Showing posts with label flip tax. Show all posts
Showing posts with label flip tax. Show all posts

Dec 20, 2016

Future of HDFC Coops? Now May Be the Time to Sell.

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Why sell your HDFC coop now? 

As an industry recognized expert in HDFC coop sales, I've been asked by buyers, sellers and HDFC coop board members about the proposed changes. At this point the changes have only been proposed to community boards by HPD and a "taskforce" working with HPD of so-called "interested stakeholders" aka affordable housing activists, community organizers, law firms and management companies with their own political and monetary agendas before taking this proposal to the City Council for a vote sometime in 2017. The City Council must vote to approve a new tax break for HDFCs before this program can go into effect. Tax break is fine the rest of the proposal is not.

The proposed changes may put the future of your investment and equity in jeopardy. Because of this uncertainty NOW may be the most advantageous time to sell.

Many shareholders that I sold HDFC units to have reached out to me with concerns about the price they paid for their unit and the new proposed resale caps. My understanding is HPD’s proposal exempts units that have already sold above the proposed price caps by excluding those units from price restriction, and allowing a higher income cap of 165% of AMI for the resale of those specific units. While such an accommodation sounds great in theory and intention it's not based in reality. 

Whether an apartment is "affordable" or "market" the market (supply and demand) determines what a buyer will pay regardless of income but not the government. The government can not guarantee to shareholders who bought their apartments at prices above the proposed price caps that they will not lose any equity when they sell.

All units in a building need to be priced accordingly. Why would one buyer pay a higher price for a comparable unit in the same building when other comparable units are being sold for less? 

Proposed Changes and New Regulatory Agreement: 

According to advocates for the proposed changes and new regulatory agreement, the proposed change aims to preserve true affordability: maintaining income restrictions, while introducing asset restrictions and caps on sales prices (in buildings that vote to sign the Agreement)

HPD’s current avenues to help are limited under Article XI of the Private Housing Finance Law (PHFL). HPD has authority over formation, dissolution, and changes to certificate of incorporation

The "taskforce" of "interested stakeholders" expects that introducing this Regulatory Agreement will create more clarity for buildings about the affordability intentions of Article. In my opinion these "Interested stakeholders" want to change the "P" in (PHFL) from Private Housing Finance Law to Public Housing Finance Law eliminating shareholders and self-sustaining coops their property rights.

 Provisions of Proposed New Regulatory Agreement 

• 40-year Agreement with corresponding tax exemption that will be more generous than the current tax exemption for properties sold through DAMP (The Division of Alternative Management) cap which expires in 2029) 
 • A deeper exemption to account for added requirements in the Regulatory Agreement
 • Every eligible HDFC Coop – even high-value coops – would receive a tax benefit
 • The lowest value coops, which experience high rates of financial distress, would pay no property taxes on the residential part of their building, and could use the savings to pay down delinquent tax bills or making building improvements
 • To improve a building’s overall financial health, the new Agreement will require a 30% flip tax. When units are sold, 30% of the profit from that sale will go to the building’s reserve fund

Sales Restrictions

 • Eligibility for becoming a shareholder in an HDFC:
• Household income at or below 120% of AMI ($108,750 for a family of 4 in 2016)
• Household assets at or below 175% of AMI
 • Household must make the HDFC unit its primary residence
• Shareholders cannot sublet their apartments for more than 18 months cumulative out of a five year period, and they must obtain Board and Monitor approval if they choose to sublet their units
• Shareholders cannot own property within 100 miles of New York City
• Sales of units at prices affordable to 110% of AMI or below

While the proposed changes add more restrictions, and burdens for both buyers and sellers it does not address the problem of coop boards lack of accountability to its shareholders and potential buyers.

The city council has never voted to make coops in NYC accountable even though bills have been proposed numerous times. A coop does not have to give a reason why they reject a purchaser, they do not have to follow any standard application process or procedures nor are they required to conduct the application/purchase approval process in a timely manner. No special training or knowledge of real estate or Fair Housing is required to be a director on a coop board. The city council, the mayor and HPD should be concerned about housing discrimination rather than punishing low and moderate income New Yorkers that were fortunate enough to be here 20-30 years ago and take the on abandoned buildings in deteriorating neighborhoods. The original intent and spirit of the HDFC.

Contact your city council member and let them know you're an HDFC shareholder that wants to sell your unit to a low or moderate income New Yorker but you don't want the government punishing you by mandating the price you can sell it for. The income restriction already in place naturally limits the price you can get and it's still significantly below market. A portion of your profit is going back to the HDFC housing corporation in the form of flip tax already limiting your equity.

If you have been considering selling your HDFC coop, please contact me for a complimentary market evaluation and consultation.

Jan 14, 2016

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

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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. 

212-401-0843
NMLS ID #3550

More on flip taxes:

May 18, 2013

Flip Tax | NYC Real Estate

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Q: What is a Flip Tax
A:  A private Transfer Fee

The flip tax is a private transfer fee that many new york coops impose on shareholders. In the late seventies and early 80's when many rental buildings converted, huge profits were being made by former renters who bought their units at inside prices and then resold them. Called "flipping" The boards decided to impose the transfer fee and call it a flip tax on sellers to dissuade flipping.

Due to high costs of operating and maintaining their buildings, many coops and condos need to build their reserve fund by either trying to impose a flip taxes or succeed at imposing a flip tax usually on seller's. In order for the flip tax to pass most bylaws/ proprietary leases require 2/3 of the shareholders have to vote in favor of it. It requires a quorum. An absent vote is a no vote.

A flip tax is a restrictive covenant All co-ops and 99% of Manhattan condos have restrictive covenants. "A provision in a deed limiting the use of the property and prohibiting certain uses".

Condo and condop buildings that have many investor owners from out of town make it difficult to pass a 2/3 majority if governing documents allow changes by vote.

HDFC coops (a NYC affordable housing program) usually have a flip tax as a way to keep the buildings affordable.

There are several ways they try to impose the flip tax. There are arguments on both sides for every type. It is any easy way to get 2% sometimes 3% - 5% of a unit's sale price. The average apartment in Manhattan is over $1 million. Do the math. Buildings have figured 5-10 transfers a year what a nice windfall for them.
  1. A percentage usually 2% but sometimes 3%
  2. A flat fee
  3. Percent of profit
  4. Dollar amount per share
Management companies and boards lobby the shareholders why a flip tax is good. They argue if they have this reserve fund from the flip tax they won't have to raise maintenance or have assessments.

Elderly people planning on leaving the apartment to their children don't care as that is an exemption in many proprietary leases. People who recently bought and have to be relocated feel it's unfair as they have not been there that long. Long time residents feel they stuck it out and have already paid for all assessments over the years.

I prefer the dollar amount per share. A seller will always know their liability. The way the shares were allocated in the offering plan in my opinion is the fair way to determiner a flip tax.

If a seller made renovations to their apartment and or hired a great real estate broker who sold for a higher price than other comparable apartments with the same amount of shares, the seller deserves that profit not the building.

If the flip tax is based on profit, in my opinion it should be net profit not gross. The seller should be allowed to deduct the cost of renovations and capital improvements they made to their unit. After all the profit is because the owner increased the value of the shares by making the improvements. The coop should not be entitled to limit the seller's equity unless they contributed

Manhattan Seller


Oct 27, 2011

Restrictive Covenant: Right of First Refusal

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Manhattan Real Estate Q&A

Q: Do Manhattan condominium and cooperative apartments have restrictive covenants and what is a restrictive covenant?

A: Manhattan housing is primarily made up of coop and condominiums. Both coops and condos in Manhattan have restrictive covenants.

The legal definition for a restrictive covenant: "A provision in a deed limiting the use of the property and prohibiting certain uses".

Most all condominiums in Manhattan have the restrictive covenant: Right of first refusal.

Most coops in Manhattan have the restrictive covenant: Right to refuse AKA board approval 

Many people confuse the two different covenants.  Right of first refusal means the condominium has the first right of refusal on any offer. They have the right to match the offer and buy the condominium unit for the same price and terms being offered. They either exercise that right and purchase the unit or they waive the right and issue a waiver so the condominium unit owner can close the sale and transfer title. 

A coop's right to refuse gives the coop board the right to refuse any coop purchaser for any reason or no reason.  A coop is not required to give a reason for a board turn down. Coops must adhere to fair housing and human rights laws. The burden is on the buyer or seller to prove the coop turned down a sale because of discrimination.

A flip tax that many coops and some condominiums impose is also a restrictive covenant requiring the seller to pay a portion of their sale price or profit to the coop or condo board.

Restrictive covenants may prohibit certain financing. FHA does not loan in coops and condominium buildings with restrictive covenants. The Federal Housing Finance Agency was considering a rule that would prohibit Fannie Mae from purchasing loans in buildings where there is a private Transfer Tax AKA "Flip Tax" The real estate board of NY, REBNY successfully lobbied against the rule because of the adverse affect it would have on the NYC housing market.

Feb 2, 2011

REBNY Succeeds in Flip Tax Effort

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Buildings with flip tax exempt from proposed FHFA ruling that would have restricted financing

Sigh of relief for NYC’s residential real estate industry
REBNY members warned legislators of proposed ruling’s crippling impact

With the help of hundreds of its members who delivered 629 letters to the Federal Housing Finance Agency – more than a quarter of the total responses received – The Real Estate Board of New York (REBNY), the city’s leading real estate trade association, has succeeded in its effort to fight a proposed ruling that would have barred lending in buildings with a flip tax. The proposed ruling could have had a crippling impact on property sales throughout New York City.

Addressing the concerns raised by REBNY and its members, the proposed FHFA rule announced Feb. 1, 2011 now excludes private transfer fees paid to homeowner associations, condominiums, cooperatives, and certain tax-exempt organizations that use private transfer fee proceeds to benefit the property.

When the ruling was first proposed last fall, REBNY and its membership launched the initiative through the REBNY Action Center. Members were encouraged to contact the FHFA and key officials to advocate for exempting the flip tax and acknowledging the long-standing beneficial practice in New York City housing.

Led by Congressman Anthony Weiner, the entire New York City House delegation
supported the New York City housing industry and swiftly signed and submitted a letter requesting that federal funds should continue to be available when transfer fees are paid to a cooperative or management to the benefit of a building.

The Real Estate Board of New York is the city’s leading real estate trade association with more than 12,000 members.

Sep 7, 2010

Fannie Mae Flip Tax Proposed Rule Change

3 comments
A draft rule has been issued by the Federal Housing Finance Agency for comment that would create serious problems for Co-op and Condo buyers. The rule would prohibit Fannie Mae from purchasing loans in buildings where there is a Transfer Tax/Flip Tax. 

Regulators have recommended such a rule and on August 12th a draft was issued for public comment. The link below will give you the details of the proposed rule. According to Fannie Mae, the primary intent of this proposed rule was not to have this apply to all Co-ops and Condos. 

Their primary intent is to stop developers from imposing 99 year covenants on new homes that require seller's to kick back a percentage of the sale price of the home to the developer when the home is sold. They are currently reviewing the concerns of REBNY (Real Estate Board of New York) and hopefully, will revise language that would correct this serious problem.

If their response does not assure REBNY that he rules will be corrected, REBNY will ask it's members to join them in reaching out to the New York congressional delegation. 

Link to proposed Rule Change:http://www.fhfa.gov/webfiles/1648/PrivTransFeeGuidance081210.pdf

Sep 8, 2006

The "Flip Tax"

2 comments
 

Creative Financing or a Coop Cop Out ?

The flip tax is a transfer fee that many new york coops impose on shareholders. In the late seventies and early 80's when many rental buildings converted, huge profits were being made by former renters who bought their units at inside prices and then resold them. Called "flipping" The boards decided to impose the transfer fee and call it a flip tax on sellers to dissuade flipping.

Due to high oil costs, insurance, and increases is most expenses many buildings need to build their reserve fund and are trying to impose flip taxes. In order for the flip tax to pass 2/3 of the shareholders have to vote in favor of it. It requires a quorum. An absent vote is a no vote.

Condo and condop buildings have many investor owners from out of town making it difficult to pass.
There are several ways they try to impose the flip tax. There are arguments on both sides for every type. In my opinion none are good for sellers.

HDFC coops (a NYC affordable housing program) usually have a flip tax as a way to keep them affordable. HDFC coops were set up as a form of limited equity home ownership.

It is any easy way to get 2% sometimes 3% of a unit's sale price. The average apartment in Manhattan is over $1 million. Do the math. Buildings have figured 5-10 transfers a year what a nice windfall for them.
  1. A percentage usually 2% but sometimes 3%
  2. A flat fee
  3. Percent of profit
  4. Dollar amount per share
Management companies and boards lobby the shareholders why a flip tax is good. They argue if they have this reserve fund from the flip tax they won't have to raise maintenance or have assessments.

Elderly people planning on leaving the apartment to their children don't care as that is an exemption in many proprietary leases. People who recently bought and have to be relocated feel it's unfair as they have not been there that long. Long time residents feel they stuck it out and have already paid for all assessments over the years.

I prefer the dollar amount per share. A seller will always know their liability. The way the shares were allocated in the offering plan. So if you made renovations to your apartment and or hired a great real estate broker who sold for a higher price than other apartments with the same amount of shares you deserve that profit not the building. If the flip tax is based on profit then in my opinion the seller should be allowed to deduct the cost of capital improvements.
 
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