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Parents Buying - Guarantors and Co- purchasing

Over the years I have sold and rented apartments where a guarantor was needed. I have also sold apartments where parents and/or trust funds bought the apartment outright for an adult child or beneficiary.

A guarantor is simply someone who will cosign your rental lease and in the event, you can’t pay the landlord's rent or the coop maintenance they can legally go after your guarantor to collect payment.

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 that mirror coop applications but many have simple applications. I  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. Proof of funds was shown with the offer.

A condo may require documentation reference letters etc. 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 the offer or waive that right.

It becomes more difficult to purchase a coop and even rent in certain Manhattan buildings. Most coops will not allow a parent to buy for their adult child. Some coops will allow co-purchasing or a guarantor for working adult children. Some will not allow guarantors. In some coops even if the parents pay for the apartment, the coop will want the adult child residing there to have their own income and be responsible to pay the monthly maintenance and/or mortgage payments. Their monthly housing costs should 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 upfront and an additional security deposit. 40x rent in annual income is required by the 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.

An alternative to a condo purchase is purchasing a sponsor coop apartment. The sponsor is usually the developer or owner of the building that has "unsold shares" in the cooperative corporation. I recently sold a coop sponsor apartment to parents in Ohio for their son that recently graduated college here. Purchasing a sponsor apartment in a coop is buying "unsold shares" there is no board approval process. However, once purchased the shareholder has to adhere to the coop rules and enjoys the same "quality of life" as other shareholders but when the unit is re-sold there is board approval and a board package is required.

I have worked with corporations looking for a rental apartment for corporate use. While the corporation has excellent financials, documented assets, and cash flow, landlords will often require a personal guarantor.

While the Supreme Court of the United States ruled that a corporation is a person, New York landlords think otherwise. They want a personal guarantee from a person.

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).

Lease Guaranty Insurance:  

In many instances, individuals are unable to rent apartments they would like without a co-signer/guarantor, additional security, or prepaid rent.

When a guarantor or co-signer is required, it is often difficult for a renter to find a third party that is acceptable to the landlord. For example, the prospective co-signer or guarantor may live out of state, or may not have the financial resources or credit to meet the landlord’s requirements. Recently an insurance company began a lease guaranty program.

The Insurent® Lease Guaranty Program was created to serve renters, landlords, and condo/co-op owners,  by offering the first institutional guarantor of residential leases. The Insurent® Lease Guaranty Program is underwritten and issued by Argonaut Insurance Company, a property, and casualty insurance company.

Instead of looking for a guarantor or co-signer, or having to pay a significantly larger security deposit or prepaid rent, a renter may utilize the Insurent® Lease Guaranty to satisfy the landlord’s financial and credit requirements if the landlord or coop will accept this new form of guaranty insurance.

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