Showing posts with label coop. Show all posts
Showing posts with label coop. Show all posts

Jan 14, 2016

Did You Know A Coop's Flip Tax Can Affect the Loan?

A coop’s flip tax can affect the maximum loan amount a bank extends to a buyer

By Mark Maimon, VP Sterling National Bank

Banks have become increasingly concerned with what happens when they take over ownership of a property in foreclosure.  In the event that a bank forecloses on a coop, they would typically have to pay the coop’s flip tax when they resell the property.  Therefore, the perceived value of that coop apartment to a bank is actually the property value minus the flip tax. 

So if a buyer is financing the maximum amount allowed by a lender (80% in most cases) and there is a flip tax in the building, then the bank might decide to reduce the maximum loan amount they will extend to the buyer.

Here is an example:

Purchase price:  $1 million
Maximum financing allowed/applied for:  $800,000 (80% financing)
Flip Tax:  2% of the sale price paid by the seller ($20,000)

Property Value determined by the lender:  $1 million - $20,000 = $980,000
Maximum financing allowed by the lender:  $784,000 (80% of $980,000)
Additional down payment required from the buyer:  $16,000

This rule typically only applies if the flip tax is calculated as a percentage of the sales price.  If the flip tax is a percentage of profit on the unit or a specific dollar amount per transaction or per share, then this reduction is not typically required.  

Additionally, if the coop is willing to certify in writing that a lender is not responsible for paying the flip tax in the event of foreclosure then the reduction can be sometimes be avoided.  However, many coops are not willing to make that statement since they would want to collect the flip tax even if it’s a bank selling the property. 

If a buyer is putting 25% or more down, then it’s the flip tax generally has no impact on the maximum loan amount unless it’s an excessive amount (as it can be in some lower-income housing projects such as HDFC buildings).  

Content was written and provided by Mark Maimon at Sterling National Bank.  Please contact Mark for all of your mortgage needs per the contact information below.  All material is protected by applicable copyright laws. 

NMLS ID #3550

More on flip taxes:

Nov 12, 2013

Holders of Unsold Shares in a Coop


In many coop offering plans there is a special class of shareholders called Holders of Unsold Shares who have rights and privileges not enjoyed by the ordinary tenant-shareholder. The more unsold shares there are in a co-op, the less clout the other tenant-shareholders have. If the coop has a majority of unsold shares it is difficult to obtain financing since the coop is less than 50% owner occupied.

Q: What are Unsold shares? What is a Holder of unsold shares?

A: "Unsold shares are any shares not subscribed to and fully paid for prior to closing. At or prior to closing, unsold shares must be acquired by the sponsor or financially responsible individuals produced by the sponsor. A holder of unsold shares is the sponsor or any individual designated to hold unsold shares by the sponsor. Such shares shall cease to be unsold shares when purchased by a purchaser for occupancy.

The key word in this definition is "designated". When a sponsor holds on to unsold shares after the closing he or she may, thereafter, transfer those shares to others, not necessarily to "holders of unsold shares". If he or she designates the grantee of these shares as a "holder of unsold shares" then that individual or entity" becomes a holder of unsold shares.
Holders of Unsold Shares are not required to submit their prospective purchasers to the board for its approval, nor are they bound by the board's sublet restrictions. Holders of Unsold Shares are allowed to sublet their units at market rates in perpetuity. They're also exempt from paying sublet fees, alteration fees, transfer fees and flip taxes which may be imposed on the typical tenant-shareholder.

These are shares of stock in a cooperative housing corporation which are allocated to apartments that have never been purchased for residential use. Once the apartment is acquired as a residence, the shares allocated to it cease to be Unsold Shares and its owner is not entitled to Holder of Unsold Shares status.
I recently listed two sponsor apartments in a coop in Morningside Heights. Both were purchased by an investor that will retain the sponsor rights and privileges as long as the purchaser (holder of unsold shares) designated by sponsor never occupies the apartment.

The New York State Attorney General has taken the position that an Owner of Unsold Shares does not necessarily qualify as a Holder of Unsold Shares, and that to become a Holder of Unsold Shares, an Owner of Unsold shares must meet the following five requirements:

1. Obtain a designation as Holder of Unsold Shares from the sponsor. Subsequent transferees of the sponsor can not obtain the designation from their immediate seller, it must be procured from the original sponsor. Under the regulations, the sponsor may only designate financially responsible persons as Holders.

2. Obtain a written guarantee of payment by the sponsor to the co-op of all financial obligations of the Holder of Unsold Shares. This provision of financial security is the quid pro quo for allowing an investor to enjoy the privileges and immunities described above indefinitely.

3. Adhere to the escrow and trust fund provisions of the General Business Law.

4. Register with the Department of State as a broker-dealer.

 5. File regular updating amendments to the Offering Plan.

Oct 31, 2011

Buying A Coop: Be Prepared and Qualified


Buying a Co-op

Being Prepared to Fulfill the Requirements of the Board

San Remo Apartments

Manhattan Co-op ownership differs from that of Condominiums in that you own shares in a Corporation instead of holding Title to a piece of property.  The Corporation is governed by a Board of Directors.  It is this Board that establishes what the requirements are in order to purchase an apartment in their building.

Unlike condominiums a purchaser can be rejected by the coop board. In a Manhattan condominium the board only has first right of refusal and must buy the apartment for the same terms offered. The only way a condo can reject a buyer is to exercize their right of refusal and buy the apartment.  

Please note that the objective of the Coop Board is simply to Maintain and to Raise the value of the property and the building. 

There are three major areas in which the Board addresses this:
  • The amount of financing allowed by the Board.
  • Liquidity of the buyer after the purchase has closed.
  • The Cash Flow of Buyer 
The amount of financing a Board will allow to purchase in the co-op can range from 80% to no financing at all.  The average amount for most co-ops is 75%. Negative amortization and Interest only loans are usually not allowed. 
    After the closing of a purchase the Board will expect the prospective purchaser to have, in Liquid Assets, three to five years of their debt service.  Debt Service is the mortgage, maintenance, and any other financial obligations the purchaser may have.  This includes car leases or loans, school loans, other mortgages, home equity loans, credit cards and such. 

    The amount of this requirement varies from Co-op to Co-op and should be verified by your broker.  

    In the more affluent areas such as Central Park West, Fifth Avenue, and Park Avenue the liquidity required may be as much as several times purchase price.  The majority of Boards require two to five years of debt service depending on the building. This also should be verified by the brokers.

    Lastly, the monthly carrying cost of the apartment should be approximately 25% of the gross income of the purchaser(s.)  The total debt service of the purchaser should be in the range of 28 to 30% of the Gross Income.

    Because of these requirements, when an offer is submitted to purchase, you will be asked to disclose your basic financial profile.  Unless the owner is confident that the prospective purchaser will pass the Board requirements they will not entertain the offer. In a coop the highest offer may not be the best offer. The best offer is the highest offer from the most qualified purchaser.

    You will be asked to submit a complete financial statement with an application to purchase once there is a fully executed contract of sale for an apartment in a co-op.

    There are exceptions to the numbers above therefore it is very important to discuss your particular financial situation with your Broker.  An experienced coop broker can advise you best in these situations. 


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