Co op BoardsMichael Schulman
Have you had an offer to purchase a co-op accepted by the seller, only to go before the Board and bedenied? Are you unsure as to why because you have some money in the bank, retirement accounts, and earn a good living? This happens more often then people think, and they are often left puzzled and wondering why. Co-op Boards have a lot of authority when it comes to making the decision as to who they accept and who they deny to become part of the Co-op. Remember, when you are buying a Co-op you are buying shares of the cooperative, so the Board wants to ensure that you are a good investment, just as much as you want to ensuring what you are buying is.
A Co-op Board has the authority to withhold approval without stating a reason, as long as it is not discriminatory in nature (i.e. race, sex, religion, gender, marital status, etc.). Boards want to ensure that they are furthering the corporate purpose of the Co-op before accepting anyone new. They look at your total financial picture- assets, liabilities, income to debt ratio, job history, bankruptcies, prior foreclosures, judgments, credit score- amongst other things. Additionally, you are required to complete a lengthy application where you must release a lot of personal information to the Board. Copies of your recent tax returns, and bank statements are usually requested. If you are someone who is more private, and does not want people knowing all of your personal and financial business, purchasing a Co-op is probably not for you.
Additionally, a lot of times Boards request a copy of the mortgage commitment letter from the bank, as well as multiple letters of reference from people who will vouch for you. It is important to get letters from a variety of sources- both business and personal.
Another factor Boards consider is your amount of liquid assets. Often times they want to see that you have enough cash in the bank to cover maintenance charges for a substantial period of time- up to a year sometimes, as well as enough cash to cover mortgage payments for a year. Along these lines is a person’s debt to income ratio, where the percentage is calculated, and Boards usually like to see it less than 30%.
Big picture here is that Co-op boards want to make sure that anyone they are approving to join the Co-op is a good investment and has the financial capability to keep the Co-op up to their standards- which is very often a subjective opinion of the Board, where they follow certain internal guidelines.
Before moving forward with putting an offer in on a Co-op be sure to ask yourself if you want to be subjected to all of this private information being made public to a Board you do not know.