating the subletting rules prior to purchasing the unit will save you a lot of headaches.

 

STANDARD FORM OF COOPERATIVE APARTMENT SUBLEASE

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How to Write an Offer to Purchase a NYC Co-op Apartment

As almost always, bidding wars in NYC feel like the norm. With a low inventory and lots of demand, sellers usually have a lot of offers to choose from. If you’re looking to scoop up a hot deal the buyer offer you write to the seller can make or break you. These don’t have to be complicated, in fact, their very simple. To have the best chance though of success you should put some time and effort into crafting a good offer letter. These tips will help ensure you write the best letter possible.

 

Keep is concise and simple

Sellers and Brokers are busy people and don’t have time to read through long and complicated offers. The best advice is to keep your offer letter simple and concise. Stick to the main points and avoid using long sentences or archaic language. You should start by introducing yourself as a real person and try to make an emotional connection with the seller. Stress what it is you love about the property and why you desire to live there. This can set you apart from other buyers who just a mortgage pre-approval letter. Instinct and gut feeling is an important part of how we relate to people. This extends as well to the process of buying something important like a home.

Include a short biography

Write a small biography of one or two paragraphs long, outlining your personal and professional background. This part is a mere courtesy when you’re buying real property (i.e. condo townhouse, multi-family) but should be considered mandatory when buying a co-op. The vetting process can be very strict with co-op boards. The board has undisputed authority to refuse an application if they don’t feel you would make a good neighbor. Understandably, a co-op board does not want someone whose noisy, argumentative or likes to party. Co-ops tend to value privacy so you need to present yourself in the best light possible.

A buyer’s agent knows best how to package and present a co-op offer where it will have the best chance of being accepted. As mentioned, it’s not always about price but your ability to expedite the deal and pass the co-op board. A good buyer’s agent will guide you through the whole process and draft the perfect offer letter.

Include the right information

While keeping it personal, your offer letter should still include all the necessary documentation and information. This means your REBNY Financial Statement, mortgage pre-approval letter, your offer price, real estate attorney and your personal contact info and any contingencies you are making. Making a personal connection is still important but if you can’t show how qualified you are and with a team in place, the rest won’t matter.

Communicate your commitment

While still showing your qualifications and love of the apartment, it’s equally imperative to show the seriousness of your offer. Other than just saying this explicitly, you should mention how long you’ve been apartment hunting and how knowledgeable of the market you are. Also, mention your eagerness to close the deal quickly and highlight your ability to do so. For instance, you could mention the real estate experience of your attorney and how you can compile the perfect board package. In other words, show your willingness to pass a co-op board application process and interview whatever the requirements and close the sale.

What to leave out

Confidence is good but avoid arrogance. If you’re unsure about how it comes across, ask a friend to read over the letter. Also avoid any aggressive language like, “when you accept my offer” or “as you can see, I am a great candidate.” Having some doubts about buying a property is normal but an offer letter is not the place to show them. Ensure that any uncertainties are cleared up before you write the letter.

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Due Diligence for NYC Real Estate Purchases

Conducting a proper due diligence is a critical step in the New York City real estate buying process. It comes as the final step prior to the signing of the contract of sale and typically lasts 5-7 business days. Your buyer’s agent has advised you on the type of property, layout, and even some basic flaws. We also strongly advise that you have a home inspection, during the due diligence process.

You may feel good about the purchase at this point. However, there is a final due diligence round, which your lawyer conducts. You should know what he/she is looking for at this stage of the process.

 

 

Your Real Estate Attorney protects you

The first thing to know is that your lawyer is on your side. We have spoken about an exclusive buyer’s agent fiduciary duty, but the attorney you hire is also looking out for your best interests.

He or she is scrutinizing the deal for legal and financial risks. There is a lot of work to do, particularly on New York City co-ops and condo sales.

The legal side

There are a lot of ways your lawyer protects you during his/her legal due diligence. This includes working with the title insurance company to ensure the property’s title is free of liens and the seller can deliver it cleanly. He/she also makes sure sellers represent the property properly. For instance, ensuring all bedrooms listed are legal. The unit’s listing may state it is a two bedroom, but your lawyer determines that one does not meet a bedroom’s legal definition.

Your lawyer should look into the building’s history, to determine if there have been any violations. He/she also reads through the typically lengthy offering document. This applies to all buildings, not merely new ones. It includes every detail on the property.

Unique circumstances come up that your lawyer has to deal with when conducting due diligence. While these may allow you to obtain a bargain price, it also presents challenges for lawyers. This includes estate sales, where getting all parties signatures and agreement is challenging. A divorce situation, particularly one that is contentious, is another one. Your attorney also has to see how the title is held. In a foreclosure, a lawyer’s due diligence extends to the bank.

Review of building financials

Your lawyer will conduct a financial due diligence on your behalf. You want to ensure the building is financially sound. Your lawyer will check at least a couple of years’ worth of the financial statements, along with the current year’s budget. We think you should read the financials, too. This way, you can ask him/her any questions.

He/she typically goes beyond the statements to also look for any liens on the building.

The Condo or Co-op board minutes

Your lawyer should also read the co-op’s or condo’s board minutes as part of his/her due diligence. This way, he/she can relay to you any issues that have been cropping up. The minutes should provide insight into the building’s financial and operational details. These internal issues could include a roof or elevator in need of repair. A buyer needs to know this since there could be a potential assessment to would increase the monthly common charges or maintenance costs.

A lawyer can help ease the process to allow you access to the minutes.

Final thoughts

Due diligence is a crucial stage. Deals can break down at this point, whether you have been intentionally misled or not. This gets into the nitty-gritty details, including those regarding the unit and building. This includes basic information, but also whether there has been lead paint, asbestos, and mold. Should issues crop up, your attorney will advise you on the next courses of action.

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What Happens when a Land Lease Expires in NYC

If you’ve ever gone shopping in NYC for a co-op or condo you may have heard that some are on land which is being leased. A small fraction of residential buildings in New York (mostly in Manhattan) sits on land that does not belong to the building. What makes these properties attractive is that they typically go for cheaper, usually 20-30% less than similar properties. However, they do present risks and require diligent research before making any final decision.

 

Image by gigi_nyc on Flickr

 

Land Leases in NYC

A land lease in NYC is usually taken out for 99 years with two 20-year extension options. Condo, co-op or condop buyers pay for a part of this lease when they make a purchase. It’s usually wrapped into maintenance fees and distributed according to the number of shares allocated to each unit.

If you see a property priced as much as 20% below similar properties this is likely because the ground under the building is being leased. This will mean higher monthly maintenance fees and chances are a portion of these are not tax deductible. In some instances, if a lease comes to an end, the building can revert to the owner. Effectively evicting the co-op, condo or condop.

However, if that lease still has a long way to go or it’s on government land there may be little to worry about. In general, it would be advised to not to buy a land leased property that is not on government land. As you’ll see, who owns the land plays a big part in deciding whether a purchase is risky or not.

Ground Leases on Government Land

It’s a little-known fact that all of Battery Park City is on a land lease. The entire neighborhood is owned and managed by the Battery Park City Authority. This is why apartments there have such high monthly charges. In return, property taxes do not need to be paid because of its status as a government agency. Instead, a “pilot payment” is made which goes towards the maintenance and improvement of the neighborhood.

Since the Battery Park Authority is a not-for-profit agency there is little risk that they won’t renew land leases with reasonable terms.

Ground Leases with Not-For-Profit Organizations

The Roman Catholic Church is one of the biggest private landlords in NYC. Along with the land their religious buildings are on they also lease out land for condos and co-ops. However, because they are a not-for-profit organization the chances are low that you will have a difficult landlord when it comes time to renew the lease.

In general, not-for-profit organizations present lower risks with renewing a lease. However, you should still be cautious if there are less than 20 years remaining on the lease.

Land Leases with private Landlords

When it comes to private landlords this is where it can get tricky. The price on a land lease can step up over time at fixed intervals. The language in the lease will state how much this increase can be. If this is not spelled out in the agreement you risk being subjected to large increases with little notice.

What happens when a lease expires without Renewal?

Should this happen the entire structure, along with anything added by a tenant, will become forfeit. Purchasing a co-op on a land lease really just means you are purchasing equity ownership, not real property. Should a lease not be renewed the shares will plummet to zero for the shareholders. This is the reason why the value of ground lease properties in NYC depreciate as the lease matures. The co-op or condo board knows they will be in for tough negotiations with a private landlord for renewal once that time comes. The more residents it has the less likely that a renewal will be refused. With private owners, thou there is less leverage and a greater risk involved.

With good research, a leased property can be a great deal but if it’s approaching the end of that lease be aware of the risks involved. Especially with private landlords.

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Making Sense of the Aztech Recognition Agreement

Anyone who has applied for a co-op apartment in NYC will be familiar with what’s called the Aztech Recognition Agreement. If you’re wondering what an ancient Mexican civilization has to do with purchasing a co-op apartment then don’t worry. It tends to cause a bit of confusion and not just because of the name. Here we break it down for you, explaining what it is and how it works. As you’ll see, it has nothing to do with Mexican history and everything to do with board packages of buyers financing a co-op purchase.

What is an Aztech Recognition Agreement and why is it needed?

The Aztech Recognition Agreement (sometimes spelled Aztec) is a three-party contract between the buyer, lender, and co-op. it gets its name from the company that produces it, the Aztech Document Systems company, which dates from a not so ancient date of 1973 A.D. previously, lenders would negotiate directly with developers and co-op converters to create custom documents for individual shareholders.

Simply put, it’s an agreement that protects both the lender and co-op. Anyone who wishes to purchase a co-op apartment does so by purchasing shares in the corporation. If you are doing so through mortgage financing, one of these documents will be needed. The document stipulates that the co-ops lien gets first priority over the banks. If the buyer defaults on their payments there will be no changes to the lease without the bank being first notified. Through the agreement, the co-op also promises to notify the lender if the buyer fails to pay maintenance or other co-op fees.

Procedures are also set out for the lender and co-op on what to do in the event of a default. This way it works as an early warning system of a borrower’s financial difficulty with the lender. In return, the lender agrees to make payments on behalf of the defaulted shareholder. Thus preventing the co-op from foreclosing.

 

 

What are the benefits?

The main benefit of an Aztech agreement is that it allows buyers to purchase a co-ops apartment with financing that will improve property values to the benefit of all shareholders. As an added bonus, it permits the lender to monitor the shareholder’s timeliness of maintenance payments. This effectively makes the lender a guarantor of a shareholder’s maintenance fees. Shareholders tend to be a lot more concerned about potentially going into arrears than making timely maintenance payments. As such, all it usually takes is one letter from the lender to ensure they keep their payments on time.

How can I get one?

Most Aztech Agreements are issued by the banks. The terms of which must be mutually agreed upon between the three parties before a loan can close. Once issued and agreed upon they will be submitted as part of the board package. The whole point of the agreement is to protect the co-op in the event of a default. In return, the security interest of the lender is protected. However, some co-ops require the use of their own recognition agreement and will not accept the lender’s version.

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Blockchain Technology May Change Property Title Searches

Many people have not heard the term blockchain technology. However, the majority of the nation’s population has heard about bitcoins and other cryptocurrencies. Blockchain technology supports these cryptocurrencies. The basic idea is that it is a database that is accepted by a wide range of people, rather than an entity such as the government.

This can be applied outside of bitcoins, however. Should it become accepted, the real estate market could become a lot more efficient. For starters, traditional title searches could become much faster and cheaper.

 

 

How Blockchain works when applied to Property Titles

Homeownership transfers would be recorded using the technology. It would work the same way as when cryptocurrencies change hands. In the simplest terms, it is an online ledger that records the transaction. In applying it to real estate, the property is assigned a unique code. There would be a record every time of the date and name changes each time the property exchanges hands.

The entire process would be streamlined, with all the information in one place. This would eliminate the need for a lot of paperwork.

Theoretically, this would make title searches much more efficient. Those espousing the technology also claim it is secure since the block can only be altered by the participants. There are restrictions on who can make a change to the record, but there have been those that have taken advantage of the system in virtual currency, proving it is not perfect.

Is title insurance passé?

There are claims buyers will no longer need to purchase title insurance. The entire property’s history needs to be recorded on blockchain to accomplish this, though. This seems a long way off, however. For now, you will still have to purchase the insurance at closing.

Squeezing the middleman?

While this could allow real estate to be traded like virtual currency, eliminating all the intermediaries seems far-fetched. Recent advances in technology have made it easier to connect real estate buyers and sellers. You can even take a virtual tour of the premises.

However, while removing all middleman sounds attractive, real estate still requires the personal touch. Buyer’s agents and lawyers are still needed to provide you guidance based on your unique circumstances. An agent is your expert advisor that knows the market and the properties very well. This cannot be replaced by technology.

A test in Sweden

Sweden is one of the first national governments to test blockchain technology in property sales. This will be conducted as a test over the next several months. Currently, sales take three to six months to close. Officials expect this time frame to whittle down dramatically, potentially to mere hours.

Final thoughts

This is a new technology, and it is unclear if it will catch on. There have been promising advances that have not come to pass. Still, online banking was considered risky, and it has become a normal part of many people’s lives (although there are security risks). Should blockchain technology gain acceptance in the real estate market, certain costs are bound to decrease, and the time required to close the transaction will lessen.

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