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Guarantors & Parents Purchasing Homes For Children

In a condo it is very simple. A parent can buy for an adult child. A corporation and or a trust can buy a condo. Some condos have applications but many don't or have very simple applications. I recently had a condo transaction where the couple obtained a mortgage from their parents. As far as the seller, listing agent and the condo were concerned it was a Cash Sale. I presented proof of funds with the offer. A condo may require documentation but they can't reject a buyer. They can only exercise their "right of first refusal" and purchase the apartment for the same price and terms of offer.

It becomes more difficult purchasing a coop and even renting in certain Manhattan buildings. Most coops will not allow a parent buying for their adult child. Many coops will allow co-purchasing or a guarantor for working adult children. Even if the parents pay for the apartment, the coop will want the adult to be working with their own income and be responsible to pay the monthly maintenance and/or mortgage payments. The monthly housing costs can not exceed 25-30% of the adult child's monthly income.

Some rental buildings may require the parent to be on the lease. Some may not accept out of town guarantors and/or may require a few months of rent up front and additional security deposit. 40x rent in annual income is required by applicant and 80x rent is required to be a guarantor.

The coop will want full financial disclosure from both the guarantor and the applicant and from both applicants if a co-purchase. A guarantor letter and a gift affidavit is usually required as well.

The only alternative other than a condo purchase is purchasing a sponsor coop apartment. The sponsor is usually the developer or owner of building that has "un-sold shares" in the cooperative corporation. I recently sold a coop sponsor apartment to parents from out of state for their son that recently graduated college here.

Purchasing a sponsor apartment in a coop is buying "un-sold shares" there is no board approval process. However once purchased the shareholder has to adhere to the coop rules, enjoys the same "quality of life" as other shareholders but when unit is re-sold there is board approval and a board package is required.

Lease "Good Guy" Guarantees

A good guy guarantee is a limited personal guarantee often written into a lease when a tenant is a business entity such as a corporation, partnership or limited liability company. The guarantee, generally signed by a principal of the business entity, enables a landlord to bring an action against the guarantor in the event the tenant stops paying rent and continues to occupy the space.

A good guy guarantee is not necessarily onerous to a tenant. Although after a default, the landlord is free to pursue the tenant for unpaid rent (if there are any assets left in the business entity) the guarantor is released from its obligation to pay rent once the tenant vacates the space. From a landlord's perspective, a good guy guarantee is an insurance policy against the amount of time it can take to evict a non-paying tenant (something that often takes a year or more).

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