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Since you may be new to the screening process (other than having gone through it from the other side), I've put together a compendium of guidelines and suggestions used in other buildings I have been involved in for the last 20 years. [Note that I am not an attorney, but as a licensed Real Estate Broker in the State of NY with over 25 years of experience, these are issues I am familiar with. Please feel free to consult your attorney to verify any or all representations or suggestions made here, to find out any applicable laws, or to ask about any additional information you should know or have on this topic before making any decisions. This information is being shared with you as a helpful guide to get you thinking, so that you will be able to understand the process better.]
Normally a Board's screening committee will not review an application unless it is COMPLETE. So the first thing to do is to make sure the application is completely filled out, all required docs (w-2's, tax returns, bank statements, commitment letter, contract of sale, referencess, and all necessary supporting docs) have been submitted, and the credit check is available for review. (Usually the management company will handle this part, but even if they don't, you should know about it so you can follow up with the management company.) If the application is not complete, send it back until you have everything, or you will find yourself wasting a lot of your/ the Committee's time doing things twice.
Based on the information submitted with the application, the Committee will then either determine that:
- additional paperwork or information is required (your attorney or management company should report the request to the selling Shareholder, who will communicate that to applicant's attorney),
- the applicant is unqualified (the committee reports that to the Board, and the Board has the Co-op's attorney or management company send a letter to the selling Shareholder, who will communicate that to applicant's attorney),
- or it will determine that the applicant appears initially qualified, and will proceed to the next step, usually the interview, which is sometimes assigned to the Committee as well, or is done by the full Board.
Note that Committees/ Boards MUST treat all applicants alike, by law. That means policy has to be consistent from applicant to applicant. For example, in recent years, a building I was involved with had not, for a number of legitimate reasons, done interviews with applicants, though there was a thorough paper review. This was fine as long as they were not interviewing anyone. Going forward, the Board wanted to include an interview. This now constituted a change in policy, so the Board had to do this with ALL following applicants, not just pick and choose who to interview. Most Boards interview all parties who will be occupying the apartment, (sometimes even the dog!).
After reviewing the application, and, if so decided, doing the interview, the findings are reviewed by the full Board, with the interviewers' recommendation for approval/non-approval, and the Board then votes on it.
What does a Committee/Board look for in reviewing a candidate?
- Income: Is the applicant's income sufficient to pay the combined obligations of mortgage and maintenance, with a margin for possible future increases or assessments? Banks usually figure approximately 28-36%maximum of gross income to be allocated for housing expense. Let's say you decide to use 33% as your guideline (note that this now becomes the policy standard, same for all applicants). Example: An Applicant made $75,000 last year. 33% of 75,000 is $25,000, or $2,083/mo. Say maintenance is $1,500/mo, plus (mortgage of $400,000 at 4% for 30 years) $1,910 equals $3,410 per month minimum housing expense. This first applicant has insufficient income. A different applicant shows $150,000 in gross income: 33% is $50,000, or $4,166 per month. This person could afford the apartment with some breathing room for other expenses. This example shows how the guideline works in helping to conceptualize whether someone can afford the expense.
- Payment history & indebtedness: A credit report will show what the applicant's track record is with regard to payment of bills. Someone with a spotty payment history has a higher likelihood of continuing such a history than someone with a clean payment record. The cooperative must pay bills as they come in, so if Shareholders do not pay timely, the cooperative is short on cash, and may incur late fees etc, raising expenses. Therefore, timely payment is of great importance to the corporation. The credit report should also show other debts an applicant may have, such as credit card debt, other mortgages, student loans, car loans, etc. If an applicant is showing a total outstanding debt of $26,000, which the credit agency projects at a minimum monthly payment of $1,000, the Committee needs to determine if they believe, in fact, the applicant can carry this load on top of the housing expense. Even if payments are currently timely, a heavy debt load can be a sign of trouble.
- Other financial factors include: how much rent is the applicant currently paying? Does the new housing amount differ significantly from (as in much higher) than the amount of rent he/she has been accustomed to paying? Also, does the person have lots of credit cards with high limits? What is the max debt he/she could charge (like to buy new furniture or renovate a kitchen), and will it be possible for the person to pay those much higher monthlies? Does the applicant have any other expenses that are not immediately apparent (like child support, alimony, school tuition, medical expenses)?
- Will the applicant be a good neighbor? This is, of course, hard to determine from an application, and the reason most co-ops do an interview. Interviews are not foolproof either, but they help to get a more rounded picture of the candidate. See below for more on how to find this out.
- The sale itself: What price? The amount an apartment sells for should definitely be of concern to the Committee and the Board. How, for example, are values affected by approving below market sales? All apartments sold in a building become part of the building's sales history which is consulted by appraisers for purchase and refinance applicants. If an apartment is sold for considerably less than actual value, it can actually drag down the value of all apartments in a building by artificially bringing down the average. So when a Board approves a below market sale, it should be with the awareness that doing so can compromise values. However the current market and circumstances must always be considered. Therefore the Committee should be aware of all recent sales amounts. Information about other sales in the building should be available for review from the Managing Agent. Additionally, all recent cooperative sales for NY City are now available online at nyc.gov.
IMPORTANT LEGAL CONCERNS
Fair Housing Laws (Fed, State, and NYC) prohibit discrimination on the basis of race, ethnic background, creed, religion, country of origin, age, handicap, whether they have children or not, sexual orientation, etc. It is important that the Screening Committee and the Board treat ALL applicants the same! In addition, these restrictions mean that the committee CAN NOT ASK direct or leading questions to elicit inappropriate information about any of the above categories. If you are not sure if it is legal to ask, don't ask it!!! It is important that you, the committee, and/or the Board get additional guidance on this topic from the Corporation's attorney.
Example: A retiree applies to purchase. The committee asks the retiree her age. Later the applicant is rejected for financial reasons. Retiree sues, claiming that since she was asked her age in the interview, that was a contributing factor to her rejection. The Board now has to go to court to prove that the rejection was based on financial concerns. And may not even win if she can prove that she was asked about her age. Litigation is expensive: Forget about innocent until proven guilty!
Suggestions to reduce miscommunications and potential legal issues during and after the process:
*Committee and Board discussions, especially any privileged financial information, must be kept private among committee members and the Board. What happens in the Board Room stays in the Board Room!
*Any questions asked, notes taken, emails sent should be limited to discussion of legally allowed concerns (like financial qualifications, # of people planning to reside there, occupation, smoking, musical instruments/noise, etc). Even if the applicant voluntarily provides information that is on the forbidden list, do not write it down, because you may not use it in evaluating the applicant.
*Committee and Board members should NOT make themselves available to applicants or sellers for status reports or any other discussion (this is often taken out of context by parties, and I know of lawsuits based on something a committee member said off the record to a seller.) All inquiries should be referred to the managing agent.
*Applications have confidential financial information in them which may not be disclosed to outside parties (this is law). DO NOT post confidential financial information in emails. Once the process is over, one copy of the applicant's financial info should be stored with the corporation's records (preferably locked up at the management co) and all others destroyed. Never throw something like that into the recyclables without shredding first.
The interview: some suggestions
Most buildings require everyone who will be living in the apartment to be present at the interview. Some require visiting part-time dependents to be present as well. And some even want to meet the pets. You're the best judge of what's reasonable for your building.
Often committee/board members are uncomfortable asking questions they regard as personal of someone who is now a complete stranger and tomorrow might be a new neighbor. So first of all, you have to get into the mindset that what you are doing is work for the corporation to protect the financial interests of everyone. If you are uncomfortable asking specific questions, there are plenty of questions you can ask of a general nature to get someone talking, and you'd be surprised how much information people will readily volunteer. Especially in a Board interview where they want to convince you they will be good for the building.
RESIST the temptation to do all the talking, as in talking about the House Rules, the latest gardening project, the best restaurants in the neighborhood. You can talk about that stuff with them AFTER there has been full Board approval. In fact, if you really like to share that kind of thing, maybe you can be on a welcoming committee to help new neighbors get acclimated.
Key strategy is to get THEM talking, and if they ask questions, answer in one sentence, and go on to the next question.
Also RESIST the temptation to tell them a result of the interview, even if they look like a shoo-in. The Board still has to officially vote on it. Tell them your findings will be presented to the Board, and the seller will be notified of the final results by the management company.
In the interview, examples of the kinds of things your questions could determine:
- whether the applicant is who they say they are on paper (does 2+2 equal 4, or are there a few nagging issues that don't match up? say, listed dependents that are not listed as residents- how often do they visit? Oh, part time: only 305 days a year?)
- are there any obvious lifestyle habits that may not be a good fit for the building (a building I lived in once rejected an applicant that freely volunteered in the interview that they hold religious meetings in their apartment twice a month attended by 30 or so people- we didn't care what religion they were, but we did not want that level of traffic in and out of our small 28 unit building on a regular basis.)
- How many people will really be living in the apartment, and how are they related? (But not how old they are!) You'd be surprised at how deceptive people can be on this one, and this is an arena the corporation can legally regulate, as long as it is consistent across the board. They're buying a 1 bedroom apt and they have 6 legal dependents? who visit how often? Hmmmmmm. A mother, a daughter, and the daughter's husband - they just married- are gonna share a 1 Bedroom? Hmmmmm. You get the picture.
- What kind of Pets (currently permitted, policy could be changed)- find out what kind, breed, etc. You may want to bar tigers, crocs, & boa constrictors. Iguanas aren't so bad. (You think I'm kidding?)
- Let them tell you about their job. Hey, I like listening & dancing to rap, too, but I'm not sure I'd want a well-known rapper (or movie star, or famous anyone) living in my building due to the entourage & paparazzi factor.
- Hobbies: Please ASK! How do they spend their free time? The sister of a close friend raises tarantulas in her apartment (thank God not in NYC!). People have all sorts of weird hobbies.
- If there were discrepancies in the application, now's the time to ask.
- If there's a large difference between the amount of rent they are currently paying, and the amount of housing expense they will have, how are they adjusting their lifestyle to handle the higher bills? (Just because they qualify on paper does not mean they are ready to give up those bar-hopping weekends, or the quarterly trips to Paris....)
When all else fails, get them talking. Why did they choose your neighborhood? How do they like NY (if they just got here)? Would they be interested in serving on the Board? ON a committee? How do they feel they could contribute their skills to making the co-op a better place to live? Have they explored the restaurants nearby.....?
When you're done, shake hands all around, and let the know that the Board will communicate it's decision as soon as possible.
What is Home Performance?
When you buy a car, you expect good gas mileage with low upkeep, safe handling, and comfort inside. In other words, respectable performance. Why would you have any other expectations for a house? The ability of your home to deliver comfort, health, and affordability is what a Home Performance Assessment is all about. Is the home functioning at its optimum? Or are there deficiencies and inefficiencies? An assessment can often determine which cost effective items can improve the performance of your home most!
Are you new to Home Ownership?
Make sure you look at the suggestions on my Renovations page; more useful information on my Real Estate Pages; and an excellent read on the Building Science Corporation's website: The Building Science Guide to Home Ownership! See my LINKS page for more.
Of course, feel free to call (718.941.3725) or email me with questions and concerns!