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:
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.