March 1st 2014
Mann Report Residential
Every deal has a story, and each is remembered, or not, for different reasons. One recent transaction is of note because there were multiple obstacles to overcome—from readying an estate wreck for sale; to working with a self managed co-op that put up roadblocks whenever anything of a financial nature was asked; to one board turndown; to a reverse mortgage on the brink of foreclosure.
The first open house for the two bedroom floor through in the stately 19th century Chelsea townhouse was on September 9th just after Labor Day and closing occurred on December 20th. In poor condition with great bones, it needed a gut renovation. The executor made it clear that the estate was fast depleting its resources and had little money for staging. So we spent the better part of two months and the dwindling available funds to empty, clean and paint the apartment.
Co-oped and self managed since 1982, the building consists of five apartments. At the time I was hired to sell Unit 3C, the Board had not met for eighteen months when the co-op Secretary resigned and put his apartment on the market. Last June, the co-op President resigned after his neighbors rejected his application to purchase 3C directly from the estate to duplex with his own. Seemingly by default, another resident became Acting Treasurer and my source for building information. There was no reserve fund, no Board minutes since November 2011, and while subletting was not allowed, the Board permitted pets, pied a terre, guarantors and co-purchasing. When I requested co-op financial documents—which I do as a matter of course as the Seller’s Agent to determine whether a building qualifies for traditional lending—I met strong resistance.
“We’d prefer to provide the building’s financials when you are in contract with a potential purchaser,” the Acting Treasurer wrote. Clearly I needed to make this group understand that buyers examine building financials before going to contract. Even cash buyers want assurances that a building is well managed. After several email rounds and just before my first open house, I received a one page unaudited list of the co-op’s monthly deposits and expenses for 2012. It was not the typical 8-12 page statement prepared by an independent auditor, but it was something, and I was in business.
In less than two weeks, more than 60 buyers viewed the apartment, and following multiple offers and a subsequent Best and Highest scenario that elicited six bona fide bids, we went to contract with the candidate who was financing less than 20% of the purchase price and waiving the financing contingency. When I discovered the buyer’s agent had dropped off five sets of the application at the building before presenting them first to me—despite the contract rider’s provision requiring my advance review—I scrambled to retrieve the packages. Some back and forth revisions ensued. Nonetheless, when the Board asked for additional information, including three more years of tax returns, negativism began to breed quickly. On November 5th the email came: “The board voted not to approve the proposed sale.”
So we were back to the drawing boards with scores of buyers coming through again in a matter of days and back-up bidders raising their bids. About this time, I learned from the executor that the property was at risk of being foreclosed. The death of the owner constituted a default on her reverse mortgage, and the executor had been holding the lender at bay. “Once we go into January, foreclosure may be imminent,” he wrote warning also that the estate was running out of money to pay maintenance.
Pressure was building and we needed the most Board approvable candidate, one with deep pockets, high liquidity, long standing respected employment—and we needed to close before the end of the year. We issued a second contract to just such a buyer, but when his banker asked to review the co-op’s tax returns, the Board again resisted. I shared the estate’s precarious position and the buyer’s stellar profile to demonstrate how worthy a candidate they risked losing if they did not meet his very reasonable request. At the same time, I disclosed to this new buyer’s agent that delay would force us to issue a simultaneous contract to a back-up cash buyer with a higher offer but whose overseas funds complicated matters.
The deal that followed was enabled by the fact that the buyer’s broker was an NYRS® agent. Tony Sargent and I among an elite 300 agent network of New York Residential Specialists®—the highest professional credential awarded by REBNY. When you are deep in the execution of a problematic transaction, it makes a difference to have a pro on the other side. While each agent has unwavering allegiance to a respective buyer or seller, when trust and respect are mutual between experienced professionals, deals are facilitated with confidence and integrity. In the end, the Board not only released its tax returns but also agreed to set an interview date in advance of receiving the purchaser’s application in order to accommodate a December closing. Not bad.